Retail Crime Fighters
How worried are retailers about crime? Retail shrinkage accounted for $34 billion in 2007, according to the preliminary results of the National Retail Security Survey presented at the recent NRF Loss Prevention Conference. But in an indication of industry concern, the press was banned from four workshops at the show covering online investigations, cyber intrusion response, homeland security and shopping center shootings.
The good news is that shrink as a percentage of sales was actually down to 1.42 percent, the lowest percentage since the study started in 1991 and compares favorably to 2006 (1.57 percent).
Categories with lower than average shrink rates include jewelry, consumer electronics, office supplies, household furnishings, shoes and media/games. Categories with higher than average shrink rates include publications, auto supplies, cards/gifts, men's and women's apparel, and home improvement.
According to retail respondents to the survey, employee theft causes 44.5 percent of all shrink, followed by shoplifting (34.5 percent), administrative (14 percent) and vendor fraud (four percent). Fifty-one percent of respondents said organized retail crime (ORC) is increasing while only three percent believing it is decreasing.
Loss prevention budgets as a percentage of retail sales now represent 0.62 percent and 19 percent of companies have ORC task forces. The average robbery now nets $12,000, while the average burglary nets $1,706.
Bill Suthard, manager of organized retail crime investigations for Lowe's Companies, outlined the scale of the organized crime component of retail shrinkage in a presentation.
Lowe's had 200 ORC cases last year and is tracking 170 groups, according to Mr. Suthard. He outlined several ways theft schemes are practiced by organized thieves, including UPC switching (swapping tags from low and high priced items), refund fraud, and box stuffing (putting a bunch of small high-priced items inside larger items).
Mr. Suthard advocates a complete approach to stopping organized theft. Lowe's tries to identify the method of operation and targeted merchandise, make the store aware of the situation, identify a solution to stop the immediate problem, review the case with legal counsel, collect evidence to support the prosecution effort, and work to provide law enforcement with a "ready made case." They like to be able to show authorities exactly what happened (often via videotapes along with receipts), and show them the financial loss it caused.
As Lowe's collects evidence it also investigates the suspects and perform background checks so that they can figure out if anyone else might be involved. A cautionary note here: Lowe's says to be very careful to review only information related to the investigation and make sure to comply with consumer privacy regulations. They also track where the merchandise is going. With ORC, it often ends up as gift cards that are sold on eBay. The criminal(s) switches tags on high and low-priced items, buys the higher priced item with the lower-priced tag, then comes back for a no-receipt refund on the item, generating a gift card that gets sold online.
Another key point is to make sure the beat officer who first investigates the situation for law enforcement has an easy-to-understand case summary that can easily be presented for prosecution. In identifying "ordinary" shoplifting versus organized crime, Lowe's relies on indicators such as whether the person worked alone, how far away from the criminal's home the crime occurred, whether they used manufactured bar codes, etc.
Discussion question: Do you think retailers in general are paying enough attention to shrink? What best practices do you suggest retailers adapt to lessen their losses?