Loss prevention is the action a business takes to reduce theft and fraud. These avoidable losses, caused by human error or deliberate efforts, are known as shrinkage. Shoplifting and employee theft make up a $61 billion annual loss in the retail industry. These incidents are encouraging retailers to invest in technology to reduce shrinkage.
Loss prevention aims to remove preventable losses and preserve profits. It is primarily retail-oriented but also exists in other business environments. Businesses often implement strategies such as hiring loss prevention managers or installing security cameras.
According to the 2020 National Security Survey, the risk has become a priority for retailers over the past five years – organized retail crime, internal theft, and return fraud. Shrinkage robs retailers of their profits. The higher the shrinkage, the harder it is to stay in business.
Some contributing factors to shrinkage are employee robbery, stealing, administrative errors, vendor fraud, and product damage. Several businesses try to cover shrinkage by increasing product prices. This becomes a burden on customers and might damage relationships with them.
Here are some loss prevention strategies:
- Audit hiring and training - Discussing loss prevention during new-hire orientations can improve operations, impacting shoplifting and employee theft. You should also be hiring workers who are conscientious and with integrity. They should be trained to identify and stop abuse of power or shoplifting when they see one. You can bring in Blue Chip Inventory Service to conduct loss prevention training for your employees.
- Implement clear policies - Businesses use a Code of Conduct to communicate the organization’s commitment to ethical working methods and set expectations for employee behavior. Disciplinary actions should be discussed if an employee violates any policies.
- Create strong restrictions. Install burglar alarms, digital video recorders, and CCTVs.
- Get buy-in. Shrinkage is a fight for everyone in the organization, from the CEO to the rank-and-file employees. Transparency about the issue is needed. Shrinkage numbers should be communicated to the whole company. Address shrinkage as a team by sharing loss prevention goals.
- Hire a loss prevention manager. Blue Chip Inventory Service can spearhead your loss prevention efforts. They can lead to the following:
- Investigate thefts, fraud, and workplace violence, and provide results.
- Keep business owners informed of key issues and loss prevention strategies.
- Analyze data, perform audits, and identify action plans to mitigate risks.
- Promote and execute best practices in security.
- Perform spot checks in stores.
- Strict accounting practices. Cost accounting tracks inventory based on what was paid for when received—retail accounting values inventory based on retail price. You can track prices over time, markups and downs, and sale prices of products. It is a better identifier of shrinkage than cost accounting. You need to ensure your inventory reports and sales records align since the IRS may audit your business.
- Improve inventory management. Implement item tracking, inventory counts, surprise audits, and inventory management technology investments.
Shrinkage is a part of business life. But it does not mean that you will settle for throwing away sales annually. An effective loss prevention plan is the best way to limit your business losses. It is the only way to fight shrinkage effectively.