Ever since a bold, mob-style group ransacked a California Nordstrom, we’ve seen increasing news of retail theft and loss. We’ve also witnessed an increase in retail earnings reports that cite shrink and organized retail crime (ORC) as the cause for reduced profitability compared to previous quarters.
Yet despite the growing frequency of ORC, retailers would be remiss to focus their loss prevention efforts solely on these brazen, smash-and-grab scenarios.
In fact, according to the 2023 National Retail Security Survey conducted by NRF, Appriss Retail and the Loss Prevention Research Council, 68.8% of retailers believe external theft unrelated to ORC was more of a priority in 2023 than 2022. Similarly, 57.8% reported ecommerce fraud and loss as a growing concern, while 48.5% said the same about internal (employee) theft. With these diverse loss prevention concerns, it can be challenging for retailers to know where to focus their efforts in the new year.
First, retailers must understand the growing trends in loss prevention to determine which strategies will best reduce the diverse types of theft, fraud and abuse impacting their business.
Why Retailers must Prioritize Loss Prevention in 2024
There’s no doubt that loss prevention will be a major priority for retailers of all sectors in 2024. Just last year, in the National Retail Security Survey, retailers reported $112.1 billion worth of shrink, 65% of which came from internal or external theft.
If this data wasn’t shocking enough, the same report also explained that 78% of retailers don’t count ecommerce loss when calculating shrink. With that in mind, the negative financial impact of shrink is actually much higher than the reported $112.1 billion. Retailers are no longer able to ignore the impacts of theft, fraud and abuse within their online channels. As a result, retailers must ensure their 2024 loss prevention plans incorporate an omnichannel approach that considers all avenues for loss.
Where to Focus Loss Prevention Efforts in 2024
Theft, fraud and abuse can come from anywhere, and if retailers aren’t prepared, they can expect to see major losses that will impact their earnings reports again in 2024.
Over one-third of a retailer’s loss came from external theft last year, but the methods used varied dramatically. Some thieves and ORC rings used smash-and-grab methods while other bad actors relied on ecommerce claims fraud and returns abuse. To combat these diverse methods, retailers must take a holistic approach to monitoring and mitigating theft, fraud and abuse from all angles.
What’s more, many bad actors stole from the same retailer multiple times in 2023, with 70% of retailers seeing an increase in theft from repeat offenders. As a result, retailers should rely on artificial intelligence and exception-based reporting to notice patterns in their losses, intervene, and deter offenders from coming back.
Finally, according to the same report, internal theft accounted for 29% of shrink in 2023, while 27% was attributed to errors and process failures. To combat unnecessary mistakes and internal theft, fraud and abuse, retailers must implement a more robust strategy. This includes monitoring their employees and ensuring they receive the training they need to manage money and inventory appropriately.
Despite the variety of ways that theft, fraud and abuse can plague a retailer in 2024, there are strategies that these businesses can take to holistically protect themselves — most notably by integrating AI into their loss prevention program.
How to Mitigate Unnecessary Loss Today and Tomorrow
The secret to a stellar omnichannel loss prevention strategy is AI-driven exception-based reporting (EBR). This approach to real-time data analysis is designed to flag anomalies in both customer and employee data that are impacting shrink and profitability before they become costly.
When used holistically across internal and external sources like HR platforms, returns management services, cash registers, ecommerce platforms and more, AI-driven EBR can catch mishaps from anywhere in an organization. Regardless of how and where the theft, fraud or abuse takes place, EBR can catch the problem and recommend remediation tactics.
For example, if an employee is “sweethearting,” or giving their employee-only discount to all their friends, the EBR might recommend a retraining where the employee is reminded of the limitations of the discount. This call-out might be enough for them to correct their ways, and if not, further action can be taken by the retailer.
On a more drastic scale, imagine that an ORC ring is encouraging participants to return stolen merchandise. The EBR system will find the center of the ring, which could be a credit card, a loyalty number, a shipping address or another identifier that connects everyone in the ring. The system would then recommend that the retailer issue a warning that all returns made with that central identifier will be denied moving forward. This will prompt the ORC to avoid that retailer forever.
These are just two examples of how EBR can catch theft, fraud and abuse beyond the smash-and-grab tactics seen in the news. In reality, there are hundreds of scenarios that retailers need to watch out for. With AI-driven EBR, retailers can get ahead of any issues and ensure their business is not a target moving forward.
What the Future of Loss Prevention Looks Like
The losses from 2023 are intimidating, but it’s not too late for retailers to better protect themselves in the new year. The way that bad actors commit theft, fraud and abuse will continue to evolve, but retailers can get ahead of problems with AI-driven EBR tools.
This loss prevention technology constantly reviews data from both internal and external sources and recommends actions for retailers to take to mitigate the problem before it impacts shrink and profits. A holistic, AI-driven approach to loss prevention will be key to strong earnings reports in 2024 and beyond.
Michael Osborne is the CEO of Appriss Retail. He has more than 20 years of experience bringing disruptive and innovative solutions to market in B2B ecommerce, marketing technology and enterprise software segments. His experience spans the range of co-founding and leading seed-stage companies to growing scaled businesses to nearly 1,000 employees. Prior to joining Appriss Retail, Osborne served as the president of Wunderkind where he oversaw all commercial functions, ranging from sales and marketing to strategic alliances and international partnerships. He has served as CEO, President, CRO, SVP of Sales, member of the Board of Directors, and Advisor for more than a dozen companies, including SmarterHQ, which was purchased by Wunderkind.