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How technology can reverse the retail shrinkage trend

September 20, 2017

Retail shrinkage – that is, loss due to theft, employee fraud, or admin errors – is on the rise, not only in Australia but globally. According to Global Retail Theft Barometer’s figures, shoplifting or theft accounts for 38% of loss, with 16% due to admin error and a startling 39% from employee fraud.

According to National Retail Association CEO Dominique Lamb, Australia loses a staggering $4.5 billion annually to retail shrinkage. “We are seeing the increase year on year,” she says. “Retailers are getting their heads around the impact. Now that we have more up-to-date information and see the numbers rising, they are becoming more focused on it.”

No wonder then, that loss prevention is a key issue for retailers. According to Dominique Lamb, even applications for the National Retail Association’s Young Retailer awards often include details of initiatives around reducing shrinkage.

But while most retail and franchise groups employ loss prevention managers to manage the strategy and process, these teams often lack the tools they need to identify trends and predict events – and hence the loss prevention function remains largely reactive.

The good news is that today’s technology can help reverse this universal retail shrinkage trend. It can help retailers be more proactive in terms of loss prevention, and make an enormous difference to the bottom line.

In this article, we examine how the right technology can help retail loss prevention managers take charge.

  1. By combatting shoplifting

Shoplifting has always been an issue, but retailers are now grappling with a lot more organised crime, whether internal or external to the retailer. “Our main concern is not someone ‘stealing an avocado’ – it’s bigger than that,” says Dominique Lamb.

Technology is already making a difference in this area of retail shrinkage. CCTV is helping combat shoplifting, as are emerging collaboration solutions which enable retailers to share information regarding suspicious activity. “Photos can be snapped of suspicious people or events, and information can be shared among retailers without jeopardizing competition,” explains Dominique.

  1. By identifying internal fraud

While retailers engage eagerly with shoplifting prevention strategies, internal theft or fraud trends can be something retailers – the smaller operators in particular-  are reluctant to think about. “Retailers often treat their people like family, and the thought of an employee stealing from their business is really distressing for them,” says Dominique Lamb. “Yet we know that shrinkage due to employee fraud is close to 40%.”

As with shoplifting, organised crime networks are making their mark on internal fraud, introducing the need for more savvy CV and reference checks. But even with careful recruitment practices, it’s still possible to get the hire wrong.

Historically, internal fraud has been difficult to track, particularly in the food and beverage retail sectors. However, the availability of advanced analytics means there is no longer a need for retailers to manually sift through millions of lines of Point of Sale (POS) data to try to pinpoint instances of employee dishonesty.

With today’s solutions, retailers can proactively monitor every single transaction. Cost effective software like Bistech’s Retail Defender runs automatically and flags scenarios that warrant further attention – such as excess refunds or discounts, along with other ‘red flag scenarios’, such as cash draw skims, loyalty card misuse and unusually frequent low value sales.  Combining POS data with other data sources – such as Inventory, Time & Attendance, Payroll or Accounts Payable – enables an even greater level of insight. For example, retailers may configure a scenario to alert them to repeated instances where managers approve large discounts in POS records but are not rostered to work – a situation that can indicate manager impersonation to mask theft.

  1. By highlighting training needs

Most employees want to do a good job but retail revenue loss can still occur even when employees have the best intentions. Loss prevention analytics should extend beyond looking for sources of theft or fraud.  The right loss prevention solution will focus its search beyond instances of theft or fraud and pinpoint operational issues and possible training deficiencies. For example, evidence of a particular store making a lot of ‘miscellaneous’ sales, or an individual employee consistently using price override to apply discounts could both indicate insufficient training, at either group or individual level.

Technology and retail shrinkage – the future

Dominique Lamb believes that loss prevention is set to ramp up in retail. “As the technology evolves and becomes more user-friendly, retailers will become more actively engaged with it and I believe we will see the current trend [of increased retail shrinkage] turn around,” she says.

She points out that the Australian government also regards the increase of shoplifting and fraud as an issue, as they are known to lead to more significant crimes.

How Bistech can help

At Bistech, we’re seeing first-hand how technology is helping to reverse the trend of retail shrinkage – we help make it happen. Our cost effective and easy to deploy software solution, Retail Defender, integrates easily with existing POS systems and is designed to help retailers take the guesswork out of loss prevention – with some customers reporting a recovery of up to 7% of retail revenue and over 300% ROI in the first 12 months alone.

Find out more about Retail Defender here or get in touch to see how we can help you automatically monitor your network of stores, identify employee or franchise fraud and spot and fix training and process gaps. The potential impact to the bottom line is hard to ignore.

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