Retail asset protection: 5 costly mistakes retailers make
Although the worst of the COVID-19 global pandemic seems to be behind us, its influence lingers and continues to impact retail operations, diminishing room for error and any margin on returns. It’s also resulted in a significant increase in retail shrink, resulting in nearly $100 billion in losses across the industry, highlighting the urgent need for retailers to enhance their loss prevention efforts and prepare their teams in order to mitigate an escalating problem for their organizations.
The cost of retail shrink
According to the National Retail Federation’s (NRF) 2022 Retail Security Survey, shrink, which is defined as discrepancies concerning recorded inventory on a company’s balance sheet and its actual inventory, accounted for close to $95 billion in losses in 2022. It’s a total that includes losses related to incidents involving external theft (particularly organized retail crime), employee theft, fraud and administrative errors, to name a few, representing a staggering increase of $5 billion over 2021.
“The issues around rising rates of shrink throughout the industry are somewhat complex and are presenting organizations everywhere with significant challenges to overcome in order to reduce the loss they’re incurring and remain profitable during such uncertain economic circumstances,” says Stephen O’Keefe, retail loss prevention expert and Founder of consultancy Bottom Line Matters.
“The inflationary period has spawned feelings of frustration, fear and panic in many people, resulting in a sort of desperation setting in, which is highlighted within the retail environment by unprecedented rates of theft, both internal and external, that are severely threatening retail growth and profitability.”
The most costly asset protection mistakes
O’Keefe goes on to explain that retailers throughout the industry are also facing an extraordinary number of other pressures, including those of the inflationary variety and blighting supply chain disruptions, squeezing them from multiple angles. In light of this, most organizations are doing everything they can to work toward identifying and addressing shortcomings within their operations, eliminating costly gaps that are impeding progress. Despite their efforts to mitigate against losses, however, he recognizes a number of costly missteps, or mistakes, that retailers continue to make concerning their approach to retail asset protection that are threatening to derail their strategies, and perhaps even send them backward with respect to progress. Following is a list of 5 of the costliest:
1. Not enabling employees to execute the retail loss prevention strategy…
A vital driver of the effectiveness of any organization’s programs or strategies is the employee awareness, education and training initiatives that support them. Serving to formalize communication, engaging employees of the brand at all levels, training and education is critical in imparting meaningful learning and knowledge concerning the organization’s processes and protocols when it comes to identifying threats of loss and how to address them when they arise.
Part of that is having the right retail asset protection processes in place in the first place; according to the Retail Security Survey, external theft, including organized retail crime, accounts for 37% of all loss incurred by retailers in 2021, but only 31.5% of retailers have a dedicated ORC asset protection team with dedicated resources to “deter, detect, disrupt and document organized retail crime.”
But even when the right protocols are in place, you need the right training and education programs in place to enable associates to execute on them alongside standard store operations. “One of the biggest mistakes that retailers of all sizes make is falling short when it comes to preparing their employees to identify theft, whether internal or external, and understand what steps are necessary to address it,” says O’Keefe.
“Training and education are incredibly important when it comes to this kind of preparation, informing employees of their roles and responsibilities within a number of circumstances that might occur, including everything from incidents of shoplifting to active shooter situations. A well-trained and educated employee is one who is equipped and prepared to address and deal with just about anything that they might encounter and how to do so according to company policy and procedure.”
2. …Or keeping the strategy secret altogether
There are few things within the retail ecosystem that can impede growth and success quite like a lack of communication and transparency. When it comes to loss prevention efforts and strategies, retailers need to be mindful to share not just the processes and protocols, but also the “why” behind the retail asset protection strategy itself, which should connect retail theft prevention to employee safety, the protection of retail stores, and organizational success.
“The most critical, and perhaps the most common, mistake that retailers make is they fail to clearly and effectively communicate the organization’s goals and the role that each individual and team play in accomplishing them and meeting targets and objectives,” he says.
“Without properly communicating the organization’s loss prevention strategy company-wide and the processes meant to support it, there’s no way for anyone to benchmark progress. Store managers don’t know how their locations are performing against the rest of the network, frontline employees aren’t enabled with the tools and knowledge they require to understand potential threats of loss, and the organization likely continues to watch their shrink grow.”
3. Underestimating the cost of disengagement leading to internal theft
One of the biggest mistakes that retailers make, which can result in a variety of different forms of loss, is allowing for the overall deterioration of communication which results in a discontented and disengaged staff of employees. Inherent within inefficient communication and a disengaged group of workers is a lack of clarity concerning the roles that individuals within the organization play, resulting in operational errors and an undermining lack of accountability.
And a lack of accountability among employees, says O’Keefe, invariably leads to dishonesty and spikes concerning internal theft. And, he adds, the cost of a dishonest employee can really take a toll on retailers’ bottom line, even adding to the loss that’s occurred as a result of the theft. In fact, according to the Retail Security Survey, employee or internal theft accounted for 28.5% of loss incurred by retailers in 2021 – and according to the 2021 edition of the Retail Security survey, each dishonest employee case cost retailers over $1,500.
“Without accountability among staff, the operation and activity within a retail store erodes, along with the morale of the employees, resulting in an apathy that begins to set in,” says O’Keefe. “When that happens, even some of the best employees just don’t care. They don’t provide the service that’s required to ensure a satisfied customer and aren’t aware of the risks of loss when they arise. And, worse, that lack of care and concern devolves into incidents of internal theft, which are very difficult for retailers to detect and incredibly time consuming and costly to prosecute.”
4. Not staying vigilant about retail loss prevention
When reviewing numbers related to an organization’s loss, it’s important to recognize the measures that are working and stay the course in order to maximize the effectiveness of loss prevention strategies. In O’Keefe’s estimation, one of the more damaging mistakes that retailers make when executing against their retail loss prevention method is pulling back on essential resources and tactics that are doing well to safeguard the organization.
“Too often what happens within retail organizations is decision-makers decide to decrease the efforts, investments and initiatives that are contributing significantly toward reducing shrink,” he explains.
“People tend to forget that loss prevention numbers are naturally lagging. As a result, it’s incredibly difficult to quantify an existing program’s effectiveness in terms of its value until you get rid of it and the loss that it’s been preventing increases. In order to avoid this costly mistake, retailers need to maintain their focus on the potential risks, continue to track the right KPIs and ensure that they keep the right controls in place to mitigate potential loss.”
5. Not fully tech-enabling your asset loss prevention strategy
Effective loss prevention efforts today often involve some sort of technology and can include tools ranging from security tags to closed circuit television surveillance. The Retail Security Survey lists a number of technologies that are currently being used by retailers to help support their loss prevention efforts, including RFID systems (38.6%), AI-based POS video analytics (29.8%), advanced weapon detection (12.3%), facial recognition (12.3%), and many more.
Although much of the attention when it comes to the implementation of technology is often consumer-facing, O’Keefe suggests that equipping employees with technology to support the jobs they do is just as important. “There’s traditionally been a lot of focus put toward investment in technologies that are meant to provide surveillance and to detect when theft occurs,” he says.
“However, the same investment needs to be made in employees, arming them with tech that can help store managers provide them with immediate feedback, enabling microlearning opportunities and the chance to reinforce training. By doing so, retailers are able to ensure consistency in their operation and keep store staff up-to-date concerning their performance and best practices that can increase productivity and safeguard the company against loss.”
Focus on communication, training and education
In light of the current turbulence and disruption impacting retailers throughout the industry, it’s becoming increasingly important for them to tighten their controls around costs and losses incurred by the business while continuing to find ways to maximize efficiencies and productivity. In order to do so, it’s going to become equally paramount to develop a deeper and more holistic understanding of the business and the operational gaps that are inhibiting growth. And, to close these gaps, eliminating the costly mistakes that continue to hold retailers back when it comes to their loss prevention and asset protection strategies, greater emphasis must be placed on increasing communication with employees, enhancing the training and education that they provide for them to maximize outcomes, reduce loss and increase profitability.