Fall 2007
Shrink Your Holiday Shrink

As sure as you’ll see a jolly, chubby man in a red Santa suit in the mall this coming holiday season, at least one shoplifter will stroll up to your cart or kiosk, hoping to nip a bit from your bottom line. To make matters worse, it’s even more likely that an employee will throw caution to the wind and go for the five-finger discount, depressing your profits even further.

At the National Retail Federation’s Loss Prevention Conference & Expo last June (www.nrf.com), retail-loss guru Dr. Richard Hollinger revealed the results of his latest annual National Retail Security Survey. According to his calculations, US retailers lost more than $41 billion last year due to the four major sources of shrink: vendor fraud, administrative errors, shoplifting and employee theft—the last two accounting for almost 80 percent of losses (see pie chart on page 196).

Of course, retailers know there are shoplifters out there, and dishonest employees are more common than we’d like to think, but what exactly can retailers do to protect themselves? Plenty, say experts.

Dealing with shoplifters

Loss experts agree that a crucial way to prevent shoplifting is to have well-trained and alert employees. They all need to know how to spot a potential shoplifter. Clues include the customer who:

  • Seems nervous
  • Avoids eye contact
  • Wanders the store without buying anything
  • Leaves the store and returns repeatedly within a short period of time
  • Lingers in a location where they are hard to see
  • Constantly looks around and keeps an eye on store employees in particular

In addition to training your employees to spot shoplifters, general shoplifting-prevention techniques include:

  • Staying alert at all times
  • Being friendly and polite to all customers
  • Asking customers if they need help
  • Keeping the business location neat, clean and orderly
  • Knowing where shoplifting is most likely to occur in the location
  • Using a log to share suspicions about shoplifters among employees
  • Displaying signs announcing that shoplifters will be prosecuted

When shoplifting is suspected, it’s crucial for your employees to know how to handle incidents. The Los Angeles Police Department recommends that retail employees:

  • Never directly accuse anyone of stealing
  • Give the person a chance to pay for the item they “forgot” to pay for by asking, “Are you ready to pay for that?” or “Would you like a bag for that?”
  • Never try to physically stop a shoplifter. Call security. (In June of this year a Kmart loss-prevention specialist was shot and killed while trying to stop a suspected shoplifter. Experts caution: If you’re not trained to intercept shoplifters, don’t even try it; call in security personnel, who are trained to handle these potentially dangerous situations.)
  • Cooperate fully with center security and/or the police.
  • Cooperate fully with the prosecutor if/when the time comes.

Dealing with employee theft

The cost of employee theft and embezzlement might be as high as $638 billion per year, according to the Association of Certified Fraud Examiners (www.ACFE.org). The organization also estimates that small businesses experience fraud losses, including “asset misappropriation,” at a rate of nearly 100 times that of larger companies.

The best internal theft prevention, experts agree, is a watchful eye:

  • Stop by your store without warning. Make periodic (yet randomly timed) unannounced visits to each and every retail location.
  • Spot-check inventory/drawer. During unannounced visits, announce: “I’m just double-checking inventory numbers and doing a register check.” Pick a few products and check physical inventory against inventory sheets/POS inventory figures. If possible, run a cash drawer reconciliation. Announce: “I’ll be back again soon to run through this again.” This lets employees know management is keeping its eye on the ball.
  • Have an inventory-tracking system. Use a POS system that tracks inventory automatically or, at a minimum, use paper-based inventory-tracking sheets to send a signal to employees that inventory is indeed being monitored.
  • Check the z-tape. Check those z-tape numbers. If yesterday’s z-tape was number 24 and today’s is 27, what happened to 25 and 26?
  • Train employees. Provide all employees with training on theft-prevention, both internal and external. Discuss the ways the company is prepared to detect both.
  • Encourage anonymous tips. Publish a phone number employees can call to leave an anonymous message if they suspect a co-worker of stealing product or cash. If employees are aware their co-workers are watching and could report them, they will be less inclined to get sticky fingers. According to the ACFE, almost 39 percent of small-business fraud detection is the result of a tip. Just above 20 percent is detected by accident, and about 24 percent is due to an internal audit. Less than one percent is detected due to notification by police.
  • Use a secret shopper. A secret shopper (even a friend or family member) can report if a payment went into the cash drawer, or into a side drawer or the employee’s pocket. The secret shopper can also report if a receipt was generated by the register/POS system, or by an “unofficial” receipt book. As an added bonus, a secret shopper can also give you feedback on an employee’s general alertness to his or her surroundings, and report if the employee is following company instructions on how to spot shoplifters.

Some specialty retailers estimate that 85 to 90 percent of theft is internal. To spot the signs of employee theft:

  • Watch for calculators and receipt books. Many retailers say that a sure sign of a problem is an employee who has a calculator next to the cash drawer, or a separate receipt book tucked into a drawer or pocket.
  • Pay attention to living-standard increases. Is there an employee with an unexplained rise in his or her living standard? If an employee suddenly goes from being cash-strapped to being flush, there may be a problem (but then again, maybe Grandma recently left them some money, so don’t accuse, but do some checking).
  • Check deposits. Don’t just check if the deposit numbers match the sales figures. Also check that deposits are being made routinely and when expected (particularly easy to do, now that almost every bank has online banking). If deposits are typically made every day and then suddenly they are being made every few days, find out why.
  • Check cash-to-credit purchase ratios. If the typical purchase ratio is 80 percent cash to 20 percent credit, and then suddenly the ratio is 50-50, it’s time to ask a few questions.
  • Watch the “no-sales.” Many retail owners know that the leading indicator of theft is a single piece of data on your x-tape: the “no sale” number. If a typical day’s no-sale tally is four, but every time a particular employee works the tally is 10, there may be a problem.

Of course, there’s no way to completely protect yourself against external and internal theft, but you can make your employees—and customers—aware that you’re keeping a close eye on your business, which experts say is the first and most-critical step in shrinking your shrink.

Nancy Tanker

Nancy Tanker is the former managing editor of Specialty Retail Report. She has covered the specialty retail industry for nearly 15 years for a variety of publications and can be reached at srrtanker@mchsi.com.
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