April 20, 2022
How to Create a Loss Prevention Strategy for Your Business
To combat loss, you must understand the most common causes. They include external and internal theft, supplier fraud, inventory shrinkage, and administrative errors. This post will explain loss prevention best practices, such as retail security, proper cash handling, and staff buy-in.
Why Is Retail Loss Prevention Crucial?
Loss, also called shrinkage, takes away from your hard-earned profits. More seriously, it can lead to problems that make it difficult to stay in business. While a loss may occur in any industry, prevention is critical for retail stores. If shrinkage is too high, you may have to raise your prices, damaging your relationship with customers. You may find yourself unable to pay employees, purchase inventory, and cover your building lease. The risk is incredibly high for businesses with low-profit margins, like grocery and liquor stores. Investing some money and effort into loss prevention may lead to higher profits and more business growth. Addressing loss can have unexpected benefits for your business beyond saving money. For example, if you find that internal theft is frequent, you may need to revamp training or install surveillance cameras. If administrative errors are causing shrinkage, you can address factors like outdated software.How to Identify Retail Loss Culprits
It’s essential to understand the different types of loss to begin preventing them. Understanding how loss occurs will help you develop a strategy to avoid it. Loss can occur inadvertently or through deliberate action. Theft and fraud are examples of losses that occur because of an employee or other person’s purposeful actions. Errors, while unintentional, also lead to loss.Internal Theft
Internal theft, or employee theft, is when an employee steals money or property from their employer. This type of loss is surprisingly common. Compared to non-employees, employees are 15 times more likely to steal from their place of business.External Theft
External theft leads to 36.5 percent of shrinkage, according to a National Retail Federation study. The two main types of external theft are shoplifting and organized retail crime (ORC). Shoplifting is when a person steals while acting as a customer and can be planned or spontaneous. On the other hand, ORC is an intentional form of theft involving two or more participants. Your employees should also be aware of return fraud, which occurs when a shoplifter steals an item, then returns it to the store for cash.
Suppliers Fraud
There are different types of supplier fraud, also called vendor or procurement fraud. Someone can pose as a legitimate vendor that doesn’t exist, obtain payment, and then disappear. An employee of an authorized vendor can inflate the cost of goods or services and pocket the difference. In addition, vendors sometimes use bribes or extortion to gain an unfair advantage over clients.Admin Errors
Understandably, your employees are human, and humans make mistakes. In addition, outdated POS systems and software can also cause errors. These types of administrative errors contribute to 19 percent of retail shrinkage. Admin errors may result from improper training, overwork, or carelessness. Examples include mispricing merchandise and overpaying vendors.4 Loss Prevention Best Practices
It’s impossible to avoid loss entirely. However, following strategies to reduce loss can make a big difference in how it affects your bottom line.1. Handling Of Cash
Even as credit cards and payment apps grow in popularity, many customers prefer cash. Unfortunately for the retail industry, handling money leads to opportunities for mismanagement. Automating cash handling processes reduce the likelihood of errors. For example, a currency counting machine counts cash for you and is faster and more accurate than a person. A cash recycler is another option that stores cash securely after counting it and ensuring its validity. It then dispenses money, tracks the amount dispensed, and calculates the remaining funds. If you decide to invest in cash handling equipment, ensure that your employees know how to use it. To avoid theft, you must keep cash physically secure at all times.2. Physical Location Security
Properly securing your physical location reduces internal and external theft. Depending on your store’s size, you may decide to appoint staff to prevent shrinkage or hire a loss prevention contractor. Below, you’ll find a few ways to ensure physical location security:- Ensure your store is well-lit because shoplifters rely on shadowy areas to steal items.
- Limit exit points as much as possible. A single exit is easier for cashiers and other employees to monitor.
- Arrange shelving to allow employees to have a line of sight to the entrance.
- Install surveillance systems, which deter thieves and can help you pinpoint where loss is occurring.