Loss Prevention Practices for Your Retail Small Business

"Uncontrolled inventory shrinkage erodes profit, kills annual budgets and forces sales staff reductions to the point where store appearance and productivity falls off, effectively killing the viability of the store," says Los Angeles-based Chris McGoey, a loss prevention expert and lecturer and president of McGoey Security Consulting. "To stop this downward spiral, the store needs a loss prevention plan that focuses on the major causes of inventory shrinkage."

According to a 2012 National Retail Federation survey, retail shrinkage caused by employee theft, shoplifting, paperwork errors or supplier fraud costs American business owners more than $34 billion per year. You can cut down on retail loss in your store by implementing important loss prevention practices.

Preventing Employee Theft

Whether an employee is directly stealing cash or charging a customer one price, ringing up a receipt for less and pocketing the difference, employee theft is the biggest single cause of retail loss for U.S. business owners at about $15 billion annually, according to the NRF survey. Fortunately, there are some effective ways to reduce it:

• Develop a fraud avoidance plan to make sure employees know where the company stands on employee theft and other crimes. A plan should include pre-employment and periodic background checks, regular computer password updates, audits and posted consequences of theft.
• Perform background checks on job applicants. Speak to previous employers and references. Look for prior criminal convictions (especially any that are theft related), inconsistency on an employment application, false information given during the pre-employment interview, and a lack of job history or references.
• Once hired, close supervision and enforcement of policies and procedures is a proven method for curbing employee theft. "Dishonest employees flourish in stores where supervision is lax and procedures are easily circumvented without challenge," McGoey says.
• If you’re not always at the office, make unscheduled inspections or audits of inventory and bookkeeping.

Stopping Shoplifters

Businesses also lose a significant amount of money to shoplifters — just shy of $10 billion a year. Here are some simple and straightforward guidelines to help curb this common crime:

• Greet each customer who walks into the store. A simple, "Can I help you?" warns shoplifters that workers are aware of who’s in the store.
• Keep dressing room doors locked so customers have to ask an employee to open them. This kind of personal attention makes it clear you’re cognizant of risk.
• Widen the space between displays and use shorter floor fixtures near entrances so your view of customer activity is less obstructed.
• Install mirrors throughout the store. They can make potential shoplifters feel watched, and they also allow salespeople to see over and around displays to better view customer activity.
• Post signs warning about the consequences of shoplifting. It could be as simple as "Shoplifters Will Be Prosecuted," or "Shoplifting Is a Crime: Offenders Will Be Prosecuted." The best way to discourage shoplifters is to take a get-tough attitude and let them know you prosecute on the first offense.

Other Causes of Loss and How to Prevent Them

Loss can also be caused by vendor error/fraud, which occurs most often when vendors do their own stocking. This can be prevented by doing truck and delivery audits and keeping a close eye on receiving. These measures can keep you from mistaking missing inventory for items that were never in your store to begin with.

Administrative errors account for about 12 percent of shrinkage in many businesses. These errors are often the result of simple pricing mistakes due to markups or markdowns. Audits can help avoid loss in this area, as can stepping up employee training. Shrinkage remains a serious problem for American retailers, but with a combination of careful hiring and employee supervision, a vigilant and clear policy toward shoplifting, and consistent audits and training, you can cut down on its impact on your retail business.