CHAPTER 9 SECURITY VIRTUAL BUSINESS RETAILING 3.0

In this unit we will study the topic of store security We will begin by examining how theft affects a business & how much businesses lose to theft each year We will then study the different types of theft Next we will discuss some methods for loss prevention Lastly we will review mathematics associated with store security

After completing this lesson you will be able to:  Calculate shrinkage based on merchandise book value & physical inventory counts  Give examples of internal & external theft  Explain the importance of conducting a physical inventory in terms of loss prevention  Explain how rearranging products in a store can lead to a decrease in shoplifting  Use financial statements to determine expenses related to security & the impact on profit

How Theft Affects A Business Protecting a store from inventory loss is a major concern for businesses Pro Shoplifter Showing How it is Done [2:57] Pro Shoplifter Showing How it is Done  Theft of inventory causes significant expenses for retailers The losses caused by theft are referred to as inventory shrinkage  Shrinkage is the term used to describe inventory losses resulting from shoplifting, employee theft, inaccurate paperwork, damaged or misplaced merchandise, & vendor error  While administrative inventory losses are not caused by theft, they do contribute to lost revenue for retailers

How Much Do Businesses Lose to Theft Annually? Theft places a considerable financial burden on retailers &, ultimately, on the customers who will pay higher prices to account for retailers’ losses  It is estimated that U.S. retailers lose over $41 billion/year due to theft  Losses from theft ultimately erode profits & can mean the difference between profit & loss Shoplifter Caught at Walmart Shoplifter Caught at Walmart [:21] Crime Inc. – Stealing and it’s Effects (4 Parts) Part 1 [14:31], Part 2 [14:31], Part 3 [14:31], Part 4 [:37]Part 1 Part 2 Part 3 Part 4

Determining Shrinkage Calculated by performing a physical inventory  A physical inventory is a count & inspection of all the merchandise in a store  Conducted at regular intervals, usually once or twice/year  Once the inventory count is completed, the value of the merchandise counted in computed  The total is then subtracted from the book value of the inventory

Book value is the amount of money the inventory is shown to be worth in the business’ records Shrinkage=the difference between the book value of the merchandise & the inventory value The normal shrinkage rate for retailers is between 1% & 5% of sales each year

Types of Theft Retail theft generally falls into two categories:  External theft (shoplifting) Most Blatant Theft? [1:06] Most Blatant Theft?  Internal theft (employee theft)

External Theft Shoplifting is the removal of items from a store with the intention of not paying for them Shoplifting and Employee Theft Prevention Shoplifting and Employee Theft Prevention [1:42]

Professional shoplifters  Use sophisticated techniques to accomplish their thefts  Often enter a store knowing exactly what they plan to steal  Experts at concealing merchandise or at passing it to an accomplice & leaving a store undetected  Difficult to spot & catch  Deliberately dress & act in a manner that will not attract attention Crime Inc. – Stolen Goods Crime Inc. – Stolen Goods [:30]

Organized Retail Crime is $30-Billion Business Nationwide Organized Retail Crime is $30-Billion Business Nationwide [2:28] "Organized retail crime," as police call it, has become big business. Last year, theft rings stole an estimated $30 billion worth of retail merchandise that wound up getting sold out of car trunks, online and even to distributors who relay the merchandise back to store shelves. Shoppers end up bearing the financial brunt, because "it comes back to consumers in the form of higher prices," said Joseph LaRocca, the National Retail Federation's senior adviser of asset protection. Households fork over nearly $400 a year to offset retailers' losses, he said.

Amateur Shoplifters  Steal primarily for the excitement or because they are acting on a dare  Often arrive in groups & usually do not have a plan to steal a specific item  Are opportunistic  Will take merchandise that can be easily hidden as they leave the store

Internal Theft Also called employee theft  Involves the unauthorized taking of merchandise by an employee from an employer An employee may physically take merchandise from the store or he/she may engage in “sweethearting” – a term that describes discount abuse  Involves an employee giving unauthorized discounts to friends or relatives Costs to retailer: loss of revenue!

Employee theft (the largest cause of shrinkage) accounts for almost ½ of retailers’ inventory shrinkage  Most employees are honest & would never steal from their employer  There are dishonest employees who take advantage of the trust placed in them by their employers RILA – Retail Crime Prevention Information RILA – Retail Crime Prevention Information [6:45]

3 Ways to Reduce Shrinkage in Your Retail Store 3 Ways to Reduce Shrinkage in Your Retail Store [9:35] You can begin to track retail theft in your retail POS solution. The sad story about retail is that around 50% of retail theft can be traced back to employees, not shoplifting, and could go on for months without being noticed. The point I'm trying to make is that you could have a silent partner who is ripping you off on a regular basis right under your nose. To spot this type of behavior quickly, run regular reports from your retail point of sale system and look for unusual trends. Install video surveillance throughout the store and monitor all exits. Employee thieves often hide stolen merchandise in the trash and retrieve it after the store is closed. Reward your honest employees for telling you when they notice someone stealing; you can catch a bad apple before too much damage is done. By following these simple yet effective suggestions, you probably won't completely eliminate retail shrink, but you can keep it to a minimum.

Loss Prevention Preventing Shoplifting Preventing Shoplifting [3:42] Preventing Shoplifting Preventing Employee Theft Preventing Employee Theft in Your Business [13:12] Preventing Employee Theft in Your Business

Preventing Shoplifting Shoplifting losses can be reduced through:  Intelligent store layout  Employee education  Security devices

Intelligent Store Layout  Avoid blind spots  Entrances & exits should be visible to all employees  Checkout area should have a good view of the store  Fitting rooms should be monitored at all times

Employee Education  Train to spot shoplifters  Training guidelines are available through local law enforcement agencies  Search the Internet for other sources

Security Devices  Tags containing ink or an electronic sensor that alerts employees to tags that have not been removed or deactivated  Installing convex mirrors can help employees see large areas of the store  Hiring uniformed security personnel  Closed circuit TV cameras to view the store (expensive & has to be monitored)  Prosecute shoplifters (deterrence)  Locked display cases for small or expensive items  Height markers near the inside of the front door

Preventing Employee Theft Pre-employment screening Store policies Security devices

Pre-Employment Screening  Check & verify both previous employment & references  Required drug testing before hiring

Store Policies  Having employees enter & exit the store through 1 designated door or requiring employees to store all bags, packages, & coats in a designated area subject to being checked  Having management approve all returns, refunds, & discounts, & routine checks of the back room & trash bins for hidden merchandise  Can use same security devices to prevent shoplifting or employee theft – if employees know that they are being observed, they are less likely to be tempted to be dishonest

Informative 1 – Retail Theft Informative 1 – Retail Theft [8:51]

Key Math Concepts Compute Shrinkage in Dollars Shrinkage is an important problem for retailers to recognize & control Shrinkage can be computed in dollars or as a % of sales To compute shrinkage in dollars, use this formula: Shrinkage in Dollars= Merchandise Book Value – Physical Inventory Value

Compute Shrinkage as a Percentage of Sales To compute shrinkage as a percentage of sales, use this formula: Shrinkage as a Percentage of Sales= (Merchandise Book Value – Physical Inventory Value) / Sales Between Physical Inventory

Summary In this unit we learned about store security, how theft affects businesses, & how much businesses lose due to theft We then studied external & internal theft & how to prevent both Lastly, we reviewed mathematics associated with store security The Secret World of Shoplifting The Secret World of Shoplifting – CBC Doc [44:04]