U.S. businesses are now losing around $60 billion annually to retail shrinkage. The vast majority of the losses are attributable to retail theft. This makes retail theft one of the biggest problems facing small business retailers today.
The first step is to get an accurate inventory management system in place so you can keep track of exactly where shrinkage is happening. You can read more in our complete guide to inventory management.
Who Might Be Stealing from You
According to the a 2015 study by the National Retail Federation, there are 3 main reasons for retail loss, also known as shrinkage:
- Your Customers – Shoplifting accounts for around 38% of retail loss in the United States. Items can be taken for personal use or resale. Health and Beauty, apparel, and electronic stores are most vulnerable to this kind of theft.Make sure crime coverage is included in your insurance.
- Your Employees – In the US, employee theft is the number one cause of retail shrink. In fact, it makes up about 35% of retailers’ total shrinkage. There are various reasons that employees steal from their companies. Some want to give friends a deal (sweethearting), others are dissatisfied with their employers/bosses, and some steal because they want extra cash. We’ve written about how a modern POS system can significantly reduce this kind employee theft.
- Your Suppliers, Contractors, Management, and Administration – The remaining 27% of retail theft was pinned on suppliers and contractors and management and administrative errors. Suppliers and contractors might overcharge you, resulting in costs for services or products that you never actually received. Small businesses with more informal/less-organized contracts are especially susceptible to this kind of theft. Management and administrative errors, like mismanagement of inventory (ordering too much product, etc.) and pricing items incorrectly would both be examples of errors that will add up to significant losses.
This article primarily focuses on the major causes of losses to small businesses: shoplifting and employee theft.
Steps You Can Take to Reduce Retail Theft
There are lots of actions you can take to reduce retail theft.
What’s right for you and your store will depend the size of your store, the size of your theft problem, and the size of your budget.
We’ll share some concrete steps to reduce retail theft below, beginning with the most important step: how to know what’s being stolen. Once you know what’s being stolen, you can decide whether to implement a low-cost solution like adding monitoring mirrors or a higher-cost solution like hiring a security guard.
Inventory Management – How to Know What’s Being Stolen
If you don’t have an inventory management system in place, it’s nearly impossible to know what is being stolen, how much is being stolen, or how significantly retail theft is affecting your bottom line.
Considering this, your first step toward retail theft prevention must include inventory management and sales tracking. While many businesses do this by hand, the more efficient and accurate way to do this is by using inventory management software which can be cross-referenced with your manual inventory count.
Doing inventory correctly requires you to do physical inventory counts and reconcile those with your previous inventory counts and sales records. We recommend Lightspeed POS for this. Click here for our complete guide to inventory management, including a step-by-step walkthrough.
Low-Cost Solutions to Reduce Retail Theft
Once you have a handle on your inventory and sales, you are all set to begin addressing your store’s retail theft problem. Although some small-businesses may find that they require sophisticated security equipment to deal with their retail theft, most can significantly reduce retail theft by implementing a variety of low-cost solutions.
Educating your employees about retail theft
Reducing retail theft begins with communication. It is important to educate your employees about the effects of retail theft on your business. This will do two things:
- It will make all loyal employees aware of the problem and prompt them to be pro-active about reporting incidents.
- It will serve as a deterrent to those employees who may be stealing from you.
How to Prevent Shoplifting:
Ask employees to be on the lookout for suspicious behavior, such as those outlined in this article under the heading “spot the shoplifter.” If employees see a person that is behaving suspiciously, they could ask the person if they need assistance. This alerts the potential shoplifter to the fact that they are being watched, which makes them less likely to commit a crime.
If an employee actually sees someone shoplifting, they should alert a manager right away. The manager should then discreetly keep an eye on the suspect to confirm that no payment is made. Then, have another employee call the police while the manager approaches the suspect in the parking lot, once he or she has exited the building. The manager should then explain the situation and ask that the suspected shoplifter come back into the building to await the arrival of law enforcement.
How to Prevent Employee Theft:
Tell employees what is being taken and how much is being taken. Explain to them that your inventory management system allows you to closely track this kind of data. If you’re taking any other measures, such as installing video cameras, inform them of this as well. The point here is that you would much rather prevent a theft through deterrence (and not lose the product or cash to begin with) than try to catch the culprit after the fact (and recover your loss).
Organizing your store to discourage retail theft
The majority of shoplifters steal in response to an impulse.The National Association for Shoplifting Prevention(NASP) conducted a survey which found that around 73% of shoplifting incidents are not premeditated. With proper deterrents in place, shoplifters are much less likely to actually act on their impulses.
One practical way to deter retail theft is to arrange your store to be as anti-theft as possible. Keep it open. If all areas of your store are visually accessible, it is much harder for shoplifters or employees to take an item or pocket some cash without being seen. If possible, keep your displays from reaching floor-to-ceiling. Arrange your products so that the most easily stolen items are in the high-traffic/public areas.
If shoplifters/employees feel exposed, they are much less likely to steal. So make sure that your cash wrap (checkout area) allows for cashiers to simultaneously checkout customers but also maintain clear view of other shoppers. Proper lighting can help increase these feelings and reduce theft as well.
If you need more help in planning your store layout take a look at our step by step instructions.
Putting up Shoplifting Signs, Security Mirrors, and More
We called Joe Frawley, former police Sergeant at Cambridge Pd and owner of Eastern Security Inc, to talk about reducing retail theft.
He stated that one of the most important things is to put up shoplifting signs like the ones below. These signs are important not only as deterrents, but also for legal reasons. If you ever intend to take a shoplifter to court, you need to have your store posted.
Joe also mentioned the importance of security mirrors. If there are areas in your store that have taller shelving or are more secluded, security mirrors can be a great low-cost deterrent option.
Another affordable theft deterrent are replica or dummy security cameras. While they aren’t going to record any activity, dummy security cameras look real enough that both employees and patrons will have a difficult time telling them apart from the real thing. And that’s the point. Few thieves ask whether a security camera is real, turned on, and recording.
Mid-Range Cost Options for Reducing Retail Theft
Although low-cost security solutions are generally enough to reduce retail theft for the small business owner, there may be cases when more significant security measures must be taken. Here are some good options.
Basic Video-Surveillance System
Security camera systems are another great middle-of-the-road option for reducing retail theft.
Security cameras not only allow you to check on your customers/employees, they also provide an obvious visual deterrent to would-be shoplifters. In this case, discreet cameras are not really the best choice. Make sure the camera is obviously a camera and big enough to see clearly. These cameras are especially effective when paired with a monitor that is placed in a public space where people can see themselves on-camera.
Although advanced security camera systems can be expensive, a basic system doesn’t have to be. In fact, like most electronics these days, security camera systems have seen their quality drastically improve while their prices have dropped. Today, a good multi-camera system with a DVR or NVR can run as low as $200. For all the information you need to pick the right security camera and system for your small business, see our guide to the best security cameras.
RFID tags are basically a radio-frequency identification tool that can be attached to your products. There are various options, ranging from stickers, which can be placed on almost anything, to pin-tags, often used on clothes as seen in the picture to the right.
Some tags have to be removed with a special tool and some just have to be pulled off, although they are generally extra-sticky so as not to be too easily removed. If a customer walks out with an item that still has an RFID tag on it, the sensor wand by the door will go off when the customer tries to leave. Although professional thieves can bypass this system using foil-lined shopping bags, RFID tags are a good option to discourage the majority of shoplifters.
RFID tags vary in cost, depending on the level of sophistication and range. A refurbished system will often be cheaper and just as effective. You can find several different refurbished RFID package options here that include 1000 tags, 1-2 sensor wands, and several tag removers for between $2,000-$5,000.
Top-of-the-Line Options for Reducing Retail Theft
If you are a larger small-business who deals in higher-end merchandise and has problems with retail theft, it may be worth spending the extra money for a top-of-the-line security solution.
Full-Time Security Guard
At times, hiring a full-time security guard is a good retail-theft prevention choice. Educating your general employees to spot shoplifters/other dishonest employees is helpful. But when things get busy, people get distracted. It is in these situations that a dedicated security guard can be invaluable, keeping an eye on all incoming/outgoing traffic as well as employees.
Uniformed guards are a great visual deterrent, but also have the potential for making loyal customers uncomfortable. Plain-clothes guards are often more effective in actually catching thieves, because they look much like a regular customer, but are not nearly as effective of an overall deterrent.
If you are looking to hire a security guard, expect to pay around $15-$25 an hour for unarmed guards to around $50-$100 an hour for an armed guard. Depending on the type of security guard and your geographic location, it could cost your company around $40,000-$100,000 a year.
If you just want to test drive having a security guard or need one right away for a short time, consider working with a company like Bannerman Security. They offer on-demand security guards. The guards can work stores, bars and restaurants, office parties/events, and office lobbies, and much more.
All of their guards pass background checks by the FBI and DOJ, but they also get rated by other Bannerman users. Cost is around $35 per hour. This can be a very affordable way to try out a security guard at your business. If it seems like a good fit, you can undertake a search for a full-time guard. If it’s not a great fit for your business, no problem.
Currently, Bannerman only operates in New York, Los Angeles, San Francisco, and Seattle but they have plans to expand to other cities soon.
Premium Video Surveillance/Analytics System
The newest thing in retail security is what is known as video analytics software. Essentially, this is a high-end video surveillance system which digitally monitors your customers and employees in real-time and alerts you when it senses suspicious behavior. In addition, it allows you to look up any transaction and view the video footage associated with any item on the receipt.
Although relatively expensive and probably overkill for most small-business owners, video analytics software does have the potential to significantly reduce retail theft and free you up to focus on other areas of your small business. Stoplift is one of the major movers and shakers in this business and one of their systems will cost between $7,000-$8,000 in startup costs, depending on the number and quality of cameras desired, and then around $300 a month in service fees for an 8 checkout retail store. Stoplift also has the ability to integrate with video surveillance systems that are already in place.
Although retail theft can be a big problem, the good news is that there are a variety of theft-reduction solutions out there for the small business-owner. In most cases, simple and low-cost solutions will be all you need. But, when needed, there are many higher end options that can also be very effective.
Stopping retail theft all start with inventory management. Once you’ve determined where your losses are occurring, find the best security solution based on the information above. You’ll be well on your way to reducing retail theft in your store in no time. Click here to get started with Lightspeed, our recommended inventory management system.
Want to Reduce Retail Theft and Better Manage Your Inventory? Click Here to find out how.