The National Retail Federation (NRF) and the Loss Prevention Research Council (LPRC) have released a study on loss prevention in the retail industry. The study covers inventory shrink, employee integrity, and organized retail crime, offering insights into how major retailers are dealing with these issues.
NRF and LPRC polled 63 senior loss prevention and security executives from across the retail sector. 7.9% of respondents came from the jewelry, watches, and accessories sector, and all of the respondents represented larger businesses. The smallest reported annual sales volume was $100 million. So while this report is a useful snapshot of loss prevention across all retail sectors, from pet supplies to convenience stores to luxury jewelers, bear in mind that it draws on a small sample size and data from larger retailers.
Overall, respondents reported an increase in crimes of all types, from organized retail crime (ORC), to employee theft, to fraud. In response, the study’s authors advocate for higher penalties for theft, arguing that 70.8% of ORC has occurred in areas where felony thresholds have increased (that is, where crimes that were previously felonies were reclassified as misdemeanors).
Their findings show that the pandemic has made retail shrink worse. In 2021, the shrink rate was 1.4%, accounting for $94.5 billion in losses, an increase of $4 billion over 2020. Most of those losses can be attributed to external theft. Organized retail theft jumped 26.5% in 2021, and 80% of retailers reported that violent, aggressive ORC has increased over previous years.
Respondents reported that preventing guest-on-associate violence, mass violence, and gun violence has risen in priority over the past five years. Even with the increase in theft, it is the violence against employees that has retailers most worried. Respondents attributed these behavioral changes to the effects of the COVID-19 pandemic. During the pandemic, retailers were worried about enforcing mask mandates and social distancing, but even as pandemic restrictions have mostly disappeared, the social stress of the past two years seems to have affected the way people interact with each other in a negative way, with theft more often resulting in violent outcomes and customers more often becoming violent with associates.
These violent, destructive behaviors exacerbate hiring challenges that retailers face. It is already difficult enough to hire, train, and retain retail employees. Being exposed to violence and aggression, not only from criminals but from customers, as well, makes this task that much more difficult.
The pandemic is also responsible for a great deal of supply chain disruption, not only in terms of labor shortages and delays but also in the form of cargo theft. Respondents reported cargo theft mainly occurring:
Retailers see the most challenging point in the supply chain in terms of preventing cargo theft to be the point in which cargo is en route from distribution centers to stores.
Fraud is also on the rise, according to the survey, both in-store and online. 68% of respondents reported an increase in in-store fraud and 61% reported an increase in online fraud. NRF and LPRC attribute the increase in in-store fraud to increased foot traffic in 2021 over the pandemic year of 2020.
Ecommerce fraud and cybercrime is also on the rise, but the survey does not give further details on the nature of those crimes, but it can be assumed that this category includes credit card fraud and hacked customer accounts.
All respondents reported having a loss prevention team for their physical stores, but only about half said their LP teams are responsible for ecommerce and cybersecurity. In training their LP teams:
Retailers are turning in greater numbers to loss prevention technologies such as RFID chips, POS video analysis, and self-locking merchandise cases. While RFID chips have been in use for years for inventory tracking and identifying stolen products, the type of video analysis mentioned in the report is something new. AI-based POS video analytics uses artificial intelligence to monitor video data so that you don’t have to sit through hours of security footage. These systems can help retailers identify how customers enter and exit the store, how they browse merchandise, and where they spend the most time. The same systems can help identify which merchandise is most vulnerable to theft, and it can use facial recognition to help catch shoplifters.
Though ORC is a grave concern for retailers, many are adequately equipped to deal with it. Only 1/3 of retailers reported having an ORC team. Retailers without an ORC team had a harder time determining if ORC was occurring at their stores, and if it was increasing. Respondents with an ORC team reported a much greater increase in ORC than those without. To best respond to ORC, NRF and LPRC recommend collaborating with other retailers to detect patterns of organized criminal activity. Collaboration is a step many retailers are already taking: nearly 2/3 of retailers are involved in ORC detection and prevention associations.
When it comes to law enforcement, most retailers are satisfied with the role of those stakeholders in ORC prevention and prosecution.
As for those who reported being very satisfied,
Retailers were more satisfied with law enforcement in jurisdictions where ORC is differentiated from other forms of theft. The overwhelming majority of retailers (87%) agree on the need for federal ORC legislation.
The pandemic has accelerated technological changes and shifts in how consumers shop. In addition to ecommerce and omnichannel shopping, customers continue to use options like Buy Online, Pickup In Store (BOPIS) and third-party delivery services even as it has become relatively safe for most people to return to stores. These new sales channels also come with new threats of fraud and theft, and LP teams are going to have to learn how to best deal with them. But the retail landscape is always changing, and as retailers adapt to these changes, it will always be important to understand not only the opportunities they bring but the threats and vulnerabilities inherent in them, as well, so that theft can be prevented before it happens.