Small and Significant
Retailers are taking the right steps to fight shrinkage
Retailers have been fighting the good fight against shrinkage for decades. But when NRF’s “National Retail Security Survey” was published every year, they’d see only marginal improvements.
Not this year: The retail industry has gained a significant edge. Retailers surveyed for the 24th annual report saw an average shrink rate of 1.38 percent in 2014 — $44 billion in losses out of $3.2 trillion for total 2014 sales, compared with the $44.25 billion lost by retailers the previous year.
“That’s a pretty remarkably low number, which is good news for the retailers,” says Richard Hollinger, co-author of the study and professor of sociology, criminology and law at the University of Florida. “Not all retailers report their shrinkage, so it’s not a complete examination of every retailer, but in general it’s a good trend.”
By the numbers
A total of 100 retailers participated in the survey, representing more than 20 retail market categories. The largest sample (24 percent) came from retailers seeing $1 billion to $2.49 billion in sales.
The study represents a significant investigation into where shrinkage takes place.
“For some time we’ve been looking to compare where the shrinkage is coming from, and for the most part the highest percentage has been internal theft,” Hollinger says. “For the first time, it’s actually seeing shoplifting … exceed the internal numbers.”
Shoplifting and organized retail crime accounted for 38 percent of inventory shrinkage; employee theft accounted for 35 percent and administrative error 17 percent.
The efforts to combat shrinkage are significant. Retailers use loss prevention systems “almost universally,” but loss prevention budgets represented less than 1 percent of overall 2014 sales. Specialty apparel retailers spent an average of 0.63 percent of sales on loss prevention measures; grocery stores used 0.36 percent.
Almost all respondents are pursuing efforts to cut down on high-risk employees, which Hollinger calls a key point. “The focus in the report should be whether or not the loss prevention attention is being placed on pre-employment activities,” he says.
Some 89 percent said they’re conducting criminal conviction checks, while 86 percent conduct multiple interviews and 73 percent verify employment history. Men’s and women’s specialty apparel stores and supermarkets are pre-employment screening leaders, with 92 percent checking criminal convictions and 83 percent verifying past employment. Grocery stores and supermarkets reported 100 percent criminal background checks; 83 percent test for drugs.
Training plays an important role, as do hotlines and incentives.
“Everybody seems to be doing something in that regard,” Hollinger says. “One can argue that retailers are making greater use of the Internet and various digital training systems … . There’s a number of different training mechanisms in place.”
Of those surveyed, 95 percent have an anonymous hotline and 88 percent use awareness posters; more than half offer a variety of training programs and notification systems. The leading program continues to be videos (72 percent), but more than 55 percent use Internet-based systems and 54 percent offer “honesty incentives” such as cash and gifts.
Employee incentives offer great value to loss prevention strategies, but retailers still have to prove theft.
“I think there’s greater use of cameras, particularly digital cameras linked to computer software that is interpreting what the camera’s seeing,” Hollinger says.
All respondents use burglar alarms and 93 percent use digital video recorders; 66 percent use live hidden closed-circuit television. More than 69 percent use point-of-sale data mining to help losses at the till. In-store deterrence — plain-clothes detectives (41 percent), receipt checkers (38 percent) and signage (36 percent) — are also gaining traction.
A third of department stores use acousto-magnetic electronic security tags, but all men’s and women’s specialty apparel stores and sporting goods retailers use them.
Hollinger says the best programs are a combination of human resources and technology.
“We’ve been seeing this for years: Hire the best people, train them as well as you possibly can by making them aware of the impact of shrinkage, control your merchandise to make sure you know where it is and where it’s going and then finally develop a range of technologies to apprehend those who are stealing from you,” he says.
“There still has been a tremendous change in the order of which those items appear from the last study … . It does show that the takeaway is greater reliance on technology, as opposed to personnel catching other personnel.”
In human resources, loss prevention staff can make a budget work and are leaders in diversity. About one in four loss prevention managers are women, slightly higher than the national trend that sees 22 percent of senior leadership roles filled by women. Almost 10 percent of loss prevention managers are Hispanic.
The war against ORC has transcended the retail industry and become a national issue. Major cities from Minnesota to Utah are forming their own retail crime alliances. “The way that we should be tackling crime as a whole is by making sure we come at it from an organized crime perspective,” St. Paul Police Sergeant Charlie Anderson said in May after the formation of the Twin Cities Organized Retail Crime Association.
Even with the growth in regional and federal assistance, individual retailers have a great responsibility to protect their merchandise and catch those who steal. With that said, what will loss prevention look like in 2020?
“That’s a tough one. One of the major things that we’re going to see is a continuing emphasis on using technology,” Hollinger says. “I call it looking for the ‘silver bullet.’ There’s always a continued emphasis on trying to find better technologies to monitor and catch shoplifters and employed thieves.”
Hollinger recalls similar questions a decade ago; the outcome has not been what many predicted.
“We thought at one time that RFID would take off, and it has been used — but not to the extent that I think people predicted 10 years ago,” he says. “It’s being used in increasing amounts for inventory control.”
Technology is cheaper than staffing, leading retailers to leverage more computer software and other technologies versus hiring hundreds of people to monitor stores. Hollinger also envisions retailers coming around on technologies they’ve been reluctant to use.
“One is face identification software. We’ve already begun to see that grow in experimentation,” he says. “The gambling industry is using it extensively. The State Department and airline security … are using it, and I would imagine that as the software gets better, face identification software will be used more commonly in the retail environment.”
The use of facial recognition and camera-heavy stores puts the retail industry in the middle of a common debate these days — privacy.
“Retailers are a little afraid that [more cameras] may signal an invasion of privacy issue,” Hollinger says. “So retailers are trying to monitor who’s in the store and monitor their shoppers, monitor their employees, but … that balancing of privacy versus control has always been a major issue in our society.”
NRF members come from more than 45 countries and all sectors of retail, from Main Street merchants to online retailers.