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The Future of Retail Starts with a New Approach to Preventing Shrinkage

Shoplifting isn’t what it used to be. Instead of a few bored teens grabbing a CD or a candy bar, retailers are now faced with organized crime rings capable of staging flashmob-style events in which dozens of thieves descend on a single store. During the pandemic, things only got worse: three-quarters of retailers say they’ve seen an uptick in organized retail theft over the past year, and some stores saw a 300 percent increase during the COVID-19 crisis. “They come in every day, sometimes twice a day, with laundry bags and just load up on stuff,” one store employee told reporters.

Such tales are a reminder that while modern retailers invest huge amounts of time and money in bringing customers into their stores, giving them a pleasant experience, and selling them as much as possible, that’s only a part of what’s needed to succeed. If you think of retail as a bucket, then we’ve gotten pretty good at increasing capacity and funneling in as much water as possible. But while there’s plenty of water streaming into our buckets, a significant amount flows back out again.

Shrink — products lost to shoplifters, dishonest employees, vendor fraud, and administrative error — now costs retailers an estimated $123 billion per year, or the equivalent of 1.3 percent of total sales. As we think about the future of retail, we need to find a way to stop the leak. Serving customers and making our stores as inviting and efficient as possible is important and necessary — but we also need to tackle shrink, and plug the holes in our buckets, if we want to create scalable and sustainable success for retail brands.

- Digital Partner -

The scale of the problem

In order to address shrink, it’s important to understand just how much theft is costing your business. Shoplifting might sound trivial, but in today’s retail environment it can be a big problem: according to the National Retail Security Survey, the average shoplifting incident costs an affected business around $500.

When you look at more organized robberies and theft, the price-tag climbs higher still, with the average incident costing retailers about $7,600. And if a dishonest employee is walking away with your products, you can expect to lose over $1,550 per incident.

And the top-line cost of any given incident is only part of the story. Research from the National Association for Shoplifting Prevention shows that almost half of shoplifters are repeat offenders—so when somebody steals from you once, they’ll often come back for a second bite at the apple, sending your shrink costs spiraling upward.

In total, shoplifting accounts for about 5 percent of all retail shrink, while employee theft accounts for about 30 percent. By contrast, “legitimate” shrink, such as administrative errors, accounts for just 3 percent of all losses. Clearly, this is a problem that retailers can’t afford to ignore.

Out of sight, out of mind?

Part of the problem is that shrink isn’t typically noticed when it first occurs. While in-store security teams might sometimes be able to collar a clumsy shoplifter or spot an employee behaving in suspicious ways, their efforts aren’t enough to stanch the flow of losses. Among the hustle and bustle of a busy store, it’s all but impossible for even the best security teams to spot most criminal activity.

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And while security cameras might seem to offer an easy fix to that problem, the reality is that cameras are only valuable when your loss prevention team can securely watch the video footage remotely. Having to travel to stores or rely on someone in the store to watch the video for you is simply ineffective.

Inevitably, most traditional video security solutions record to media that gets filed away unwatched or simply recorded over. Worse still, unwatched security camera networks often wind up developing technical glitches, or operational blind spots as new signage and displays are added, that don’t get noticed until an incident occurs and security footage is reviewed—and by then, it’s too late.

A new approach

To turn things around, retailers need to get smart—and start using new technologies to level up their asset protection efforts and help security teams operate faster and more efficiently. Instead of using conventional CCTV systems that send images to fuzzy monitors and store content on a hard drive or even on DVDs, consider a cloud-based solution.

Cloud-connected security systems can often be layered onto existing legacy equipment, decreasing capital expenditures and cost of maintenance, and making them a cost-effective strategy to contain leakage. By streaming video instantly to your security team’s mobile devices, such systems provide “security on the go,” enabling them to check videos in real-time via a mobile app while out on the shop floor. If someone’s acting suspiciously, there’s no need to take your eyes off them and go to a back room to check camera footage—and if new shelving or signage obstructs a camera’s view, it’s easy to identify and correct the problem.

- Digital Partner -

Digital tech doesn’t just help when it comes to in-store video surveillance, either. Comprehensive store platforms can feed into a broader suite of high-tech tools: advanced algorithms and other digital tools can identify unusual in-store behavior, integrating with POS tools to link shopper videos to receipts and transaction summaries, and to flag suspicious transactions completed when there’s no shopper visible on checkout cameras—a quick way to identify problematic behavior by employees.

Inventory management tools, too, can use RFID chips, scanners, and related tech not just to stop products from walking out of the door, but also to give you full real-time visibility into what’s on your shelves. That’s useful both because disorganized inventory leads to shrink due to lost or misplaced products, and because chaotic in-store product tracing makes it far easier for theft and shoplifting to go unnoticed. And with a powerful cloud security platform, you’re also able to streamline evidence collection and proactively help with police investigations by exporting data and watermarked videos to the appropriate parties for followup and to support prosecutions.

Stop the leak

During the pandemic, we saw retailers embrace new technologies and e-commerce tools to reimagine and revitalize both the consumer experience and their own back-end operations. As a result, many merchants were able to find new ways to keep their businesses thriving, even amidst unprecedented challenges.

Now, shoppers are returning to stores, but retailers are still facing enormous challenges. In a world of supply chain disruptions, inflation, shrinking margins, increased competition, employee turnover, and economic anxiety, retailers need to bring the same spirit of innovation to managing their in-store operations.

That means delivering amazing, tech-forward experiences for customers and employees, of course. But it also means taking a long, hard look at vulnerabilities such as shoplifting, fraud, and theft by employees — and finding smart, efficient ways to stop leakage and ensure that revenues aren’t flowing out as fast as they come in.

Jason Luther

Jason Luther is the Chief Technology Officer with RetailNext, an analytics solution for brick-and-mortar retailers.

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