Question: I think my retail business might have a shrinkage problem. I don't want to think that my customers or employees are ripping me off. How can I get a handle on this?
Answer: Yes, it's an ugly subject. And it certainly won't be made better by your head-in-the-sand approach. I can assure you that your business, and practically every other business, DOES have a theft problem. The question is, how big is it; and then, how can you effectively deal with it? Let's talk about this.
First off, we need to define the problem. Shrinkage is commonly thought of as the loss of inventory by stealing. So for a retail store like yours, shoplifting is the theft of merchandise. This is commonly done by someone who appears to be a customer, but who actually conceals merchandise and then takes it out of the store with no intention to pay for it. We'll talk about details in a moment. You also hear about this as "boosting" or "five-finger discount."
The other component of shrinkage is employee theft. Again, this is very common in a retail business, where inventory is available in quantity. But realize that it's also common in many other types of business. For example, an office employee might order in a two-pack of printer cartridges, and take one of them home for personal use. This is often called "back-door theft" and you'd be surprised at how ingenious some of their methods can be.
You need to address this straight on. That means look in the mirror and realize that, yes, some of my employees are probably dishonest. It's an ugly thought. But as the old saying goes, locks are just there to keep honest people honest.
Here's the scope of the problem: According to the National Retail Federation (nrf.com), shrinkage cost retailers about $34 billion last year. For some perspective, that's around $100 million every day. And when we say that it "cost retailers," that really means that the rest of us paid that $34 billion more, for the products that we bought. Ouch!
Richard Hollinger, a criminologist at the University of Florida, oversees the NRF survey. He notes that the 2011 loss of $34 billion was down by $2.6 billion (about 7 percent) from 2010. And that's a good thing, right? Well, yes and no. Hollinger attributes the decrease in loss to retailers "... implementing and updating loss prevention strategies in order to reduce shrinkage."
Here's the rub - all of the retailers in the survey are large retail chains. They are investing heavily in loss-prevention (LP) measures, like real-time monitored cameras, hi-tech price tags or well-trained specialized security staff. This makes sense, because big-box retail is very competitive. Even a fraction of a percent in profit margin is big money.
That's fine for the big guys, but for small retailers those LP measures aren't practical. The obvious conclusion is that shoplifters will increasingly move to target smaller businesses, which don't have those strong theft-prevention measures in place.
Here are three classic shoplifting examples.
- Several people come in and look around. Pretty soon there's a phony slip-and-fall "accident." While everyone rushes to aid the "victim," their colleagues pocket the targeted merchandise.
- Two people begin arguing loudly in a corner of your store. The other customers and staff are all distracted. Meanwhile, an accomplice loads up and leaves.
- An attractive young couple shows up with a small baby in a carriage. The carriage actually has a large empty compartment in the bottom. When the mother seems to have trouble maneuvering the vehicle around, the dad is "helpfully" leaning down, and packing items into the compartment.
Note that these are really just different forms of creating a diversion that seems legitimate at the time. For a real eye-opener, Google "shoplifting techniques." Be prepared for some coarse language, because many of the sites are actually instructions on how to shoplift.
And note this: our busy holiday season is in winter. Unless you plan on opening your next store in Australia, you have to expect that almost every holiday customer will have on heavy outerwear. So here's another oldie: a large and bulky coat with a hidden slit in the bottom of an outside pocket. The booster can readily pocket items, with minimal risk of detection.
I hope today's column gives you some feel for the nature and scope of the problem. Next week we'll look at some local aspects and several other things you need to know.
ABOUT ASK SCORE
Submit questions for this column to Business Editor Dave Gallagher at firstname.lastname@example.org. To learn more about other small-business matters, contact the local SCORE chapter at 360-685-4259 to schedule an appointment. For details about the organization, visit SCORE.org.
Ask SCORE is prepared for The Bellingham Herald's Sunday Business section by Bob Dahms, a business counselor with the Bellingham chapter of SCORE.