It’s no secret the retail industry has a shrink problem. According to the National Retail Federation, U.S. retailers report average annual losses of approximately $46.8 billion due to theft and error. While understanding these causes can be helpful, it’s far from a final solution to reducing your shrink problem.
Shrink, or loss reduction requires more than understanding―it requires action. A well-structured loss prevention program should be designed around six principles: Prevention, awareness, compliance, detection, investigation, and resolution. Below, we explored each of these six principles and how they fit together to reduce shrink.
Prevention may sound intuitive and basic, but it’s a critical element of a loss prevention program that promotes healthy results. Often, programs are launched on the idea of “catching bad guys” or “putting out fires.” While these are important elements to shrink reduction, successful programs must also consider the long-term goals.
When you view loss prevention as a long-term solution, you’ll create an environment that reduces opportunity, builds safeguards, and ultimately reduces the number of resources and efforts required for successful loss control. Prevention serves as a reminder within each additional principle that the actions we take should include thoughts on both today’s need and tomorrow’s prevention.
Prevention: Next steps
Here are six core elements to promote a long-term prevention strategy:
- Written, repeatable, and measurable policies and procedures.
- Effective communication vehicles.
- Consistent measurement.
- Cross-department partnerships and commitment.
- Dedicated resources and reaction protocols.
- Cross-department partnerships.
Your associates can’t fix a problem they don’t know exists. Successful loss prevention programs share a key ingredient: Culture. In order to generate awareness, it’s important to create a culture that communicates the message that loss prevention is everyone’s responsibility and each person contributes to reducing shrinkage. Make sure your team understands:
- There is a problem.
- It’s their responsibility.
- What specifically they are being to do.
Awareness centers, newsletters, payroll messages, meetings, and webinars are some of the most successful vehicles to raise awareness and deliver the message in a clear, consistent and regular basis.
Awareness: Next steps
To successfully generate awareness within your workforce, follow these best practices:
- Make the message simple, clear and concise.
- Deliver the message over various channels to maximize the audience.
- Consider the receiver—don’t over-simplify and don’t over-complicate.
- Ensure the message has a “call to action.” Tell your associates what you want them to do.
- Don’t stop and never assume you’ve educated them enough.
You can’t have a successful loss prevention program just by creating a list of programs and proclamations. It sounds intuitive, but often theory and practice are not well synchronized. In order for loss prevention programs and processes to work, you have to implement and consistently adhere to them.
The only way to gain certainty that loss prevention programs are being executed and the only way to measure those results is to ensure compliance. You can measure compliance simply by asking good, open-ended questions. (This also helps you understand if associates understand what they’re required to do.)
However, the most effective method to ensure program success is by conducting audits. Frequent audits ensure compliance, while also providing an opportunity to correct misunderstandings, further educate, and identify troublesome management practices.
Compliance: Next steps
Ensure compliance of your loss prevention program by:
- Writing clear policies.
- Inspecting and documenting practices regularly.
- Insisting on consistency in execution (regardless of the season).
- Creating a process of immediate correction of exceptions.
Human beings are the greatest of generalizers. Many of the things in our surroundings become a part of our mental patterns, and often, even when elements of that environment change, we continue to see only what we expect to see and what we have seen before. Consequently, detection requires more than mere observation. Like loss prevention, “detection” must be a verb—it must be an action.
Errors and theft compound over time. An associate, for example, makes an unknowing mistake, it goes uncorrected, and over time it becomes more certain to that associate that the mistake is the “correct” process. Or, perhaps a dishonest associate “tests” the waters with a small theft, and then over time the frequency of action and amount of theft increases.
Detection is the process by which we discover and correct the small problems before they become big problems. It is, after all, far easier to blow out a match than a building fire.
In order to detect problems, it’s important to first have a clear plan for how things should be completed and how to identify the signs to look for if something is incorrect. You’ll then need to make regular, consistent, and objective observations to discover exceptions, from simple observations and inspections to more advanced processes like cycle count systems and exception-based reporting analysis. The greater and more varied your detection efforts, the higher rates of discovery, the quicker your reaction, and the greater impact you can have on loss reduction.
Detection: Next steps
Here are the best ways to detect error and identify exceptions to quickly discover and react to loss prevention:
- Identify actions that create loss by internal and external theft and error.
- Identify key performance indicators (KPIs) to focus detection on the most critical issues.
- Use audit and inspections as not only a scorecard, but also as an opportunity to ask the bigger questions: Is this a mistake or is it intentional? Is this a training issue or a dishonesty issue? How long has this been occurring?
- Conduct opening and closing observations to see the “real world activities” in action.
- Don’t just visit—observe.
Retailers face a number of obstacles in terms of dishonesty. High turn-over, low supervision, and tempting products can create an environment that’s more susceptible to issues of theft and dishonesty. Investigations are a part of the cost of doing business. While with the first four principles you can reduce the number of loss prevention incidents, it’s unlikely you can eliminate the need to investigate.
Investigations are the reactions you employ when your pro-action has not prevented a loss. Although an investigation means you have already lost product or capital, its purpose is to “stop the bleeding” and to reduce future losses.
As critical as investigations are to a loss prevention program, they also pose a potential for liability if improperly executed. An investigator should be a highly trained professional who understands the rules of evidence and understands how to properly evaluate the difference between what is “fact,” what is “evidence,” and what is the “truth.”
Like the other principles, investigations can employ several tools. You can have discussions with those involved or potentially involved in an incident, conduct mystery shops to report on behaviors, employ the use of cameras to make and record actions, and audit paperwork for clues and patterns. The better our first four principles, the easier the process for investigation.
Investigation: Next steps
Use this checklist before conducting an investigation:
- Employ trained personnel to conduct investigations related to theft and employee relation’s issues.
- Create clearly written investigative protocols to ensure professional and appropriate processes.
- Have a list of “general trigger” events that activate/require investigation.
- Know in advance the roles and responsibilities related to investigations, including loss prevention, human resources and operations team members.
- Create consistent practices and corrective action guidelines.
Resolution is the action we take to correct the course, to eliminate the problem, and to implement solutions that prevent reoccurring issues. Each resolution is defined and determined by the issue at hand. For example, in cases of dishonesty, resolution may be termination of a dishonest employee. Or in compliance issues, it may require retraining or at times, redefining policies. The critical component of resolution is to ensure your actions are based on the main goal: Prevention.
How you resolve loss prevention issues greatly determines the future success of your program. You’ll need to consider an objective and “big picture” view of the situation, the root cause, and the policy and practices of your company to find a balance between the size of the problem and the intensity of your reaction. In this way, resolution is not just a plan for today, it’s a long-term strategy that will assist in your future efforts.
Resolution: Next steps
Follow these steps to create resolutions for each issue:
- Identify issues, such as theft, high shrink, audit failure, employee relations issues.
- General protocols for resolution.
- Post-event training and education programs.
- Post-event analysis, reporting and communication.
Loss Prevention Services
The most successful loss prevention programs view these six principles as an interactive circle. Each principle serves an important function, but their real strength is how they work together. The proper balance of these principles will help to create and maintain a culture of loss prevention that becomes a part of daily operations and is reflected in how your company both pro-acts and reacts to the issues that arise in an often fast-paced environment.
By creating this kind of loss prevention culture, you’ll be less subject to radical or severe fluctuations in performance because best practices are not simply “programs,” but rather embedded in your methods for conducting business.
HS Brands’ loss prevention services are designed to provide cost-effective, results-driven solutions for retailers, restaurants, and franchises. We’ll work with you to build a complete loss prevention program—from audits to program and policy development—to meet your goals and protect your brand.
Contact HS Brands today to see how we can prevent inventory shrinkage at your organization.
Director of Business Development & Marketing
HS Brands Global
Raymond Esposito has over 28 years of loss prevention experience, working within the department store, specialty, and grocery segments of retail. He has developed loss prevention programs for over 125 retailers in the U.S., Canada, and the United Kingdom. He holds a bachelor’s degree in psychology from the University of Connecticut and is an expert witness.