In retail, loss prevention is the method of working to stop any type of theft, fraud, error, and wastage that results in loss of profit. Loss prevention is not only catching shoplifters; it involves a comprehensive approach involving stock surveillance, raised employee consciousness, technological implementation, and thirdly, the establishment of clear-cut operational policies. Retailers require loss prevention measures against external and internal theft acts: retailers must consider internal theft by employees, external theft by customers, errors by administration, and fraud from suppliers as loss sources.
What is loss prevention?
It simply refers to a set of practices and policies that retailers use to preserve profit and deter preventable loss of products or services. These losses come from several sources, including operational errors, employee theft, shoplifting, supplier fraud or package pilferage. While these individual losses might be small or even negligible, repeated preventable losses can add up to millions of dollars in lost profits for a single store. Loss prevention addresses these threats, which evolve as quickly as technology does.
Common causes of profit loss
Five common causes of profit loss are given below:
Operational Errors: This refers to employees not following protocols or business practices or an absence of instruments set by the business that limit human error with those policies or best practices. The main cause is usually lack of proper training for employees.
Internal losses: Internal losses are those refunds that, in one way or the other, are caused by employees and other members of the organisation. Employee theft; pilferage of packages; selling products to family or friends at a discounted price; giving products away for free without proper authorisation; under-ringing merchandise; and not ringing up sales in a way that allows employees to keep the payment for themselves are all examples of internal loss.
Internal theft: Internal theft means a loss that occurs internally, most specifically due to stealing by employees and the members of the company. Internal loss includes employee fraud, theft, waste, and vandalism.
External theft: Outside the members and employees of the company, an external theft occurs in the form of profits lost when a customer steals goods. External theft is defined as vandalism or fraud conducted by a customer.
Supplier fraud: Not very common, but another form of loss that a business has to tackle is supplier fraud, where the supplier of a company is not providing the amount of goods agreed upon, which the company had paid for, or behaves unethically in working with the company.
Modern loss prevention strategies for retail stores
Some loss prevention systems, including real-time monitoring systems, are being explored by modern leaders to support the staff in addressing criminal activity in the workplace. To gain deeper insights into effective strategies for retail stores, consider joining the Course in Selling Strategies in Retail Stores offered by the British Academy for Training and Development. The following section describes five practical strategies for loss prevention that will help staff address profit and stock losses.
1. Create Physical Security Solutions
The physical security solution allows workers and their security teams to independently manage such risks in high-risk areas. Access control readers based on limited individuals could further minimise the chances of opportunistic theft while enhancing investigations later on by management in stockrooms and warehouse spaces where items were being held.
Live alerts can be sent to admins warning of suspicious access attempts, with leaders able to deny permissions when needed immediately. In addition, they are reinforced by integration into the company's security systems with real-time alarms, sensors, and video security cameras, offering the security team extra contextual information to plan informed and effective responses.
2. Utilise smart CCTV and video analytics tools.
Evidence indicates that the visibility of security camera systems may reduce the rate of crime by up to 51%. But adding AI video analytics software as an enhancement to existing solutions will help security and loss prevention retail teams better mitigate those risks within the store and surrounding areas as per their company policies.
When developing loss prevention strategies based on the use of CCTV systems, consider behaviour-based risks and install security cameras overlooking high-risk locations such as the stock room or cash counting locations, areas with high-value items and access points (loading dock), with camera features that include remote pan, tilt and zoom access.
In these instances, deploy modern Internet Protocol (IP) security camera systems with more capability to be connected to a cloud-based management system to allow loss and prevention staff to view, access, review and manage CCTV systems on a continuous basis regardless of their location.
Retail security cameras may also be enhanced through the support of AI video analytics software. Leading video security software platforms will incorporate AI video analytics-based video security strategies to be able to determine and identify incidents that will warrant a review of security video, for example. When they observe someone loitering in the store at unusual locations or a person running the store. In this way, admins can review the video recording and take appropriate action as warranted.
3. Enhance Point-of-Sale (POS) systems
Loss prevention policies can be working to develop existing POS systems. For example, management functions may require employees to log in and log out of POS terminals to process individual orders. This function allows security and loss prevention retail professionals to look back and see who used a certain terminal at a certain time and may help with investigations.
Additionally, retail access control models can be used to lock down POS systems so only managers can perform risky actions, such as processing returns on products. Analytical tools and other methods can be employed to monitor the actions of the POS system and highlight actions or action trends that appear suspicious or suggest theft or fraudulent actions, according to the admins, preferably to alert them of this activity in real-time as it happens.
4. Enhance existing inventory management products.
The key to an effective loss prevention strategy is to ensure that core stakeholders have access to timely and accurate data on inventory management. Creating an inventory management solution that continuously monitors the movement of stock arriving (incoming) and leaving (outgoing) enables a leadership team to monitor for trends and suspicious actions as they occur, as opposed to a potential time lag while an investigation takes place.
Inventory management software can be integrated with other security devices and systems, such as CCTV, access control points, and RFID tags to form self-sufficient systems. When products arrive at a site, they can be scanned by cameras with unique barcodes, and access readers can read attachments for RFID tags. This data can then be recorded right away in a related inventory management system to keep security and loss prevention retail personnel accurate inventory data at all times.
5. Use Electronic Article Surveillance (EAS) devices.
EAS tags work similarly to RFID tags, but EAS devices can be attached to stock on the shop floor and can be used to trigger alarms if an item is taken from the store illegally. Security and loss prevention programme EAS tags to high-value items, and management personnel can have policies in place that mean they only remove the EAS devices at checkout registers.
If an EAS tag is active and is detected in the proximity of the sensors on key entry and exit points, on-site sirens can be identified to sound, and commercial smart locks can be deployed automatically. Security personnel can also programme CCTV devices to automatically mark footage for EAS triggers to help fast-track investigations and to secure evidence of criminal activity.
Why is loss prevention important?
To understand why up-to-date loss policies are so critical in the retail space, one only has to look at some loss prevention statistics. Our own data reveals that 64% of in-store sales, service, and support retail workers have experienced theft firsthand, showing just how shockingly common this issue is, and that’s only one facet of shrinkage. While that obviously poses a threat to a store’s bottom line, a more pressing issue is the danger to employees, 47% of whom have either seen or been the victim of retail violence on the job.
On top of that, retail thieves are getting bolder, increasing the average amount lost per incident. After several years of decline, the average dollar loss per robbery in the United States shot up to nearly $8,000 in 2020. If the word “shoplifter” brings to mind an image of a teenager hastily shoving some lipstick or candy in their bag before shuffling out of the store, it’s time for a reality check.
Organised retail crime, such as professional shoplifting rings, is much harder to deter without effective loss prevention methods in place. Nearly half of the retail security professionals we surveyed said they witnessed organised retail crime, with discount stores, health and wellness businesses and telecommunications providers being particularly vulnerable.
While organised criminal activity isn’t the only reason to institute comprehensive loss prevention policies, it does make up a disproportionate percentage of retail security threats. To learn more about the impact of organised retail crime and other threats that retail employees face, read our full report.