Summer 2006
It’s a Steal!

$37 billion = 2005 Retail Theft Total|Article Resources

47.6% = employee theft
32.6% = shoplifting
14.6% = admin/paperwork errors
5.2% = vendor fraud

Source: 2005 National Retail Security Survey
(preliminary numbers released 6/06)

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Association of Certified Fraud Examiners
ACFE.com
512.478.9000

Arizona Central Insurance
AzCentralns.com
800.678.0062

Awesome Specialties International
AwesomeSpecialties.com
800.854.8263

Cart-King International
Cart-King.com
604.986.0749

Christmas Cove
XmasCove.com
866.879.0335

Mall of America
MallofAmerica.com
952.883.8810

The Shops at Prudential Center
PrudentialCenter.com
617.236.3100

Underground Atlanta
Underground-Atlanta.com
404.523.2311

Security Challenges

Specialty retailers have plenty of things to keep them up at night: rising rents, employee turnover and sales targets that need to be met. Unfortunately, the threat of theft is another reality that retailers must confront. And specialty retailers who sell from RMUs (aka carts), kiosks and other common-area locations have special security challenges.

For starters, the vast majority of common-area operators don’t have insurance against theft. “Maybe one percent take out insurance against theft,” says Ylaena Jumper, who manages specialty leasing insurance program for Arizona Central Insurance in Tucson, AZ, which writes policies in all 50 states. “And those are usually the retailers who sell collectors’ items, such as rare coins.”

Because there are so few specialty retailers insured against theft, many thefts aren’t reported, so there are no reliable statistics for how much money they lose to theft each year. Mike Boyd, president of Cart-King International in Vancouver, BC, which designs and manufactures carts and kiosks, estimates that specialty retailers lose an average of three to five percent of total sales.

“You have to worry about security when you’re there and when you’re not there,” says Boyd. During operating hours, one salesperson is often the only employee at the location, which means having to concentrate on both selling and guarding the merchandise. “Shoplifters have learned that if you’re not watching, it’s free shopping,” says Tim Runner, president of Awesome Specialties International in Mission Viejo, CA, a wholesaler of toys, novelties and other products. “You have to set up your cart so that you can see through to both sides,” he says.

When a merchant is standing on one side of the RMU, there are blind spots on the other side, particularly down low. But there are ways to remedy this problem, according to Boyd. He suggests that retailers install security mirrors, angling them to make every spot on the RMU visible from the cash drawer location. Also, he says specialty retailers should arrange shelving to make certain theft-prone areas easier to monitor.

Runner recommends arranging displays so that items are hard to grab on the fly, and so missing merchandise is easier to notice. “Stack jars in a pyramid shape, so someone can only remove the one on top,” he says. “So if it’s missing, you can notice immediately.”

In the house

Perhaps an even more daunting problem than occasional shoplifting is employee theft. “I have suspected employee theft on many occasions, but it’s hard to prove,” says Tony Espinosa, owner of Christmas Cove in Atlanta, GA, which sells personalized Christmas ornaments and accessories. “For some high-ticket categories like watches and sunglasses, which appeal to teenagers, there might be [even] more of a problem,” he says. Espinosa’s company is equipped with a POS system that includes tight inventory controls, which he says “can go a long way in pinpointing the problem.” Inventory control has its limits, however: sometimes it’s impossible to know which employee might have the sticky fingers, he says. “Checking inventory at every shift change can be logistically impossible.”

Some POS systems let retailers monitor sales from a remote computer, even those occurring at multiple locations. “A series of cash registers is interconnected via the Internet, and you can go online and check what was sold at each location at a given time,” says Espinosa. “You know your peak hours. If it’s Saturday at 12 o’clock and something hasn’t been sold in 20 minutes, [the salesperson is] probably not at the cart.” And an unmanned RMU is an open invitation to shoplifters.

Runner of ASI advises “showing up at random times to see what’s going on,” which lets retailers catch employees who have deserted their posts, or those who might be stealing goods—or stealing a nap (another open invitation to shoplifters). “I had one employee who should have gotten some kind of an award, because he was balanced on a stool with his feet up on the counter and a book in his lap and he was fully asleep,” Espinoza says. “Showing up lets you catch workers who are making time with another cart salesperson or out having a smoke.”

Smile for the camera

Another weapon, says Runner, is a security camera, which can be purchased through a security company, or stores like Costco or Sam’s Club. Retailers who go the security-camera route should make it obvious to customers and employees that the location is being monitored, he says. “Display the monitor showing what’s being viewed, or put up a sign about the security system,” Runner advises, adding: “It will make people think twice.”

Lisa Taylor, who manages the specialty leasing program at the Mall of America in Bloomington, MN, says some of the mall’s 72 specialty leasing tenants have installed security cameras, with some operators hiring a security company to install the systems.

Cart-King International recently launched Security Cart Systems Inc., which integrates security cameras and digital video recorders into an RMU. The system includes four cameras in the canopy of the RMU that record everything going on in and around the location. Retailers using the system can view the locations remotely via computer to see if any shoppers are helping themselves to the merchandise or to catch an employee dipping into the register. Multiple locations can be monitored simultaneously. Everything is recorded with a time-and-date stamp, so “if you nab someone stealing, you have evidence to back it up,” says Boyd. These security features add about 25 to 50 percent to the cost of the RMU, he says.

After-hours security

When staffers and shoppers leave for the night, the theft threat doesn’t leave with them, says Runner. “At night you’re relying on mall security, and their effectiveness varies immeasurably,” he says. “Malls have trouble hiring good people like everyone else.” He advises retailers to think like a thief and ask themselves: “How would I get to my cart if I had all night to work on it?”

RMUs are perhaps the most vulnerable common-area locations when it comes to after-hours theft. Boyd says about 50 to 70 percent are closed with a heavy-duty wrap made of canvas, nylon or other material. “It zips down, battens up and can be locked,” he says. “It’s good for indoor locations with video surveillance and guards. It’s not Fort Knox.”

Typically, the mall provides the wrap, and the RMU operator provides the lock. “Malls prefer that tenants have their own locks and keys, so they can’t blame mall employees if something is missing,” says Kelli Copeland, specialty retail manager for Underground Atlanta.

“Get good locks—they’re harder to pick,” says Runner. And if the ties on the wrap have worn out, he adds, tell the mall manager that they need repair.

A more secure style of RMU has collapsible wooden doors that can be locked. The most secure units have a metal frame with metal roll-down gates. “It’s designed to be left outside alone in urban locations,” says Boyd. The RMUs in some indoor malls, such as Mall of America and the Shops at Prudential Center in Boston, are fully locking units and have alarms, too. “Because our arcade is open 24/7 and because we’re in the city, we have more security than the average mall,” says Karen Cavallo, assistant property manager for Boston Properties, which owns and manages Prudential Center.

Mall of America, Shops at Prudential Center and Underground Atlanta provide 24-hour security, which includes guards and surveillance cameras. Tenants also have access to a phone from which they can call security directly. Tenants “have excellent training about how to detect a theft before or while it is happening,” says Taylor. “They are instructed not to chase after the thief, but to call security.”

In the end, it’s better to prevent a theft than to chase a thief, retailers and security experts agree. Smart retailers take the time before opening day to evaluate each location from a security perspective, think like a thief and shore up vulnerable areas. Retailers who take steps in advance to secure each space and all merchandise will have more secure profits in the long-term.

Tips to Reduce/Respond to Shoplifting

In addition to installing surveillance cameras, experts agree an excellent way to prevent shoplifting is to have well-trained and alert employees. Here are some specific shoplifting-prevention tips, courtesy of the Los Angeles Police Department:

Know the signs of shoplifting. Train all employees to spot potential shoplifters. 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 he or she is hard to see.
  • Constantly looks around and keeps an eye on store employees in particular.

Keep a watchful eye. Train all employees to:

  • Stay alert at all times.
  • Be friendly and polite to all customers.
  • Ask customers if they need help.
  • Keep the business location neat, clean and orderly.
  • Know where shoplifting is most likely to occur in each location.
  • Use a log to share suspicions about shoplifters among employees.
  • Display signs announcing that shoplifters will be prosecuted.

Know how to handle incidents. When shoplifting is suspected, the LAPD 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.
  • Cooperate fully with center security and/or the police.
  • Cooperate fully with the prosecutor if/when the time comes.

Tips to Prevent Employee Theft

The Association of Certified Fraud Examiners (ACFE) estimates that small businesses experience fraud losses, including “asset misappropriation” (read: products or cash), at a rate of nearly 100 times that of larger companies. The best defense, experts agree, is a watchful eye.

  • Stop by 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 inventory 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. (See “Tips to Prevent and Spot Shoplifting” box.)

Profiles in Employee Theft

The Association of Certified Fraud Examiners’ 2004 “Report to the Nation on Occupational Fraud and Abuse” details which employees are most likely to steal—and which are most likely to steal the largest amounts. Here are some of the report’s key findings:

  • Age. Some retail business owners believe that younger employees are the most likely to steal. Not so. In 32 percent of the cases, the employee is between 41 and 50 years of age. In only 6 percent of the cases is the employee less than 26 years old. Furthermore, the median loss for an employee age 60 and up was $526,000 in 2004, compared to less than $18,000 for an employee 26 or younger.
  • Gender. Almost 53 percent of employees who commit fraud are men, and the median loss for males was $160,000, compared to $60,000 for women.
  • Education. The more educated the employee, the less likely they are to commit fraud, but when they do, the more-educated employees tend to steal higher amounts per incident than less-educated employees ($325,000 for those with a postgraduate degree; $150,000 for those with a bachelor degree, and $50,000 for those with a high-school degree or no degree at all).
  • Position. Top executives who commit fraud cost corporations 14 times as much money per incident than frauds committed by rank-and-file employees ($900,000 compared to $62,000). Additionally, the longer the person works for the company, the more likely they are to commit fraud.
  • Income. Similar to the statistics on “position,” the median loss from fraud rose with the employee’s income level. The median loss for an employee earning less than $50,000 per year was $47,000, compared to $2 million for an employee earning $500,000 or more per year.
  • Prior convictions. Less than 12 percent of employees who commit fraud have prior convictions.

The ACFE’s full “Report to the Nation” can be found here (PDF). For a “Fraud Prevention Checkup” to determine where there might be gaps in your company’s check and balances, click here. The ACFE also offers a free Fraud Prevention CD, available here ($7 shipping and handling).

Tips to Spot Employee Theft

Some specialty retailers estimate that 85 to 90 percent of theft is internal. Here are tips on spotting 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 check into it).
  • 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.
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