It’s retail’s $45 billion problem — shrinkage — and it’s forcing companies to change, which includes rethinking executive roles. But retailers are still not up to speed on making investments to mitigate the issue.
Enter the loss prevention executive, who has had to expand his or her role to go beyond just supervising in-store guards and making sure the cash gets to the bank safely at night. The head of LP has transformed into a data analyst to combat thefts carried out with high-tech systems.
The executive is also dealing with the IT department as they tackle credit card fraud, cybercrime or review data from RFID tags. The result is a job description that is expanding to cover multiple responsibilities with the ultimate goal of reducing shrinkage.
“There’s so much more on their plates,” said Maureen Lally, vice president of marketing at Tyco Integrated Security. “The tech is more pervasive,” she explained. “Many retailers are late in implementing these new technologies because of the IT and management expertise needed to install these systems across big chains.”
But while the role of the LP executive grows, loss prevention budgets have remained flat as a percentage of sales, making a tough job even tougher. In a recent NRF Loss Prevention survey, 8 out of 18 respondents in specialty men’s and women’s apparel reported decreases in their staffing and budgets for loss prevention. Fortunately for stores, advances in retail crime fighting are helping retailers do more with less.
The NRF’s most recent study also found that old-fashioned shoplifting, including organized retail crime was the leading cause of inventory shrink, accounting for 39.3 percent. This was followed by employee theft at 35.8 percent. Administrative and paperwork errors caused 16.8 percent of loss. And 7.2 percent of inventory loss has no determined cause, while vendor error is the smallest culprit at 4.8 percent.
Shoplifting in 2015 had an average loss of $377 per event — up from just $60 in 2014. But retailers in the apparel category said that the average loss per incident fell to $211 last year from $397 in 2014. Specialty women’s and men’s apparel retailers also reported that shoplifting dropped 9 percent in 2015. An increase in surveillance cameras and smarter and more responsive loss prevention tags are helping to reduce the theft. Retailers are also hiring more uniformed guards and fewer undercover detectives with the idea that the more visible the security, the better. It could also be that slowing mall traffic is resulting in fewer shoplifting events.
It’s also worth noting that, overall, retailers said employee theft had remained steady, while specialty apparel said that their internal theft increased from 28.1 percent in 2014 to 35.8 percent in 2015. StatisticBrain.com noted that 1 in 30 retail employees are arrested for theft while 37.1 percent of total thefts are committed by a manager.
“Even with theft from employees, there are better processes in place to manage employee theft,” said Lally. “Retailers are better able to measure more precisely and more accurately and are able to track inventory better.” She believes increasing the number of cameras in shipping areas and over registers is key.
Meanwhile, payment card fraud losses amounted to $7.86 billion in the U.S. in 2015, or 12.75 cents for every $100 in total volume. The credit card companies are trying to fight back with new chip-enabled cards (EMV technology) for better security, but that has caused problems for retailers and their customer service because of the time it takes for a chip reader card to be processed at the register.
Also with the new EMV technology, the fraud will be borne by the merchants and not the card companies. Last year, merchants were on the hook for $2.95 billion in fraudulent card charges. Expect this number to rise. Many retailers are delaying the installation of EMV readers to avoid paying for fraudulent transactions.
In addition to card fraud, loss prevention executives are struggling with credit card data breaches. The TJX Cos. Inc. suffered one of the largest breaches in 2006 with 94 million cardholders affected. It seems no matter how secure a retailer makes its systems, an ingenious hacker can get through it.
Adding to these worries is knocked-off gift cards. In one example, thieves used stolen credit cards to buy gift cards. A Brooklyn, N.Y., woman was recently sent to prison for spending $435,000 on fraudulently purchased gift cards. One way merchants can fight this fraud is by using the EMV cards.
An emerging form of employee theft revolves around in-store fulfillment of online orders due to the growth of omnichannel retailing. Randy Dunn, from Tyco Retail Solutions, said what retailers aren’t anxious to publicize is that employees are capitalizing on boxing up inventory in back offices. “More inventory is leaving the store in a brown box,” he said. “What’s in that box?”
Dunn’s observation keys into how omnichannel retailing now involves goods that are delivered to and shipped from stores, which increasingly serve as warehouses.
Simultaneous with the growth of omnichannel retailing is the increase in cyber crimes. Trustwave said the retail industry accounted for the largest single share of incidents that they investigated -— 23 percent of the total. E-commerce accounted for 38 percent of retail cyber crime involving card-not-present transactions.
Omnichannel shopping has also forced retailers to address their inventory tracking as customers are able to purchase product through various channels. Making it even more challenging is that they can return the product in a variety of ways. RFID tags are the easiest way for retailers to track their merchandise.
Joan Sparks, vertical market leader for retail at Tyco Integrated Security said, “It’s an expensive process to switch over to RFID and then associate it with video, but you have to do it because of omnichannel.”
Whether it’s new video cameras, RFID tags or EMV chip readers, retailers have an expanding set of tools to combat crime. And in order to fight crime, retailers will have to stay one step ahead of the thieves.