Chapter Seven Retail Security and Loss Prevention Private Sector Issues 1

The 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 2

The Retail Shrinkage Problem 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 3

The Retail Shrinkage Problem 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 Errors Employee Theft Vendor or Delivery Person Fraud Shoplifting 4

The Retail Shrinkage Problem The Rutgers study also states that higher than normal “Shrinkage” levels occur when: Overstocks and higher markdown ratios Multifloor stores with many entrances and exits Stores with supplementary storerooms and warehouses Stores that are sparsely staffed and are opened long hours 5

The Retail Shrinkage Problem The Rutgers study also states that higher than normal “Shrinkage” levels occur when: Stores with high personnel turnover rates Mall stores with a combination of: Individual assistance Self service Central check out counters Stores with inadequate screening of employees 6

The Retail Shrinkage Problem “Shrinkage” results in numerous losses: Revenue shortfall Inventory shortage Loss of cash invested in the merchandise Freight charges Productivity on the part of the people processing the shipments Any other fixed or variable costs incurred to sell the items 7

The Retail Shrinkage Problem 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% 8

The Retail Shrinkage Problem The National Retail Security Survey reports: Men shoplift more often then women 8% of shoppers who enter a store will steal something The typical shoplifter falls between 35 and 54 year of age 9

The Retail Shrinkage Problem The National Crime Victim Survey (NCVS) and Australian Institute of Criminology report: A large number of crimes committed against businesses go unreported to the police Shoplifting and employee theft are significantly underrepresented (handled informally) The NCVS indicates that roughly 2/3rds of all thefts go unreported to the police 10

The Retail Shrinkage Problem “Loss Prevention” refers to the use of methods to reduce the amount of shrinkage in retail stores Management policy and operations Crime prevention through environmental design Internal and external audits Store detectives or loss prevention specialists Peer reporting of suspicious or criminal activity 11

The Retail Shrinkage Problem Loss Prevention Technology Closed Circuit Television Electronic Article Surveillance Benefit Denial Systems (Ink Tags break and stain the garment) Source Tagging Computerized Inventory Control Radio Frequency Identification DNA Tagging 12

The Retail Shrinkage Problem Loss Prevention Non-Technology Mirrors Locking Antitheft Cables and Wires Security Bars Security Officers Overt Covert 13

The Retail Shrinkage Problem Stores can also look for signs of shoplifting activity: Hangers Lying on the Floor Ripped Price Tags Merchandise Placed Where it Should Not Be Product Packages Disposed of in Hidden Spaces 14

The Retail Shrinkage Problem Sometimes there are other factors: Merchandise is more desirable by thieves Urban stores have more problems More Suitable Targets More Motivated Offenders Lack of Capable Guardians 15

The Retail Shrinkage Problem Internal 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 employees Collusion between employees and others Collusion between suppliers and vendors Administrative errors 16

The Retail Shrinkage Problem External 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: CDs Over the counter medications Health and Beauty products 17

The Retail Shrinkage Problem External Shrinkage The same study found the following stores had the highest apprehension rates: Discount Department stores Supermarkets 18

The Retail Shrinkage Problem External Shrinkage Security executives report that at least 1/3rd of their inventory losses result form shoplifting incidents The average shoplifter is apprehended with about $200 worth of merchandise The National Retail Federation estimates about $10 billion in losses due to shoplifting each year 19

The Retail Shrinkage Problem External Shrinkage Common Techniques Used by Shoplifters: “Palming” or grabbing the product by hand Simplest and most common method May be aided by a package, handkerchief or glove Purses and pockets are common places to conceal the items Placing stolen objects between their legs (AKA “The Crotch Carry”) 20

The Retail Shrinkage Problem External Shrinkage Common Techniques Used by Shoplifters: Wearing shoplifted items out of the store (hats gloves, coats, sweaters or carrying purses out) Price Switching Distracting sales persons See Exhibit 7.2, page

The Retail Shrinkage Problem External Shrinkage The Food Market Institute’s list of the 50 most stolen items from supermarkets: Baby Formula (Similac) Powder is 7th Cans 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 22

The Retail Shrinkage Problem Organized Retail Crime The FBI estimates that retailers lose $30 billion a year from Organized Retail Crime or Organized Retail Theft Gangs 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 23

The Retail Shrinkage Problem Organized Retail Crime In 2008 three bills were introduced into the U.S. Congress to fight Organized Retail Crime The Organized Retail Crime Act E-Fencing Enforcement Act The Combating Organized Retail Crime Act These Organized Retail Crime legislation would assist with the prosecution for crimes that occur across jurisdictional lines 24

The Retail Shrinkage Problem Organized Retail Crime 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 it Built a national database of retail theft incidents Allows sharing of information with each other and law enforcement 25

The Retail Shrinkage Problem Organized Retail Crime 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 26

Reducing the Shrinkage Problems 27 Management Policy Aggressive management policies that emphasize employee awareness and participation in dealing with the problem are valuable in reducing shrinkage

Reducing the Shrinkage Problems 28 Management Policy Interviews 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

Reducing the Shrinkage Problems 29 Management Policy Lippman and McGraw write that employee theft cannot be eliminated, but it can be controlled by good management techniques and intelligent use of acceptable security procedures Honest 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 ethics Have adequate security measures in place

Reducing the Shrinkage Problems 30 Crime Prevention thru Environmental Design CPTED 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 Surveillance Natural Access Control Territorial Reinforcement

Reducing the Shrinkage Problems 31 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

Reducing the Shrinkage Problems 32 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

Reducing the Shrinkage Problems 33 Crime Prevention thru Environmental Design Closely 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

Reducing the Shrinkage Problems 34 Audits Audits and inventories are extremely important in loss prevention efforts Audits 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

Reducing the Shrinkage Problems 35 Store Detectives/Loss Prevention Specialists “Loss Prevention Specialists” supervise and manage loss prevention or security programs and conduct loss prevention investigations Are usually in the middle or upper management level in the corporate or business structure Internal and External Think of them as internal police for retailers 1/3rd now have college degrees

Reducing the Shrinkage Problems 36 Store Detectives/Loss Prevention Specialists As 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

Reducing the Shrinkage Problems 37 Store Detectives/Loss Prevention Specialists Loss prevention personnel interview suspected shoplifters and internal theft suspects There 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

Reducing the Shrinkage Problems 38 Store Detectives/Loss Prevention Specialists In a survey of 40 U.S. retail stores employing store detectives, most retailers reported that they currently assign their store agents: To patrol for shoplifters Audit store asset protection initiatives Create loss prevention awareness among all store staff Detectives are selected for their ethical, decision making criteria

Reducing the Shrinkage Problems 39 Store Detectives/Loss Prevention Specialists The survey also revealed: The use of force is the highest ranked training topic Remember private security officers are not restricted or protected by the U.S. Constitution 66% indicated they were concerned about civil liability (and subsequently changed their training) Remember the legal justification for store detectives is “Merchant’s Privilege”

Reducing the Shrinkage Problems 40 Store Detectives/Loss Prevention Specialists The 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

Reducing the Shrinkage Problems 41 Store Detectives/Loss Prevention Specialists The 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: Probable Cause The detention of the suspect must be based on probable cause Reasonable The detention of the suspect must be reasonable

Reducing the Shrinkage Problems 42 Store Detectives/Loss Prevention Specialists The 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: Consistency Retailers must have policies that are applied evenhandedly without regard to the subject’s race or other personal factors

Reducing the Shrinkage Problems 43 Store Detectives/Loss Prevention Specialists Rather 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

Reducing the Shrinkage Problems 44 Store Detectives/Loss Prevention Specialists Some 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 shrinkage Detect dishonest employees Provide evidence for prosecuting employees Observe performance and operations of store personnel (attitude, appearance, knowledge…)

Reducing the Shrinkage Problems 45 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 theft Anonymous toll free “Hot Lines” Financial incentives

Reducing the Shrinkage Problems 46 Emerging Technology Source 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

Reducing the Shrinkage Problems 47 Emerging Technology Computerized Inventory Control Computer models that predict which items are more prone to theft How many are in stock When they were sold How many were sold in a day/week/month

Reducing the Shrinkage Problems 48 Emerging Technology Radio 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…