Where is your retail loss occurring?
Each year retailers take a major hit to their bottom line due to loss. It’s a problem costing the industry more than $123 billion globally, and an estimated 2.21 per cent of retail sales.
In the US, the National Retail Federation notes shrink cost retailers $46.8 billion in 2017 or 1.33 per cent of sales, and the trend has consistently risen in recent years.
Meanwhile, loss occurs on multiple levels – in the supply chain, behind the counter and due to shoplifting, which begs the question where is your loss occurring?
1. Shoplifting
For American retailers, shoplifting (encompassing both common shoplifting and organised retail crime) remains the greatest contributor to retail loss, accounting for 35.7 per cent of retail shrink in 2018.
That figure is lower than in 2017 when shoplifting accounted for 36.5 per cent of all retail loss and significantly less than in 2016 when shoplifting equated to 39.4 per cent.
The National Retail Federation (NRF) explains the figure illustrates that shoplifting had surpassed employee theft as the leading cause of shrink for the fourth year in a row, yet encouragingly the figure continued to decrease.
And they note when it came to which vertical was likely to be targeted by shoplifters, the apparel sector had the highest incidence of thefts, with 43 per cent of their retail shrink attributed to shoplifters.
Top loss prevention strategy
Electronic Article Surveillance using hard tags and security labels remains the most effective strategy to protect individual items against theft, particularly within the apparel sector.
This should be coupled with further store protection methods, such as staff training, dedicated loss prevention personnel, good store layout and lighting, and CCTV.
2. Employee theft
In 2018, employee theft was responsible for almost a third (33.2 per cent) of all retail loss in America.
That marked a significant increase on the year prior when internal theft bottomed out at 30 per cent but was a decrease on 2016 and 2015 when employee theft was responsible for 35.8 per cent and 34.5 per cent of loss respectively.
Top loss prevention strategy
The best way of mitigating employee theft is via thorough employee screening and criminal checks.
This strategy can be coupled with advanced monitoring tools such as smart locks which give an insight into which employee accessed which cabinet or display when, POS analytics that show which employees were responsible for what transactions, and CCTV monitoring.
3. Administrative and paperwork error
The NRF explains administrative and paperwork errors dropped last year compared to 2017, but still showed an increase over time.
In 2018, administrative and paperwork error accounted for 18.8 per cent of all loss, down from 21.3 per cent in 2017. In 2016 and 2015, administrative and paperwork error resulted in 16.8 per cent and 16.5 per of losses respectively.
Best loss prevention strategy
Administrative and paperwork error is a tough area to tackle, but the risk can be mitigated through automation. Tools such as RFID tagging can be of benefit, especially when applied at the point of manufacture, or when they’re used to prompt the automatic reordering of products.
4. Vendor fraud or error
Vendor fraud or error has risen over the past three years but still remains lower than the 6.8 per cent high of 2015. In 2018 it contributed to 5.8 per cent of loss, while in 2017 it was responsible for 5.4 per cent, and in 2016 accounted for 4.8 per cent.
Best loss prevention strategy
Diligence in reconciling orders and counting stock on delivery are the best ways to identify and combat vendor fraud or error. RFID source tagging can also be of huge assistance, with a recent study illustrating RFID can offer supply chain accuracy of 99.9 per cent.
5. Unknown loss
In 2018, 6.6 per cent of all retail loss was simply a mystery. Fortunately, this was a decline in 2017 when 6.8 per cent of stock simply vanished and in 2016 when 7.2 per cent of stock just disappeared. But it still marked an increase in 2015, when only 6.1 per cent of shrink was attributed to unknown loss.
Best loss prevention strategy
Analytics, data and metrics are the best ways to ascertain where mystery loss is occurring in any retail outlet. You can read more about how these metrics can be used to predict and identify loss here.
