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Published byHilary Allen Modified over 9 years ago
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Lesson 9: Security
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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