Retail theft is on the rise, and many businesses are grappling with the financial fallout. In recent months, The Home Depot, Foot Locker, Target and other retail giants have suggested that shoplifting is cutting significantly into their respective profits. Dick’s Sporting Goods also attributed part of the brand’s 23% profit drop in the second fiscal quarter of 2023 to theft (CNBC).
It’s not just the biggest retailers who are taking a hit; small businesses are feeling the impact. According to a June study by the U.S. Chamber of Commerce, 56% of small businesses surveyed say they have been the victim of shoplifting, with half of those surveyed reporting the issue has gotten worse.
According to the National Retail Security Survey released by the National Retail Federation (NRF), vanishing inventory contributed to $112 billion in losses last year alone — up significantly from $93.9 billion in 2021. To make matters worse, NRF studies found that the impact of theft on retailers’ bottom lines has remained relatively consistent for years, indicating a trend many retailers have struggled to avoid.
A common question I get when I’m working with store owners is how to balance theft prevention with a positive in-store experience. As the tactics behind these crimes become increasingly sophisticated, and customer expectations for in-store experiences are higher than ever, retailers are finding it more difficult to protect their assets while maintaining great service. That’s why it’s important to understand the most common forms of theft and the measures you can take to prevent loss without deterring valued customers.
1. External Theft
According to the NRF, shoplifting and other forms of external theft, including burglary, accounted for 37% of reported shrink in 2022. This represents the greatest source of loss for retailers of all sizes. Consider the following practices to reduce in-store theft committed by customers:
- Keep your business well-lit and monitored: Theft often occurs in areas where a thief’s activity is easily concealed. Having good lighting both inside and outside your business can make theft more difficult. Installing security cameras throughout your store and parking lot also can help detect and deter criminal activity.
- Acknowledge all customers: Greeting every customer entering your store is an easy way to let them know they did not arrive unnoticed. In addition to preventing potential theft, this approach to welcoming your visitors can provide a personal experience that generates goodwill.
- Increase the visibility of high-theft items: One of the simplest ways to prevent external theft of commonly stolen items is to put them on display where cashiers or other employees can easily see them. This approach to in-store product placement allows employees to easily monitor popular items and acknowledge customers in areas where they are displayed.
- Optimize inventory management: Like damaged products and shipping errors, theft can negatively impact retail inventory management. Completing frequent physical counts to verify your information can help you identify discrepancies that may indicate high-theft items that can be moved to deter shoplifting in the future.
- Address the self-checkout issue: Staffing constraints have made self-checkouts a popular fixture in stores of all sizes. While they solve one issue, they create a few more when it comes to theft. Creating a single point of entry and exit for the self-check area — and staffing it with a customer service monitor — tells potential thieves they are being watched. Visible cameras also enhance transaction monitoring, which can help document and deter theft.
2. Employee Theft
Alarmingly, internal theft accounted for nearly one-third of shrink in 2022 (NRF). Despite your efforts to hire good people, the U.S. Chamber of Commerce indicates that 75% of all employees have stolen from their employer at least once.
These best practices may help reduce internal theft:
- Ensure the integrity of new hires: Taking the time to screen prospective employees through a formal application process and personal background check can reduce the risk of hiring dishonest workers. Asking strategic questions to assess the integrity of prospective hires throughout the interview process also can support these efforts. Questions could include what they would do if they saw a coworker stealing or what they would do if they noticed they had extra money in their till at the end of a shift.
- Establish anonymous reporting protocols: Establishing an incentive program for anonymous reporting can encourage employees to speak up if they ever witness suspicious activity from a fellow staff member. This program can be implemented through a human resources contact or an anonymous tip line — the latter of which can reduce fears of potential retribution.
Small-to-midsize businesses represent 43% of cyber breach victims (Verizon Business). And while 29% of small companies have experienced at least one data breach, 68% of all breaches are caused by mistakes made by employees or contract partners.
From misdirected payments and computer fraud to related attacks that compromise the accuracy of data and inventory systems, several types of cybercrime can lead to theft that impacts your customers, reputation and bottom line. The following cyber plan action items detailed by the Federal Communications Commission are a great place to start for any retailer working to optimize cybersecurity for their business and loyal customers:
- Secure your internal network(s) and cloud services.
- Develop strong password policies.
- Secure and encrypt your company’s WiFi.
- Encrypt sensitive company data.
- Regularly update all applications.
- Set safe web browsing rules.
- If remote access is enabled, make sure it is secure.
- Ensure employees know to never open files from unfamiliar flash drives.
At the end of the day, there’s no infallible approach to protecting your business from the threat of theft and associated losses. While proactive measures can deter retail theft and mitigate its financial impact, it also is important to consider the support and protection business insurance can provide.
Whether you’re looking for protection from cybercrime, fraud or theft committed by customers and store employees, the coverage options offered to you will vary from one carrier to the next. Speak with an independent insurance agent to determine the most effective policies and add-ons for your retail needs. Doing so can equip you with a financial safety net that ensures your hard-earned investment remains protected.
Aaron Stamm is a Retail Consultant at Acuity, which he joined in 2017, bringing with him more than 35 years of experience in a broad range of retail. Throughout his retail career, loss prevention remained a focus. With Acuity Stamm provides retailers with actionable insights and real value to benefit their businesses.