Retail Loss Prevention | 2 mins read

4 Techniques for Retail Loss Prevention

4 techniques for retail loss prevention
Chloe Henderson

By Chloe Henderson

Inventory shrinkage is an issue that every retailer deals with, whether from damaged goods or theft. However, excessive retail loss can significantly drain profits and cause distrust within a company.

By implementing retail loss prevention measures, establishments can mitigate the risk of internal and external theft, protecting merchandise and profits.

Different Types of Retail Shrinkage

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Before creating a loss prevention plan, management needs to address all of the major causes of retail shrinkage, including-

  • External Theft
A National Retail Federation study found that 36% of all retail shrinkage is due to shoplifting. This includes shoplifting of inventory and returns fraud, where customers return stolen items for cash or store credit.

  • Internal Theft
Employee theft accounts for over a third of inventory shrinkage, including stealing products, return fraud, taking cash, and creating fraudulent gift cards.

  • Administrative Error
Human error in administrative management can create retail shrinkage. A simple miscalculation, translation, or report can result in significant retail loss. In fact, nearly 21% of retail loss is due to paper shrinkage, or administrative errors.

  • Vendor Fraud
Although this is only a small contributor to overall retail shrinkage, supplier fraud causes approximately 6% of inventory loss. Therefore, if a company is experiencing a slow drain of inventory and internal operations have been evaluated, it is time to investigate the primary suppliers.

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4 Techniques for Loss Prevention

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Each type of retail shrinkage can be avoided by implementing preventative measures for internal processes. Businesses can start by focusing on-

1. Security

Security comes in many different forms - guards, ID checks, metal detectors. The most common retail security measure is surveillance cameras.

By placing cameras at every point-of-sale (POS) terminal, entrance, exit, and loading dock, management can monitor customers and employees handling merchandise and cash. Recordings allow retailers to assess their traffic flow and how thieves navigate through the store.

Placing mirrors around the store can also increase visibility for cashier attendants and employees working on the sales floor. Companies that handle expensive goods or large volumes of cash may need to hire security guards to check customers as they enter and leave.

Regardless of what kind of security a business implements, every retail store should-

  • Record the date of every security audit.
  • Change the locks if a key is stolen or lost.
  • Install an alarm system.
  • Give each employee a custom access code for the store and management systems.
  • Only let employees in the store outside of operating hours.
  • Keep employee-only areas secure.
  • Create a key control log.
  • Perform routine maintenance on cameras.
  • Change passwords regularly.
  • Designate a safe for cash register keys.

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2. Cash Handling

To start, retailers need to choose a POS system that offers a range of security features. The solution should record the time and name of the employee who accessed the system. This allows management to refer back to reports if cash drawers are short at the end of the day. The software should also allow developers to set different clearance levels for employees, so only verified workers can access cash, inventory records, and payroll.

Aside from a POS system, companies should perform routine and random audits to count cash totals from each register. Any shortages or overages should be cross-examined with employee reports to sort out discrepancies.

Each employee should be trained to continuously monitor the register and be aware of surrounding customers. An unattended cash register can put the store at risk of shoppers looking to take advantage of the lack of security.

To ensure that employees are safely handling cash, management should-

  • Create a shortage/overage log for each payment terminal.
  • Train managers to perform audits.
  • Install cameras at every terminal.
  • Restrict phone usage at workstations.
  • Review each cashier attendant monthly.
  • Monitor shift sales.
  • Create POS accounts and clearance levels.
  • Report the amount of cash in the drawer at the beginning and end of work shifts.
  • Audit cash registers three times a day.

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3. Inventory

While physical cash is important, merchandise is the object that helps retailers to generate income, and it is more accessible to shoplifters. Therefore, businesses should implement safety precautions to protect goods, including-

Electronic Article Surveillance

Electronic article surveillance (EAS) is a standard security method retailers use to monitor expensive items using a magnetic tag. Coupled with a detector at the entrance and exit, EAS will signal an alarm if a shoplifter tries to leave the store with an item.

Thieves are often dissuaded from stealing products just by seeing the security tag, knowing that the alarm will draw attention.

High-Visibility Layout

Retailers should create a layout that allows employees to see every corner of the store from their workstations. By using shorter product displays, sales floor managers can monitor merchandise and shoppers.

Smaller items that are easy to steal and more expensive products should be placed in locked display cases, requiring customers to seek employee assistance for purchase.

Policy Signs

Placing signs around the store that reiterate the retailer's policy and state laws on handling shoplifters can dissuade shoppers from stealing products. Establishments can also post beware or camera signs that tell shoppers that they are being watched.

Return Policy

Another major cause of inventory discrepancy is fraudulent returns, where shoppers return stolen items to receive a cash refund. To prevent this, stores can enact a strict return policy that requires customers to present a receipt and ID to receive a refund or store credit. Retailers should be sure to print the return policy on every receipt to alert customers.

To protect merchandise, retailers should consider-

  • Using extra mirrors and cameras in aisleways.
  • Using display cases for expensive goods.
  • Allowing managers to conduct high-risk transactions.
  • Separating damaged goods.
  • Comparing delivered goods with the invoice and packing slip.
  • Monitoring restrooms for unpaid merchandise.
  • Putting barcodes on each item.
  • Implementing security tags.
  • Conducting routine inventory counts.

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4. Employees

Every onboarded employee should be taught the store's policies on shoplifting, returns, defective goods, and other inventory-related procedures so all staff can adequately handle transactions.

During training, workers should be given chances to ask questions, so they feel confident interacting with customers and performing standard procedures. Retailers should also hold a training program that teaches employees how to operate POS systems and manual transactions. Employees should also be encouraged to optimize their customer service to drive satisfaction, sales, and revenue.

To provide employees with the best training and resources, companies should-

  • Post the company abuse line, phone number, policies, and other important information at every workstation.
  • Give every worker an employee handbook that outlines policies and the code of conduct.
  • Restrict staff from processing payments from their friends or family.

By initiating retail loss prevention measures, businesses can minimize inventory discrepancies and establish a healthy environment for staff and shoppers.

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