Effective retail management needs to focus on protecting your profits, and that includes devoting resources to retail loss prevention. From human error to shoplifters, there are many ways you might lose merchandise without receiving payment.
Fortunately, today’s retail loss prevention systems go beyond traditional security tags and surveillance cameras. You can incorporate those tried-and-true methods with modern approaches to avoid shrinkage and protect your merchandise.
What is loss prevention?
Retail loss, or retail shrinkage, occurs when items disappear from your inventory without you receiving payment, whether that’s because they’re stolen, damaged, or otherwise unsellable.
And the cost of shrinkage is growing. In 2023 alone, Capital One’s Shopping Research reported that stores lost $121.6 billion of goods due to theft. The same report projects that that number will grow to more than $150 billion by 2026.
Loss prevention strategies aim to prevent this from happening so merchandise doesn’t go missing. These strategies range from employee training to anti-theft software and developing a better store layout.
Retail inventory loss causes
Merchandise could end up missing or damaged for multiple reasons.
- Shoplifting: External theft occurs when people purposely walk out of your store with items they haven’t paid for. It accounts for the largest share of retail loss at 37%, according to Capital One’s Report.
- Operational or human errors: Shrinkage can occur if employees don’t ring up items properly, accounting errors occur, items are mispriced, or inventory isn’t counted accurately.
- Merchandise damage: Fires, natural disasters, and other accidents result in inventory becoming damaged or unsellable.
- Fraudulent returns: These include customers returning stolen merchandise, using falsified receipts to get back more money than they paid for items, using and returning merchandise, or returning items after stripping them of expensive parts.
- Supplier fraud: This type of fraud occurs when vendors send lower quality items or less product than ordered, overbill your business, or are otherwise deceptive about the merchandise you receive.
- Internal misuse: Employees who misuse business equipment or inventory without authorization or for personal gain also cost your business money.
10 retail loss prevention strategies
So, what can your business do to combat these potential causes of shrinkage? Apart from keeping tabs on your inventory to identify shrinkage or stockouts, you can try these 10 loss prevention strategies to maximize your inventory.
- Implement RFID technology: Putting Radio Frequency Identification Technology (RFID) tags on products that transmit information to RFID readers helps you locate items in the store. The tags continually transmit data, so if someone interferes with an RFID tag or tries to leave the store with a tag attached to an item, it triggers an alarm to alert your security team.
- Enhance store layout and design to minimize blind spots: You don’t want theft to occur where staff can’t see, so place security cameras or mirrors in hard-to-view areas. You can also fill the space with decorative displays to prevent people from moving into hard-to-see areas and keep product out of them. Keep the most-valuable items near the register where employees can keep a closer eye on them.
- Use advanced surveillance systems: Using machine learning, AI-powered surveillance cameras recognize suspicious behaviors and notify security personnel of potential problems. You can purchase cameras with AI technology built in and incorporate automated surveillance in your loss prevention plan using advanced software programs. Be aware that this technology does raise privacy concerns. If you adopt this approach, always inform customers of the presence of cameras and establish clear policies regarding storage of and access to data to protect sensitive customer information.
- Conduct regular employee training on theft detection and prevention: Teach staff members to recognize specific suspicious behaviors, such as swapping price tags or customers repeatedly picking up and replacing items. Employees can also learn effective prevention techniques, such as greeting and assisting customers on the sales floor, which signals to customers that staff is present in the store and paying careful attention.
- Implement a robust point-of-sale (POS) system with fraud detection capabilities: POS fraud includes behaviors like using stolen credit cards or fake checks. Invest in technologies like EMV chip terminals that make it easier to identify counterfeit cards or NFC terminals that wirelessly authorize payments from tokenized payment systems on smartphones. You can also prevent it manually by requiring customer verification (asking to see ID or having customers enter their PIN).
- Utilize smart shelving and display solutions to deter theft: There are many kinds of smart shelves and smart display solutions. Some use RFID technology, and others use different tools such as weight sensors or 3D cameras to monitor movement. When unusual activity occurs on the shelves or displays, the system provides alerts such as an alarm or notification sent to a mobile device.
- Monitor and analyze sales data for irregularities or patterns: Keeping tabs on sales patterns helps you spot internal theft or fraud. For example, you might notice that cash collection is always lower during a particular employee’s shift, especially compared to the recorded inventory. That might be because they pay less attention to customers, letting them lift merchandise, or they themselves are stealing.
- Implement strict cash handling procedures to prevent employee theft: Employees might purposely misreport profits for the day so they can pocket some of the money. But effective cash handling policies, including conducting regular cash counts or using registers that require dual control, helps ensure consistent profits. Knowing a cash count is coming might also discourage employees from considering lifting cash from the register.
- Conduct regular audits of inventory and financial records: By regularly monitoring how your inventory levels compare to your financial records, you confirm the funds collected match the expected sales based on current inventory numbers. If you find discrepancies between the recorded sales and an inventory count, retail loss might be the cause.
- Utilize loss prevention software to identify trends and areas of vulnerability: Loss prevention software incorporates multiple techniques, from harnessing the power of AI to monitor transactions for exceptions and other red flags to tracking camera health and pairing POS data with video surveillance. Investing in this software combines multiple methods to improve your security.
Examples of successful retail loss prevention
Target is known for its industry-leading loss prevention practices. Here are some techniques the retailer uses that you can incorporate into your own business.
Using sophisticated security cameras
Target has a sophisticated CCTV network that employees monitor in real time and save as evidence to prosecute shoplifters. There are also many cameras focused on the self-checkout area that record both the scanner and the customer to confirm the items they scan.
Use strategically placed cameras by focusing them on high-value items at the greatest risk of being stolen. AI software can flag signs of suspicious behavior picked up on these feeds.
Facial recognition software
Target incorporates facial recognition technology with cameras that record customers in the store and parking lot. Security staff monitor suspicious customers and immediately act when theft occurs.
Even small businesses may be able to implement this technology, as companies like Amazon develop affordable automated tools for image recognition and analysis. Like AI surveillance cameras, this technology could raise privacy concerns. Customers should be informed of the use of facial reduction software and of any policies in place for protecting their information. Make certain the data is securely stored and disclose which, if any, entities you intend to sell or disclose the data to so you don’t lose your customers’ trust.
RFID tags
While RFID tags aren’t on every Target item, they’re affixed to ones that are prime targets for shoplifters. If someone tries to take an item out of its packaging or leave the store without paying, an alarm triggers. Consider attaching them to your highest-value products.
Loss prevention officers
Target has a culture of surveillance and reporting, with loss prevention officers on site who are specially trained to spot and address suspicious behavior patterns on the floor or by watching the cameras.
Whether your company has the budget for this specific role or not, you can train your current staff on behaviors to watch for and create a culture of vigilance and reporting that reduces risks.
FAQ
Still have questions about loss prevention security? Here are some answers you might be looking for.
What are the 5 steps of loss prevention?
Loss prevention involves five key steps:
- Train staff members and promote a culture of honesty and responsibility
- Harness the power of technology, making use of tools such as RFID cameras, smart shelves, and a robust POS system that incorporates fraud detection capabilities
- Design your store’s layout in ways that reduce loss, including minimizing blind spots and keeping valuable items visible
- Implement effective cash management policies, such as cash registers requiring dual control (two people authorizing a transaction at the same time)
- Track data, including keeping track of inventory in real time
What are the 3 most common forms of losses for a retailer?
The three most common sources of loss for a retailer, according to Capital One’s Shopping Research, are:
- External theft, such as shoplifting by someone who enters the store
- Internal theft, which includes employees committing fraud
- Process and control failures, including ineffective inventory management
Protect your retail business from loss with Fishbowl
Your business may not have its own team of loss prevention officers working to stop theft, but you can implement loss prevention strategies that work. And Fishbowl is here to help.
Fishbowl seamlessly integrates with QuickBooks, empowering you to accurately track inventory, identify suspicious activities, and take swift action when you spot discrepancies. Safeguard your profits and streamline your operations with Fishbowl. Start your demo today.