Busy retailers: Note these holiday retail risks
It’s that time of year: holiday make it or break it time when retailers cash in on the season, moving their profits into the black. It’s also the time for holiday retail risks – most notably, employee theft and shoplifting. Help your retail clients take note of these risks now and work to eradicate them.
There are many types of retail theft, which can be measured by calculating the loss from employee theft, shoplifting or organized retail crime, administrative errors, vendor fraud and return fraud. Today we’ll just touch on a couple of these.
A 2018 survey by the National Retail Federation concluded that one of the primary holiday retail risks – shrinkage (loss of inventory related to shoplifting or employee theft, error or fraud) – reduces the bottom line by $46.8 billion across the industry. Overall, shoplifting has outpaced employee theft four years in a row.
- One percent of retailers surveyed reported increases in overall inventory shrink.
- The average cost per shoplifting incident doubled to $559.
- The average costs of return fraud was $1,766.27, with a median of $171.
- 5 percent of shrink is external, due to shoplifting and worse, organized retail crime (theft rings), outpacing shrink caused by employee theft, vendor fraud and administrative errors.
- 60 percent of known shoplifters were detected entering at least two separate locations of the same retail chain.
- 20 percent of known shoplifters visited three or more locations of the same retail chain.
National Association of Shoplifting Prevention studies show that more than nine percent of consumers are shoplifters. On average, they are apprehended only once in every 48 times they shoplift.
There’s no typical profile of a shoplifter. They can be male or female, of any race, as young as five or well into their seventies. According to Loss Prevention Media, shoplifters also vary in their level of experience, motivation and method of shoplifting. Most can be categorized as either amateurs (opportunistic) or professionals (highly skilled). Driven by personal use or desire for a product (e.g., food, clothing, or status), amateurs shoplift when they perceive little or no risk. They’re typically cautious and apprehensive.
Then there are the professionals, who account for a significant percentage of all retail theft. They often work in pairs or as part of a larger network or retail crime ring. These “boosters” are much more ingenious and skilled at stealing than the amateur. They can blend in so as not to attract any attention and have a “hit list” of very specific, small, high-value items for which there is a high demand on the black market. Generally, these boosters make their living by stealing.
These hot products are often targets on a booster’s shopping list, says Loss Prevention Media. And many of these items are prime holiday gifts, increasing a shopowner’s holiday retail risks:
- Electronics: cell phones, digital cameras, printer cartridges, GPS devices, lithium batteries, laptops, tablets, video games and televisions
- Clothing: designer brands, handbags and denim
- Grocery items: infant formula, laundry detergent, cigarettes, energy drinks and high-end liquor
- Over-the-counter medications: allergy medicines, pseudoephedrine-based cold medicines, weight loss pills, diabetic testing strips and pain relievers
- Health and beauty items – pregnancy tests, high-end lotions and creams, teeth whitening strips, razor blades and electronic toothbrushes
- Home goods: high-end vacuums, mixers, blenders
Employee theft was the second leading cause of shrinkage in 2015 (latest figures available), accounting for 33 percent of retail loss equated to $16.2 billion annually. The average loss from dishonest employees is $1,234, said a National Retail Security survey.
Like shoplifting, employee theft occurs by concealing merchandise in a bag or pocket and removing it from the store. Stealing cash, allowing others to steal merchandise, eating food, and by refund, credit card or check fraud are other methods of employee theft, says Mulholland Security.
They added, “Employee theft is an insidious crime because the merchant is paying a wage and benefits to the thief on top of paying for the cost of their dishonesty. Studies have shown that employees can do a lot more damage than shoplifters because they are trusted and have an insider’s knowledge of store security measures.”
Dishonest employees come in all shapes, sizes, ages, sexes, ethnic backgrounds and education levels. While demographics don’t point to a particular profile, an employer can make reasonable assessments based on their workers’ conduct, integrity and judgment. That’s why it’s so crucial to vet a prospective employee by talking with past employers. Their past behavior is typically the best indication of their future behavior.
After all, retail store employees have a constant opportunity to steal cash or merchandise. And in the prime buying season of the year, holiday retail risks are even higher. What keeps most employees honest is respect for the law and their employer, along with a desire to be seen as trustworthy. Studies support this, says Mulholland Security, by proving that shrinkage is significantly less in stores with reduced employee turnover and fewer part-time workers.
For others, the only barrier to dishonesty is the fear of getting caught, fired, being arrested, jailed and paying restitution. Shop owners, the message for you is clear: You need to underscore with all your employees, on a regular basis, that you have a zero-tolerance policy and will prosecute to the fullest extent of the law.
According to Loss Prevention Media, here are specific forms of employee fraud to watch out for:
- Voiding transactions and pocketing the cash.
- Ringing up a reduced price on a product to hide theft from the till.
- Overcharging a customer and pocketing the difference.
- Hiding stock in trash bins and collecting it later.
- Saving customer receipts and using them to “return” stolen products.
- Processing a fake return, stealing the money, or crediting his or her own credit card with money allegedly paid back to a fake customer.
- Processing a return for a larger amount than the amount of the product and pocketing the difference.
- Forging inventory logs.
- Falsely using employee discounts.
- Assisting friends or family members in theft.
How to reduce holiday retail risks
There are a number of steps retailers can use to prevent and catch thieves, whether they’re employees or shoplifters. First, engage the use of security cameras and incognito shoppers who watch for nefarious activity. To mitigate employee theft, increased management oversight, vigilant controls over the cash drawers and encouragement of anonymous tips are crucial.
Shopowners or managers should review each day’s transactions along with security camera footage. Another option managers can consider, notes Property Casualty 360, is requiring each employee to sign in to a register with a unique password or username so a record of who had access at certain times is established.
Mulholland noted one method for analyzing employee fraud is through outlier detection: looking for a transaction that’s far outside the norm. When using outlier detection, you’re looking to identify employees, products or stores that are not behaving like their peers.
Another problem that can lead to employee theft is overstocking and improper inventory control. Supply Chain Digest estimates, “U.S. retailers are currently sitting on about $1.43 in inventory for every $1 of sales they make.” This lack of oversight can encourage employees to see owners and managers as careless – and therefore an easy target.
As Forbes reports, “Without an active inventory process, you do not realize your losses until it is too late.”
They recommend employing barcodes and handheld scanners, saying “Barcodes can help you avoid shrinkage because they give you a faster, more efficient way to track, via handheld scanner. The author of the Forbes article offers additional reads if a shopowner suspects employee theft, fake sales, or returned goods scams are taking place: a Barcoding 101 primer, along with a post on How to Stop Inventory Shrinkage in Your Small Business with Examples.