When it comes to retail theft, the industry—and the media—tend to focus on more prominent brands with more stores and revenue that are accountable to shareholders.
However, according to some industry researchers, shrink from theft significantly impacts small-to medium-sized (SMB) retailers, which operate on narrower margins.
SMB retailers typically don’t have the budget or resources to invest in the training, security systems, and personnel to combat theft like larger retailers do. Offenders might also be more familiar with SMB retailers’ store layouts and know they lack specific security measures. If smaller stores with weaker security are located near larger stores with more robust protection, there might be an issue of displacement in which offenders pass by the big box shop for the mom-and-pop.
However, SMB retailers can employ lower-cost and lower-effort solutions and strategies to fight shrink at their stores. Depending on their specific shrink prevention needs, they can use their existing resources and systems.
SMB Retailer Shrink by the Numbers
Software Advice, a software marketplace and advisory services firm owned by Gartner, surveyed more than 400 retailers with 10,000 or fewer employees about retail shrink in November 2023.
The survey found that 34 percent of SMB retailers reported a rise in shrink over the past twelve months and that 68 percent have shrink rates above the current industry standard rate of 1.5 percent. In addition, 46 percent have experienced more theft at their stores, and 45 percent experience external theft at least once per week. The SMB retailers that struggled the most with shrink had twenty or more stores.
“Shrink is rising in the retail industry, but it’s affecting small-to-medium-sized businesses more,” said Molly Burke, a Software Advice analyst who authored the survey report. “I know from my research that it’s difficult for those SMBs to get an accurate reading of their shrink rate. It’s different regarding the resources SMBs have to calculate and mitigate shrink compared to those larger businesses.”
Burke said another nuance for SMB retailers is that they tend to provide a more intimate, local customer experience. Regulars in a mom-and‑pop store might come in daily and be friendly with the owners or employees—they’re seeking an experience rooted in community.
“If you’re, say, a neighborhood grocery or a mom-and-pop gift shop, customers want to go and touch those products, be able to look at them and feel them, and see if they want them from a sensory approach,” she said. “Consumers don’t want to feel like they’ve automatically been targeted as a potential shoplifter, which is also part of the problem with these super restrictive security methods.”
This means SMB retailers must carefully balance theft protection with that one-on-one experience. And that starts with understanding the specifics of shrink.
“I think the more you know about the shrink problem at your business, the better situated you are to preserve the customer experience through those different prevention tactics and find new ways to position your products around the store that make it easier for your employees to do everyday business without disturbances from potential shoplifters,” she said.
Burke’s report found that the most common in-store loss prevention strategies for SMB retailers include security cameras (53%), store layouts (40%), inventory management software (39%), security sensors (35%), and keeping records of known shoplifters (34%).
Among the most common tactics SMB retailers surveyed use to train store employees to discourage external theft safely include:
- Greeting all customers that enter the store (62%)
- Reporting shoplifting incidents to the company (56%)
- Counting the register daily and reporting discrepancies (52%)
- Calling security for active shoplifting incidents (47%)
- Filing police reports for external theft incidents (43%)
Burke found that 43 percent of those surveyed said they discourage employees from physically stopping an active shoplifter. Given that the average dollar value of the most frequently stolen items from SMB retailers is just $25, “it’s probably going to be more cost-effective for you just to let them go and file a police report,” she said.
First Things First: Use the Resources You Already Have
Burke noted that before an SMB retailer makes a technology purchase or tries to hire more resources to mitigate theft, it should exhaust all its lower-cost options.
“Really investigate: Is it a training issue? Could you be greeting customers more frequently? Is anyone actually monitoring security cameras to see where the most stolen-from areas of the store are? Can you do some floor layout rearranging?”
Christina Burton, PhD, and Justin Smith, PhD, research scientists at the Loss Prevention Research Council (LPRC), said that while the organization doesn’t have dedicated studies on shrink among SMB retailers, these stores can use the same prevention principles as any retailer at a low cost. These include:
- Crime prevention through environmental design (CPTED) is a multidisciplinary approach to deterring criminal behavior that focuses on changing the layout and appearance of stores.
- Situational crime prevention (SCP) can deter antisocial behavior by increasing the risk and effort involved in committing a crime and decreasing the associated reward.
- Routine activity theory suggests that a crime occurs when three elements converge in time and space: a motivated offender, a suitable target (a person or a product), and a lack of capable guardianship (no one, whether an employee, security personnel, or another customer, is there to intervene).
“Those principles will apply regardless of how technologically advanced your store is,” Burton said. “You’re going to use them anyway. You might need to rely on things you already have in your store to satisfy some of those conditions.”
Examples include enlisting store associates to patrol specific areas to create the same deterrent effect of increasing the risk or effort of shoplifting. Given their smaller footprint, this can work even better in smaller stores than larger ones. SMB retailers can also train their staff on what to look for in terms of concealment techniques, when to approach, and how to approach potential offenders. And given the fact that many SMB retailers have been in the community for many years, are respected by the community, and employ people from the community, it builds this idea of efficacy, Smith said.
“Having ownership in the store among the employees so they’ll actually want to step up and do something because it’s like if you’re stealing from that store, well, you’re stealing from our family, and you’re stealing from our community,” he added. “It’s not a big, faceless corporation.”
Another big (and low cost) piece of the theft prevention puzzle for SMB retailers is partnerships. Many law enforcement organizations have community policing units, where officers are specially trained to interact with local businesses and citizens to help them problem solve. SMB retailers can connect with this unit or a liaison and invite them to the store to dispense free crime prevention advice.
Other retailers can also serve as a broader intelligence network so that everyone is aware of incidents and offenders. This applies especially to co‑located retailers, such as those in the same strip mall, who can quickly share knowledge. Smith said some SMB retailers keep incidents of theft internal. Still, passing this knowledge on to other retailers increases the chances that more well-resourced shops can capture the offender. The other factor is that while prosecutors rarely focus on one-off theft, tying the information together can help build a case if an offender has hit multiple stores.
“Yes, the big retailers can theoretically put in more resources, but those small mom-and-pop shops can still provide enough,” Burton said. “If a larger retailer catches [an offender] or law enforcement gets them because of that alert, everyone wins.”
There’s also image management to consider. Burton said that if your store looks mismanaged and the aisles are dirty and disorganized, shoppers might have a greater fear of crime and avoid that store. However, the beauty of smaller businesses is that they often have local ties to the community, which they can use to get everyone involved in maintaining a well‑run, well-organized store. This, in turn, helps the community feel more invested in their local businesses.
“Maybe you can get community members to volunteer and help clean [your store] up, so now you’re not exerting any resources, but you’re also building those relationships in different ways,” Burton said.
Solutions for SMB Retailers That Are Lower Cost and Lower Lift
If, as an SMB retailer, you decide to invest in additional solutions to prevent theft at your stores, there are many feasible options on the market. But first, you must understand the problem areas you’re trying to target. This includes figuring out your problematic SKUs and where they are in the store. Then, you can develop different tiers based on the severity of the loss and determine how much you will put into securing those particular products. This doesn’t require a paid software system—you can track SKUs in Excel if need be.
“You really need to employ that critical thinking of assessing your problem areas within your store and then coming up with the solutions that are within your budget and within your resources and are going to have the greatest impact on those pain points,” Burton said.
She and Smith shared examples of some of these products, but given that the LRPC is vendor-agnostic, they did not name specific solution providers or their costs. However, multiple companies create the types of products described. They include:
- Bottle Tags: These devices could be placed on items like liquor bottles. They are tough to remove and, if attempted, will break the bottle, thus increasing the offender’s effort and risk. These tags are compatible with acoustic magnetic (AM) and radio frequency (RF) security systems, so if an offender tries to walk out of the store with an item, an alarm will sound.
- Anti-Concealment Tags: These items detect light, so if an offender puts something in their pocket and, therefore, prevents light, it will trigger an alarm.
- Peg Hooks: This simple, low-tech solution only lets customers remove one product at a time. It’s designed to make it difficult—and noisy—for an offender to do a shelf sweep.
- Locking Cases: Certain cases allow customers to open them with their smartphones, while others require employees to have a key. An alternative is to stock a sample product but store the rest of the inventory in the back room, away from prying hands.
“We’re not saying you have to pick the most advanced version of these,” Burton said. “Sometimes all you need is something to stem the bleeding. If you’re on a limited budget, you’ll get a better bang for your buck on some of those cheaper options that will still give you some of the same kinds of security.”
Smith said another factor is that theft might vary during the season. Around the holidays, for instance, SMB retailers might consider investing in a tether for specific items so customers can see and feel them but not walk out the door with them. Being connected to local law enforcement, other retailers, and the community can also help mitigate theft in low-cost ways.
“Having those partnerships helps give you that intelligence of when you might anticipate that seasonality because now, you’re working with law enforcement and maybe community members,” Burton said.
Burke echoes the LRPC’s sentiment that SMB retailers can go far with their existing resources, inexpensive security products, and tapping into the wider community.
“Shrink is not something small businesses can afford to ignore,” she said. “So you’ll have to assess how it’s affecting your business. If you prioritize those low-cost methods, I think you’ll find it so much less daunting—it’s an existential threat to your business not to understand the scale of shrink at your company.”