Shrinkage and Loss Prevention Tips for Retail Businesses

by | Jul 19, 2022 | Business, Featured Post


If you own or manage a retail business, you already know the threat loss and shrink poses to your profitability. In business terms, shrinkage can refer to the loss of inventory through employee theft, shoplifting, vendor fraud, or human error. A 2020 survey by the National Retail Federation found that loss had hit an all-time high, with shrink accounting for 1.62% of a retailer’s bottom line, and that it cost the industry as a whole $61.7 billion. The same survey in 2017 found that shoplifting and organized crime was the most common cause of shrink, followed by internal employee theft.  


You also need to know exactly what is causing your retail loss – shoplifting, employee theft, fraudulent returns, or something else. We suggest tracking your inventory with a POS system, frequently do stock checks, and analyze financial reports to uncover the primary issue. By identifying the problem, you know where to prioritize your loss prevention efforts.  


So how do you prevent shoplifting, employee theft, and other types of retail loss and shrinkage? Implementing loss prevention policies can make a big difference in your shrink rates by stopping shrink before it happens. These policies should apply to everyone in your organization; c-suite employees and entry-level employees alike should be held to the same standards, policies, and procedures. 


Here are our top policies to implement and tips to prevent shoplifting and employee theft in retail stores: 


  1. Train employees to look for signs of a shoplifter. 
  2. Have a plan in place if an employee suspects shoplifting. 
  3. Make sure your store environment discourages shoplifting. 
  4. Install a security system for shoplifter prevention. 
  5. Enforce a strict return policy. 
  6. Collect information about those making returns. 
  7. Issue refunds using the same method the person paid with. 
  8. Only hire employees you can trust. 
  9. Create a culture that minimizes overall loss and shrinkage.  
  10. Create a safe way for employees to report suspicions of theft. 


How to Prevent Shoplifting 


Shoplifting is incredibly frustrating for any retail store owner or manager. Below are our top tips for shoplifting prevention. 


Train employees to look for signs of a shoplifter.  


Have your employees always approach customers and ask if they can help them. No customer should go unnoticed. This isn’t just good customer service; it’s also how to prevent shoplifting. Sales associates should always make eye contact, and ensure their presence on the sales floor is known. Teach them to look for suspicious behaviors such as picking up and putting down items, checking to see if they are being watched, or maneuvering away from employees. Additionally, watch out for shoplifters who swap price tags. 


Have a plan in place if an employee suspects shoplifting. 


For example, you could have your employee approach the customer and ask if they need help, or simply have them notify a manager. Make sure your employees know the location of a “panic button” if you have one, along with how to arm and disarm the security system, what to do if the security system alarm goes off, and whether there are any code words or safety phrases they need to know. 


Make sure your store environment discourages shoplifting. 


Set up your store with wide aisles that eliminate employee blind spots, and replace tall displays with smaller ones that are easier to see over and around. You can also strategically place mirrors to improve sightlines. Keep your shelves clean and uncluttered, making it easier to spot if products go missing. Secure anything expensive behind locked cases, use security tags on these items that only employees can remove, or place them close to your checkout counter. If possible, locate your checkout area near the door so your employees can keep an eye on who is coming and going.  


You can also encourage payment through credit cards and digital wallets instead of cash. This will streamline the checkout process, reduce the chance of being paid with counterfeit money, and eliminate a full cash drawer which can be a target for theft.  


CPI Secured Business Storefront


Install a security system for shoplifter prevention. 


Work with your security company to strategically place security cameras that cover all areas of your store, including stock rooms, break rooms and storage rooms (but, of course, leave them out of bathrooms, fitting rooms and anywhere else where privacy is expected). Make it obvious that you have cameras throughout the store. Rather than concealing them, consider putting up signs letting customers know they are being watched. Your goal isn’t to catch a shoplifter, it’s to stop someone from attempting to shoplift in the first place.  


At CPI security, we offer a variety of security systems designed for shoplifting prevention. Our systems include video surveillance, access control, intrusion detection, remote monitoring, fire alarm monitoring, and more, so CPI’s retail security systems can keep your business secure and help prevent loss.  


How to Prevent Return Fraud  


Cashier Swiping Credit Card


Return fraud can happen in many ways – stealing something and returning it for a refund, buying something and then using it and returning it afterward, copying or counterfeiting receipts to return stolen merchandise, using counterfeit money to purchase something and then returning it for real money, or buying a newer version of something they already own and then returning the old one for a refund. Make sure your staff knows what return fraud is, how it happens, and how to prevent it. 


Read on to learn more about return fraud prevention. 


Enforce a strict return policy. 


Only allow returns within 30 days of the original purchase, and require a receipt for all returns. Have your employees check that the returned goods are on the receipt.  


Collect information about those making returns. 


Ask customers to provide their ID and personal information when making returns so you can keep track of who is making returns and how often they are doing so. 


Issue refunds using the same method the person paid with. 


If the customer paid with a card, their refund should go back on the same card. Never give cash or monetary refunds without a receipt. You can even consider only allowing exchanges and not offering refunds.   


How to Prevent Employee Theft in Retail Stores 


Employees may steal from your business by shoplifting, creating fake returns and pocketing the cash instead of actually returning an item, stealing customers’ credit cards and using them to make purchases, letting friends and family use their employee discount, not actually ringing up items their family or friends buy, or stealing cash from the cash register.  


Employee theft prevention begins the moment you interview a potential employee. Here’s what you can do to create a great company culture and avoid problems with internal theft and loss.  


Only hire employees you can trust. 


It’s important to hire honest employees with integrity. Unfortunately, it’s not always easy to tell if you can trust someone in just one interview. Try to uncover as much as you can by asking interviewees how they would deal with a fraudulent situation, or other similar questions to gauge their integrity. Always get references from previous employers, and ask their references thoughtful questions before making a job offer.  


Create a culture that minimizes overall loss and shrinkage.  


Employees should feel motivated to help you prevent loss, so consider providing incentives for reduced loss, such as bonus pay or extra PTO. Teach employees to help spot and prevent loss from both customers and employees. Normalize checks and balances to hold all employees accountable; for example, have one person count cash at the end of the day, and then a second person check behind them.  


Create a safe way for employees to report suspicions of theft.  


If you truly want your employees to help you prevent employee theft in your retail store, you have to provide a way to report suspicious behavior anonymously without fear of retribution. Consider setting up a secure loss prevention hotline or online form that allows employees to report things anonymously. Emphasize that everything will be kept confidential and that you are committed to avoiding retaliation.  


For more loss prevention tips and business security solutions, get in touch with CPI’s business security experts today. 

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