1. Lesson 9: Security

2. Objectives  Calculate shrinkage based on merchandise book value and physical inventory counts  Give examples of internal and 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 and the impact on profit

3. 1.How Theft Affects a Business  Theft of inventory causes a significant expense for the business  Inventory shrinkage – the loss of inventory due to theft  Shoplifting  Employee theft  Inaccurate paperwork  Damaged / misplaced merchandise  Vendor error

4. 2.How much do businesses lose to theft annually?  Customers end up paying higher prices to account for retailers losses from theft  Estimated loss of $35 billion per year due to theft

5. 3.Determining Shrinkage  Calculated by performing a physical inventory (1-2 times per year)  Once inventory is complete, the value of merchandise counted is computed  Book value – amount of money the inventory is shown to be worth in business records  The difference between the book value and inventory value is amount of shrinkage  Normal shrinkage rate: 1-5% annual sales

6. 4.Types of Theft  External Theft  Shoplifting – the removal if items from a store with the intention of not paying for them  Professional shoplifters use sophisticated techniques, dress and act in a manner to not attract attention  Amateur shoplifters steal primarily for the excitement or acting on a dare  Usually arrive in groups, don’t have a plan to steal a specific item, take things that can be easily hidden

7. 4.Type of Theft (cont’d)  Internal Theft  Employee theft – the unauthorized taking of merchandise by an employee from an employer  Accounts for almost half of retailers’ inventory shrinkage  The largest cause of shrinkage  Physically take merchandise  ‘Sweethearting’ – discount abuse – giving your discount to a friend

8. 5.Loss Prevention  Preventing shoplifting  Intelligent store layout  Entrances, exits, and fitting rooms should be visible to all employees  Checkout area should have a good view of store  Employee education (training)  Security devices (ink tags, electronic sensors, convex mirrors, locked displays, uniformed security personnel, cameras)

9. 6.Preventing Employee Theft  Pre-employment screening  Check references, drug tests  Store policies  Have employees enter and exit through a designated door, check bags, have management approve all returns/exchanges  Security devices  If employees know they are being watched, they are less likely to be dishonest

10. 7.Key Math Concepts Shrinkage in Dollars = Merch. Book Value – Physical Inventory Value Shrinkage as a % of Sales = (Merch Book Value – Physical Inv. Value) ÷ Sales between Physical Inventories Projected Shrinkage = Estimated % of shrinkage * Sales