Shrink, shrinkage – a situation in retail where the shop actually has fewer goods than recorded in the inventory. Shrinkage can be attributed to shoplifting, employee theft, destruction of goods, vendor fraud or incorrectly entered data.
Shrinkage has always been a headache for merchants. The story that follows describes how to achieve the most noticeable result with the least effort. Let’s just start by saying that if you can concentrate equally on shoplifting and your staff, you’d probably still have those two-thirds of your stock.
Standard Market opened in San Francisco in September 2018 looks like shoplifter paradise. There are no shopping carts. You can place the items you buy directly in your bag and leave the shop unobstructed. And it really means unobstructed – the only thing separating the stacked shelves from the street is just a door. The store doesn’t have a single cashier-staffed checkout or self-checkout machines. In fact, there isn’t anything reminiscent of a checkout. There’s also no standard security system that would start blaring when someone tries to leave without paying. But San Francisco isn’t handing out free stuff. The concept for the new store was developed by Standard Cognition.
The system that relies on twenty-seven cameras and AI has to understand whether a person is just looking at an item, will put it back on the shelf or in their bag. The cameras record and the software analyses the movements
, movement speed and stride length of the customers and how they look at the items. The price of the goods the customer takes along will merely be added to their phone bill. Granted, the system isn’t perfect. Several items picked up by the first few customers weren’t registered, but the system is continually improving. If everything goes according to plan, then the first announced customer, Japanese
Paltac Corporation
, should implement Standard Cognition’s system in the local 3000 drugstores by the Tokyo Olympics in 2020. However, the innovative Standard Market isn’t only an added comfort for shoppers – its AI also looks out for potential shoplifters. And that is a far greater innovation than keeping track of purchases. A person’s body language will almost always betray the intention to shoplift. Among else, a person’s walking speed and stride length will change and they will start looking more towards the exit. Other signs may also betray ill plans, e.g. monitoring the behavior of staff instead of looking at the goods, repeatedly entering the shop without buying anything, etc. The system’s AI will inform the security guards whenever it notices someone behaving suspiciously. As such, Standard Cognition can expect their software to become a worldwide sensation in retail. The shopping comfort and anti-shoplifting qualities offered by the tech have the potential to become something truly sought after. According to research, shoplifting is the primary cause of retail shrink.
A New Level in Shoplifting
– Who Should You Fear?
About six billion shoplifters are arrested globally every year. And these guys work fast! Only in the UK, shoplifters (along with the staff) will cause twelve million (!) pounds worth of damage to shop owners every day. The shop owners have included these losses in the prices, which means that this costs the average consumer $180 a year.
Trend 1: Following the Example of Celebrities
Shoplifting statistics reveal two troubling trends. Very few people shoplift because they’re going hungry. Increasingly more well off and generally honest people shoplift. Celebrities who can’t even reasonably explain why they shoplift are only the cherry on top.
Winona Ryder
, who played the lead in
Edward Scissorhands,
was convicted of stealing $5,000 worth of designer clothes in 2002 while
Lindsay Lohan
was caught stealing a $2,500 necklace. The reasons behind their behavior may be a lot of things but not a lack of money.British celebrity chef
Antony Worrall Thompson
paid £180 for champagne but stole £4 worth of coleslaw. “How ridiculous and how stupid,” apologized Thompson later.
Trend 2: Gangs
A significantly bigger problem is the increased activity of professional and gang-affiliated shoplifters. A typical example of organized shoplifting is
Kelsey
, 22 (name changed for anonymity). She was fourteen when she became a drug addict and a professional shoplifter, just to get by. The woman, jailed for multiple thefts confessed to BBC, “Nine out of ten times, you won’t get caught. And you don’t have to worry about the consequences. Even if you do get caught, you’ll be locked up for four months but released after two.”Theft in the truest sense of the word (you stuff the item in a bag or hide it under your clothes) is only one way to shoplift. The methods are numerous. A widespread one is swapping price tags. Retail economics professor
Joshua Bamfield
write in Shopping and Crime that increasingly often, shop owners come face to face with well-organized gangs. The members of such gangs steal to fund their lavish lifestyle. They’re fast and furious and equipped with knowledge and tech that helps them bypass contemporary security systems. They are bolstered by the fact that most shoplifters go unpunished. This is verified by statistics from a couple years ago from the UK, where only 300,000 of the 800,000 caught shoplifters were handed over to the police; out of those, only a minority were prosecuted. The Centre for Retail Research’s
Global Retail Theft Barometer survey
indicates the vast damage caused by shoplifters. The survey is based on data from 800 trade companies from 32 countries. It indicates that shoplifting results in 98 billion euros worth of annual damages; factor in risk management and this amounts to $108 billion.
The table indicates the items stolen most frequently.
Stolen most frequently:
North America | Europe | Asia-Pacific | |
|---|---|---|---|
| 1 | Makeup, skincare | Alcohol | Alcohol |
| 2 | Women’s clothes | Makeup | Makeup |
| 3 | Perfumes | Women’s clothes | Women’s clothes |
| 4 | Alcohol | Perfumes | Perfumes |
| 5 | Designer clothes | Razor blades | More expensive food (cheese, meat, etc.) |
How to Effectively Combat Shoplifting?
If you think that experience and a gut instinct developed over time help you combat shoplifters, you are correct! But believe us, it’s best to stick to the tried and true.- The easiest method –
greet the customer at the door
. This simple method shows the customer that he is not anonymous and has been noticed. But don’t let yourself be guided by ethnic, age or other stereotypes related to shoplifting.
Signs that warn against shoplifting
. While these don’t avoid theft, they do indicate that the problem is being dealt with. However, keep the signs minimal lest you want to scare off the honest customers. It’s wise to place the signs high up below the ceiling – the thieves will notice them because they’re going to be checking for security cameras. Don’t forget to draw eyes on the sign (see chapter 3, “How to Deter a Thief”).- Carefully
plan the layout of the store
and maintain order. It’s more difficult to steal neatly and logically displayed goods. Display smaller items near the checkout and more expensive ones in a display case.Get rid of blind spots that are out of the view of staff and cameras.Use mirrors to get rid of blind spots cheaply and easily. Don’t spare any expense on lighting. The dimmer the lighting, the easier you’re making it for the thief.Security cameras – the more cutting edge, the better (see chapter 3, “How to Deter a Thief”).
Don’t allow your staff to congregate around the checkout
, leaving customers in some parts of the shop feeling unsupervised.
Talk to the owners of nearby shops
. They might have good pointers for dealing with thieves.
Implement strict rules
– e.g. customers must inform a member of staff before heading to the changing rooms and are only allowed to bring a certain amount of items at a time.
Use high-quality software
. For example, Erply provides seamless checkout and inventory integration, giving the staff an immediate overview of how many items are in stock and how many have been sold.
The Company’s Staff
– Troublemakers Right Under Your Nose
You can be the best boss at the best shop, paying decent wages to your employees and giving them good employee discounts and believe that your employees aren’t stealing from you. Dream on! Of course, for the most part, you’re right – the majority of your employees are honest. But don’t be naïve. According to a 2017 surveyconducted by
Jack L. Hayes International
, every thirty-fifth employee admitted to stealing from their employer. This conclusion was reached after analyzing data from 1.4 million employees from twenty-one large retail chains in the US. It’s also best if you remember that your employees cause you nearly as much damage as shoplifters. And this isn’t an estimate but is backed by surveys. Some even believe that employees are a bigger problem.
Australian Retailers Association
estimates that 55% of shrinkage is caused by employee theft.
Michael Wilkinson
, senior consultant at
Employsure
describes the situation to News.com.au as follows: “There are many different kinds of theft. Theft can mean forgetting to swipe a friend’s purchase or transferring thousands of dollars to your bank account.” Huge affairs like the one where the management of the Dutch retail giant Royal Ahold’s subsidiary US Foodservice forged the company’s results, by adding a whopping $800 million, are extremely rare. Most employees will never get anywhere near that. But taking just one lipstick or bottle of beer doesn’t seem a huge sin to many. Retail economics professor
Joshua Bamfield
recalls his first encounter with employee theft in Shopping and Crime. He was working as a shop clerk and the employees would often gather around the freight elevators to have lunch. Since that was also where the shop stored bottles of Schloer (a popular health drink at the time), the employees would drink a bottle with their lunch. To avoid being detected, they would throw the bottles down the elevator shaft.
Bamfield points out that the situation met all three qualities of a classic theft:
- A desirable goal – the expensive and tasty drink;
- Motivated lawbreakers – young men having lunch;
- An opportunity – since the products were unguarded, the chance of getting caught was slim.
National Retail Security Survey
conducted by Florida University in 2010 also rates the risk of employees theft as high. Actually, according to the survey, the risk of employee theft is much higher than the risk of shoplifting – it claims that 43% of all shrinkage is caused by employee theft. Another problem highlighted by the survey is that while the average shoplifter caused $381 worth of damage, the average employee theft causes $967 damage.
Red Flags to Look Out for
It’s difficult to know when to suspect your employees because not everybody steals.
Richard Davis
from global security camera firm
A1 Security Cameras
highlights that certain behavior might help you detect a dishonest employee. However, he warns against making any hasty conclusions. Suspicious behavior should prompt you to monitor the employees more closely but ignoring it altogether and letting your goods vanish would also be unwise.
- The employee buys new expensive things – an expensive phone may be a gift but it may also be a sign of living beyond one’s abilities.
- The employee prefers to work alone – he comes to or leaves work well before or after others.
- An employee who claims to have worked more hours than they actually did is inherently dishonest – this might not be the only way they try to deceive you.
- Friends visit too frequently and use the employee entrance. The goods are often left in a hiding place where they’ll be picked up by someone you wouldn’t even suspect of theft at first glance.
- Reports of damaged goods are more frequent on some days than others – it’s wise to see who is working on those days.
- The amount of cash in the register differs from that in the system. If this happens rarely, it’s most likely the cause of carelessness or a mistake. But if it happens repeatedly, you might want to start looking for a pattern.
- Suspicious cars that repeatedly park or drive by the warehouses or the shop on certain days.
How To Effectively Reduce Employee Theft?
Keeping in mind how the employees stole the expensive drinks during lunch and threw the empty bottles into the elevator shaft, the golden rule is – do not tempt your employees!Here are things to try:
- Choose your employees carefully. Jack L. Hayes International analyzed 19,000 randomly selected pre-employment “honesty tests” and discovered that a fifth (19%) fell in the high-risk category. The higher risk was motivated by prior violations or the person’s understanding of honest or dishonest behavior.
- Minimize the time an employee is left alone with money or goods. Employees must know that they are in camera view when they take out the trash. Some surveys suggest that up to 75% of retail employees have stolen something at least once. Don’t let them!
- Distribute tasks clearly – who has access to cash and unscanned goods.
- Have a clear and transparent gift card system to avoid theft and other fraud.
- Regularly check employees as they are about to leave work. There is no single good solution but employees should not be allowed to feel that they are not being monitored if they have access to cash, stock or sensitive personal data.
- Use software that can help you detect potential cashier fraud. For example, Erply’s software helps you monitor which employee concluded which transactions.
- And last but not least, regularly find time to talk to employees. Show them that you care by asking for their input on how to improve working conditions.
How to Deter a Thief
– the Expensive Way and the Cheap Way
There was a time when a photo would be taken of a shoplifter for the shop’s album before they were handed over to the police. But those albums filled up fast and became useless – no employee could memorize them.The Expensive Way – Security Cameras
Store owners can now turn to powerful security cameras equipped with facial recognition software. One of the leading providers of this service is the California-based US company FaceFirst.The system recognizes the people entered into the system (people caught stealing, wanted criminals, etc.). It has a tremendous capacity, comparing the face of a person to 25 million faces in the database in only one second. FaceFirst holds true to its promise – the security employee will be notified as soon as a person who has been caught stealing before enters the store. While couple of years ago, the company’s customer base comprised of large Fortune 500 companies, their intro video now states that its customers also include small store chains and pharmacies. The company claims that shoplifting has decreased by 34% in the stores that use their system. Facial recognition software gave rather meager results only some years ago but has evolved in leaps and bounds and now identifies the face of a criminal even in dim lighting or when the person has grown a beard or is wearing sunglasses. Certain software can even detect when a person is using a stolen bank card. FaceFirst’s competitor StopLift
that specializes in monitoring points of sale claims that their software has helped detect 3.1 million shoplifting cases. The company’s website reads, “No sweethearting any more!” The truth is that stores don’t like to talk to the media about having integrated such systems.
Walmart
tested the system in 2015 but had to give it up due to public pressure. However, many store chains use the system and due to the decrease in prices, it can even be found in smaller shops. They just keep it a secret. Lowe is among the few larger US store chains that has admitted to using AI-based facial recognition software. Due to the fact that the software still has room to develop, it brings with it a number of problems. Privacy issues are only the tip of the iceberg. Racked.com introduces the results of a recent study
by MIT Media Lab – an analysis of three facial recognition software revealed that the recognition process isn’t going as well as one might expect. While the software can recognize a white male with 99% accuracy, it had a 34% failure rate when identifying black females. This, however, can give rise to racial discrimination as a person may be accused of dishonesty due to their skin color. On the other hand, shop owners are debating the systems’ legality in a situation where customers are not aware that the software is in use. In an interview
with Thestar.com FaceFirst’s CEO Peter Trepp explains, “Legally, you don't have to have signage. You don't have to say anything to anybody in most of the states of the United States. There is no federal law.”Regardless of the iffy areas, experts recommend using the software (if laws permit). It’s just important to note that it may make the occasional error and it would be decent to inform customers. To alleviate fears, it would be wise to list all the known benefits of facial recognition software, e.g. how it helps find lost children and Alzheimer’s patients.
The Cheap Way – Drawing Eyes
Why is it that people nearly always notice when someone is staring at them? Scientists claim this is a survival mechanism inherited from our ancestors. If an animal was staring at another, it usually meant that the latter would get eaten. Predators are known to stare down their victims before making the decisive leap. Although people don’t tend to eat each other, the instinct has survived. Our brain helps us detect when someone is watching, even if we barely notice it from the corner of our eye. This phenomenon is called gaze detection. Social psychologist Ilan Shrira tells Psychology Todaythat direct eye contact might be the most frequent and powerful form of non-verbal communication people use – from intimate relationships to the way a dog and its owner affect each other through eye contact. Eyes indicate that someone is watching and controlling you, that they know what you’re doing. It is a form of discipline. This is why posters and signs depicting eyes or close-up photos of eyes help deter shoplifters. The
Nottinghamshire police force
in the UK successfully used
a large poster depicting the piercing eyes of a police officer and the texts “We are watching you!” and “Live police CCTV cameras are operating in this area today” during an 18-month campaign. The posters were also put up in shops. What the police didn’t expect was that, as a result, shoplifting decreased by 37%. No similar decrease was detected in neighboring regions. Admittedly, there is no data on whether shoplifting returned to former levels later. So, eyes on the wall in every shop!
Fun Fact:
Did You Know?
When the First Ever Security Guard was Hired?
Theft has been the bane of a merchant’s existence for as long as there has been trade. Retail economics professor Joshua Bamfield writes in Shopping and Crime that the term “shoplifting” likely originates from the 1500s when a thief had to actually lift the shop’s window to hand the stolen clothes to his companions through the window. The first person specifically tasked with combating theft – a security guard in contemporary terms – was hired in the early 1700s. Professor Bamfield cites Robinson Crusoe’s author Daniel Defoe who used to be a merchant before becoming a writer. Defoe claimed in the 1726 magazine The Complete English Tradesman that shoplifting has become so widespread that merchants have had to hire additional staff to keep thieves at bay. This was also when the first security systems were adopted – the goods were tied with fine steel cables to stop thieves from grabbing them. A ringing bell was attached to the cash drawer to inform everyone in the shop when an employee tried to steal cash, etc. In 1880, a shop in Sainsbury implemented a system that may be considered the forerunner of CCTV – a shop clerk would sit in a box and monitor the shop; he would use a secret language (backslang, where words are pronounced backward) to warn the security guard when he noticed a thief.
Shoplifting statistics
Source of Inventory Shrinkage:
| 2018 | 2017 | 2016 | 2015 | |
|---|---|---|---|---|
| Shoplifting/external (including ORC - Organized Retail Crime) | 35,7% | 36.5% | 39.3% | 38.0% |
| Employee theft/internal | 33,2% | 30.0% | 35.8% | 34.5% |
| Administrative and paperwork error | 18,8% | 21.3% | 16.8% | 16.5% |
| Vendor fraud or error | 5,8% | 5.4% | 4.8% | 6.8% |
| Unknown loss | 6,6% | 6.8% | 7.2% | 6.1% |
Top 5 Loss Prevention Systems in Use:
| 2018 | 2017 | 2016 | |
| Burglar alarms | 87.3% | 96.8% | 93.8% |
| Remote IP CCTV monitoring | 76.2% | 73.0% | 60.9% |
| Armoured car deposit pickups | 74.6% | 85.7% | 73.4% |
| Digital video recorders | 74.6% | 87.3% | 93.8% |
| POS data mining | 57.1% | 76.2% | 82.8% |
Retail Loss Prevention Systems Growing in Use Compared with 2017:
| 2018 | 2017 | % Point Difference from 2017 | |
| Simulated, visible CCTV | 41.3% | 14.3% | 27.0 |
| Observation mirrors | 22.2% | 12.7% | 9.5 |
| Theft deterrent devices(spider wraps/keepers, etc.) | 41.3% | 33.3% | 7.9 |
| Plainclothes store detectives | 30.2% | 22.2% | 7.9 |
| RF electronic security tags | 30.2% | 22.2% | 7.9 |
Retail Loss Prevention Systems with Biggest Decreases in Use Compared with 2017:
| 2018 | 2017 | % Point Difference from 2017 | |
| Cables, locks and chains | 34.9% | 57.1% | -22.2 |
| Acousto-magnetic, electronic security tags | 22.2% | 44.4% | -22.2 |
| POS data mining | 57.1% | 76.2% | -19.1 |
| Live customer-visible CCTV | 54.0% | 73.0% | -19.1 |
| Merchandise alarms | 20.6% | 36.5% | -15.9 |
Average Dollar Loss per Employee-Related Shrink Case
| 2018 | 2017 | 2016 | 2015 | |
| Up to $249 | 22.0% | 19.3% | 11.9% | 11.3% |
| $250 to $399 | 15.3% | 14.0% | 10.2% | 9.7% |
| $400 to $499 | 4% | 3.5% | 11.9% | 14.5% |
| $500 to $749 | 13.6% | 7.0% | 22.0% | 16.1% |
| $750 to $999 | 10.2% | 8.8% | 10.2% | 14.5% |
| $1,000 to $1,999 | 116.9% | 15.8% | 13.6% | 16.1% |
| $2,000 to $4,999 | 18.6% | 15.8% | 18.6% | 11.3% |
| $5,000 & above | 3.4% | 15.6% | 1.7% | 6.5% |
Average | $1203.16 | $1922.80 | $1233.77 | $1546.83 |
Average Dollar Loss Per Shoplifting Incident
| 2018 | 2017 | 2016 | 2015 | |
| $1 to $49 | 11.8% | 13,3% | 8.9% | 6.1% |
| $50 to $99 | 13.7% | 13.3% | 20.0% | 20.4% |
| $100 to $124 | 15.7% | 11.1% | 17.8% | 10.2% |
| $125 to $149 | 5.9% | 0.0% | 6.7% | 4.1% |
| $150 to $199 | 5.9% | 6.7% | 11.1% | 12.2% |
| $200 to $299 | 15.7% | 6.7% | 11.1% | 12.2% |
| $300 to $499 | 15.7% | 12.6% | 8.9% | 10.2% |
| $500 to $999 | 9.8% | 11.1% | 11.1% | 12.2% |
| $1,000 and over | 7.8% | 22.2% | 4.4% | 8.2% |
Average | $559 | $798.48 | $376.80 | $317.84 |
Median | $150 | $230 | $138 | $165 |
Additional reading:
Shopping and Crime
(Crime Prevention and Security Management) 1st ed. 2012 Edition
by Joshua Bamfield (Author)