chapter seven retail security and loss prevention private sector issues 1

Chapter SevenRetail Security and Loss

Prevention

Private Sector Issues

1

The Retail Shrinkage ProblemThe Retail Shrinkage Problem

Shrinkage is one of the most serious problems facing retail stores, with estimated annual losses of between $12 and $40 billion

Retailers use the term “Shrinkage” to describe the difference between inventory on hand at the beginning of the year and inventory on hand (minus sales) at year end

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The Crime Prevention Service for Business of Rutgers University School of Criminal Justice defines “Shrinkage” as the difference between the inventory a business should have and what the business actually does have

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The Crime Prevention Service for Business of Rutgers University School of Criminal Justice states “Shrinkage” is the result of four main factors:Administrative and Bookkeeping ErrorsEmployee TheftVendor or Delivery Person FraudShoplifting

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The Rutgers study also states that higher than normal “Shrinkage” levels occur when:Overstocks and higher markdown ratiosMultifloor stores with many entrances and

exitsStores with supplementary storerooms and

warehousesStores that are sparsely staffed and are opened

long hours

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The Rutgers study also states that higher than normal “Shrinkage” levels occur when:Stores with high personnel turnover ratesMall stores with a combination of:

Individual assistanceSelf serviceCentral check out counters

Stores with inadequate screening of employees

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“Shrinkage” results in numerous losses:Revenue shortfallInventory shortageLoss of cash invested in the merchandiseFreight chargesProductivity on the part of the people

processing the shipmentsAny other fixed or variable costs incurred to

sell the items

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The National Retail Security Survey reports an average U.S. “Shrinkage Rate” of 1.52% second lowest number since 1991

Shrinkage occurs due to:Employee theft and return fraud 47%Customer theft 32%Supplier of vendor theft 6%Administrative or paperwork error 15%

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The National Retail Security Survey reports:Men shoplift more often then women8% of shoppers who enter a store will steal

somethingThe typical shoplifter falls between 35 and 54

year of age

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The National Crime Victim Survey (NCVS) and Australian Institute of Criminology report:A large number of crimes committed against

businesses go unreported to the policeShoplifting and employee theft are

significantly underrepresented (handled informally)

The NCVS indicates that roughly 2/3rds of all thefts go unreported to the police

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“Loss Prevention” refers to the use of methods to reduce the amount of shrinkage in retail storesManagement policy and operationsCrime prevention through environmental designInternal and external auditsStore detectives or loss prevention specialistsPeer reporting of suspicious or criminal activity

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Loss Prevention TechnologyClosed Circuit TelevisionElectronic Article SurveillanceBenefit Denial Systems (Ink Tags break and

stain the garment)Source Tagging Computerized Inventory ControlRadio Frequency IdentificationDNA Tagging

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Loss Prevention Non-TechnologyMirrorsLocking Antitheft Cables and WiresSecurity BarsSecurity Officers

OvertCovert

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Stores can also look for signs of shoplifting activity:Hangers Lying on the FloorRipped Price Tags Merchandise Placed Where it Should Not BeProduct Packages Disposed of in Hidden Spaces

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Sometimes there are other factors:Merchandise is more desirable by thievesUrban stores have more problems

More Suitable TargetsMore Motivated OffendersLack of Capable Guardians

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The Retail Shrinkage ProblemInternal Shrinkage

“Internal Shrinkage” has consistently been reported as more serious than external shrinkage

“Internal Shrinkage” is theft caused by a store or employer’s own employees

“Internal Shrinkage” includes:Theft by employeesCollusion between employees and othersCollusion between suppliers and vendorsAdministrative errors

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The Retail Shrinkage ProblemExternal Shrinkage

“External Shrinkage” is caused by theft by outsiders, generally shoplifters

A study analyzing 166,000 incidents from 101 stores discovered the most frequently stolen items were:CDsOver the counter medicationsHealth and Beauty products

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The same study found the following stores had the highest apprehension rates:DiscountDepartment storesSupermarkets

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Security executives report that at least 1/3rd of their inventory losses result form shoplifting incidentsThe average shoplifter is apprehended with

about $200 worth of merchandiseThe National Retail Federation estimates about

$10 billion in losses due to shoplifting each year

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Common Techniques Used by Shoplifters:“Palming” or grabbing the product by hand

Simplest and most common methodMay be aided by a package, handkerchief or

glovePurses and pockets are common places to

conceal the itemsPlacing stolen objects between their legs

(AKA “The Crotch Carry”)

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Common Techniques Used by Shoplifters:Wearing shoplifted items out of the store (hats

gloves, coats, sweaters or carrying purses out)Price SwitchingDistracting sales personsSee Exhibit 7.2, page 167

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The Food Market Institute’s list of the 50 most stolen items from supermarkets:Baby Formula (Similac)

Powder is 7thCans are 8th

It has long been an attractive item for shoplifters, who then sell it on the “Black Market”

Sometimes items are shoplifted and then returned for cash

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The Retail Shrinkage ProblemOrganized Retail Crime

The FBI estimates that retailers lose $30 billion a year from Organized Retail Crime or Organized Retail TheftGangs target high value consumer goods and

over the counter medicines that are in high demand and easily concealable

Later sold at flea markets, swap meets and through the internet

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In 2008 three bills were introduced into the U.S. Congress to fight Organized Retail CrimeThe Organized Retail Crime ActE-Fencing Enforcement ActThe Combating Organized Retail Crime Act

These Organized Retail Crime legislation would assist with the prosecution for crimes that occur across jurisdictional lines

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Law Enforcement Retail Partnership Network (LERPnet) developed an information sharing protocol with collaboration between industry associations, law enforcement and the retail community has experienced a large increase in the incidents reported into itBuilt a national database of retail theft incidentsAllows sharing of information with each other

and law enforcement

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Loss Prevention surveys found that the average retailer spends approximately $230,000/year on labor costs associated with loss prevention and many large retailers can spend up to $1 million/year

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Reducing the Shrinkage Problems

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Management PolicyAggressive management policies that emphasize

employee awareness and participation in dealing with the problem are valuable in reducing shrinkage


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Management PolicyInterviews of 1,500 shoplifters revealed:

Active, random threats to shoplifters like moving, alert staff, can be very effective in preventing shrinkage

Having motivated store personnel regularly approach and acknowledge customers

Knowing that the store employs plainclothes detectives or loss prevention specialists are working

Read Exhibit 7.3 Page 170


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Management PolicyLippman and McGraw write that employee theft

cannot be eliminated, but it can be controlled by good management techniques and intelligent use of acceptable security proceduresHonest people, stay honest (good backgrounds)Employees should be made to feel that they are part of

the firm and their contributions are important to its future

Instill a company police or code of ethicsHave adequate security measures in place


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Crime Prevention thru Environmental DesignCPTED involves using and designing the space

inside and outside of buildings, entrances, exits, landscaping and lighting to present the least opportunity for a criminal to avoid detection

There are three main strategies used for CPTED:Natural SurveillanceNatural Access ControlTerritorial Reinforcement


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Crime Prevention thru Environmental Design“Natural Surveillance” involves designing

windows, lighting and landscaping to improve the ability to observe what is going on inside and around the business

“Natural Access Control” refers to the use of doors, fences and gates to control access to the business or property and to make the business look like a riskier crime target


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Crime Prevention thru Environmental Design“Territorial Reinforcement” uses sidewalks,

landscaping and process to create a border between private and public property to create a feeling of territoriality and send a message to offenders that the property belongs to someone and the offender should keep out


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Crime Prevention thru Environmental DesignClosely related is the concept of “Crime Reduction

through Product Design”CRTPD involves the integration of protective

features into products in order to reduce their potential to become targets of criminal activity, as well as preventing their use as instruments of crime


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AuditsAudits and inventories are extremely important in

loss prevention effortsAudits and inventories will reveal the amount of

shrinkage occurring in the store and often can give clues as to who is responsible for such losses and thefts

The more often audits are conducted, the quicker the business will detect and investigate shrinkage


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Store Detectives/Loss Prevention Specialists“Loss Prevention Specialists” supervise and

manage loss prevention or security programs and conduct loss prevention investigationsAre usually in the middle or upper management

level in the corporate or business structureInternal and ExternalThink of them as internal police for retailers1/3rd now have college degrees


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Store Detectives/Loss Prevention SpecialistsAs often happens in the Criminal Justice field

“Loss Prevention Specialists” in addition to their “Loss Prevention” duties, are assigned a broad scope of responsibility for dealing with non-crime issues that may ultimately dilute their “Loss Control” effectiveness


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Store Detectives/Loss Prevention SpecialistsLoss prevention personnel interview suspected

shoplifters and internal theft suspectsThere are several training programs to assist

personnel in interviewing techniques including the Wicklander-Zulawski Associates Inc. a program that is designed to improve their ability to obtain the truth through proper interviewing techniques


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Store Detectives/Loss Prevention SpecialistsIn a survey of 40 U.S. retail stores employing store

detectives, most retailers reported that they currently assign their store agents:To patrol for shopliftersAudit store asset protection initiativesCreate loss prevention awareness among all store

staffDetectives are selected for their ethical, decision

making criteria


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Store Detectives/Loss Prevention SpecialistsThe survey also revealed:

The use of force is the highest ranked training topicRemember private security officers are not

restricted or protected by the U.S. Constitution66% indicated they were concerned about civil

liability (and subsequently changed their training)Remember the legal justification for store

detectives is “Merchant’s Privilege”


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Store Detectives/Loss Prevention SpecialistsThe Doctrine of Merchant’s Privilege holds that

even if it is later found that no crime took place the detention is proper if based on the following conditions:Detention:

Doesn’t have to be physical, can be by words, conduct, gestures or threats

As long as the detainee believes that they are not free to leave the premises


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even if it is later found that no crime took place the detention is proper if based on the following conditions:Probable Cause

The detention of the suspect must be based on probable cause

ReasonableThe detention of the suspect must be

reasonable


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even if it is later found that no crime took place the detention is proper if based on the following conditions:Consistency

Retailers must have policies that are applied evenhandedly without regard to the subject’s race or other personal factors


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Store Detectives/Loss Prevention SpecialistsRather than use the Criminal Justice System some

retail stores use “Civil Recovery” or “Civil Demand Programs”

Using these programs, the store initiates civil court proceedings against thieves to recovery monetary damages


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Store Detectives/Loss Prevention SpecialistsSome businesses will contract private investigative

firms to help them in their loss prevention programs“Integrity or Mystery Shopper” make discrete

observations in stores to:Deter inventory shrinkageDetect dishonest employeesProvide evidence for prosecuting employeesObserve performance and operations of store

personnel (attitude, appearance, knowledge…)


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Peer Reporting“Peer Reporting” involves employees monitoring

and reporting suspicious, illegal or unethical behavior by other employees within the company

“Peer Reporting” is one of the most effective techniques to detect and prevent employee theftAnonymous toll free “Hot Lines”Financial incentives


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Emerging TechnologySource Tagging

Manufactures attach tracking tags to products before they reach stores

Tracking tags are disposable security labels that are imbedded at the point of manufacture or package

Eliminates labor costs for in store tagging, reduces training requirements and discourages employee thefts


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Emerging TechnologyComputerized Inventory Control

Computer models that predict which items are more prone to theft

How many are in stockWhen they were soldHow many were sold in a day/week/month


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Emerging TechnologyRadio Frequency Identification

Distinctive information can be written to “Radio Frequency Identification” devices and retrieved by scanners

Works on the same concept as “E-Z Pass”Automatically keeps inventory, receiving,

shipping, sales…

chapter seven retail security and loss prevention private sector issues 1

Documents

shrinkage rate

term shrinkage

normal shrinkage levels

crime prevention service

counters stores

warehouses stores

operations crime prevention

rutgers study