Taking shrinkage seriously

March 2016 Retail (Industry)

In many businesses, the term loss prevention (LP) is a bit of a misnomer. While certainly, the philosophy is to prevent loss of profits and assets, in practice there is often very little prevention and much reaction.

Christopher Cobb, director risk and compliance, University of the Western Cape.
Christopher Cobb, director risk and compliance, University of the Western Cape.

Many interventions become focused on the reactionary processes of LP. Resources are allocated to chase dishonest employees, shoplifters, burglaries, armed robberies and other crisis level security issues. These efforts are often required as a nature of the LP role, however, failure to apply efforts strategically ultimately results in dire consequences for the programme and an inability to get ahead of shrink because too much time is expended putting out the fires.

It is widely recognised that over the past 20 years or more, the retail industry has, for the most part, failed to adequately deal with the problem of shrinkage. Reviews of numerous surveys show that the underlying rate of loss continues to be high, running into billions of rands. However, I am sure that there are retailers (and their suppliers/franchisees) that have introduced a Shrinkage Road Map and have achieved not only impressive reductions in stock loss, but also increased sales volumes.

The greatest cause of an increased reactionary position isn’t social or economic issues. Dishonesty, food cost deviation, shoplifting, armed robberies, burglaries and crises have always existed within the retail environment. Reaction isn’t a result of issues as much as it is the result of missing a strategic business approach. That is, people often think of loss prevention as something outside of the company’s business model and in many instances is wrongly entrusted to so-called professional contract security guarding companies. In truth, the hardest question to answer for many is – what is the company’s Return on Investment (ROI) for its loss prevention expenditures?

Common trends

Based on my experience as a LP specialist, the following are common trends I have observed as to why so many retail concerns fail to get ahead of shrink and why they expend so much time in putting out fires:

• Why do so many retailers not have comprehensive written loss prevention policies with specific consequences for each type of theft so as to ensure ‘just cause termination’ and are able to claim against their insurance cover?

• Why do retailers fail to review their loss prevention systems annually since they are never in their final form? Technologies change and techniques of theft vary. When last did you as a retailer review and update your policies when new theft technique information was discovered?

• Why do retailers spend millions of rands and resources on a ‘costly reactive catch-it mentality’ in chasing dishonest employees? How many companies have done a total cost to company exercise to calculate the cost of dismissed employees for theft, including their re-employment resulting from the company’s inability to demonstrate substantive and procedural fairness? Or, for that matter, do not even know what percentage of employee turnover is associated to employee theft?

• Why do so many companies not know their true shrinkage nor their company’s ROI for its loss prevention expenditures or even what their percentage spend of retail sales is to control theft and reduce shrink by a certain percentage?

• Why do retailers have no KPI barometer and or Shrink Analysis Data Mining Visibility Programmes?

• Why do so many companies tend to focus on the number of apprehensions, yet audit compliance, tighter operational controls, and greater awareness seldom receives credit for lower shrink results?

• Why do so many companies, when mapping out managers’ and team members’ developmental and succession planning fail to prioritise and or allocate funding for the most effective loss prevention intervention, namely loss prevention training and awareness? Statistics show that the majority of one’s employees are not the problem, but are one’s solution if properly trained in loss prevention. There is nothing that can ever replace security conscious employees becoming employer’s most valuable asset in reducing losses caused by theft. Think about it. If you don’t train your employees and give the necessary knowledge of what to look for should a dishonest employee steal, how are you going to report and or prevent the theft techniques used to steal? Undetected theft is only possible when you and all your honest employees remain ignorant of theft techniques and prevention procedures. Training is the silver bullet.

• Why do companies who have specialist leads like operations, HR, supply chain, finance, people development and marketing directors all responsible for strategies, but do not have directors of loss prevention who are also specialists trained and responsible for clearly defining loss prevention strategies. Why is this so unique to very few, if any, companies?

A team effort

Loss prevention is as much a philosophy as it is a department. To reach shrink goals, a company must enlist the help of every team member employed and external vendors that are appointed. The belief that one person or a single department is solely responsible for loss control is no more valid than the belief that a company mission statement can ensure great customer service. Real prevention requires the real help of every team member.

Established pre-employment practices, policy, training and awareness, coupled with strong focused and committed operational leadership, are the cornerstone to loss prevention, but ultimately, an ethical culture creates the positive behaviours that make a difference. The creation of that culture is dependent on understanding why and when team members provide help.

Unfortunately, often is the case that most business primary so called risk/loss prevention programmes consist of costly use of poorly trained and ineffective use of security guards, as well as in many instances appointing CCTV, EAS hardware supplying companies with promises of solving one’s shrinkage, food cost losses and to deter criminal confrontation risks, like armed robberies .

This approach is fraught with failures and non-deliverables especially since the last free money on the table – growing profits through increasing the number of outlets, or streamlining business functions, such as reducing stock holding, are often not as beneficial to the organisation as getting to grips with shrinkage.

Take shrinkage seriously

The perennial problem of any effective Shrinkage Road Map strategy is the difficulty of getting the rest of the organisation to take the issue seriously. Shrinkage is often perceived as a peripheral part of the overall business, not warranting the attention given to other functions such as operations, marketing, sales or distribution. Unfortunately, without the support and attention of all parts of the organisation, developing solutions to the problem of shrinkage will remain piecemeal, partial and problematic.

So the key question is how do you get the business to take shrinkage seriously? Unfortunately, as is the case in most instances, it often requires an event or tipping point to put shrinkage on to the agenda of senior management. Often the tipping point creates a one-time opportunity to propose a new strategic approach for the business on shrinkage (including changes in the financial support for the loss prevention interventions).

Do not underestimate this opportunity; getting the right message across to the board can be pivotal in enabling companies to make a step change in how the problem of shrinkage is to be addressed in the business. Secondly, the board must be capable of understanding not only the importance of addressing the problem of shrinkage, but also the value it can bring to the bottom line.

Having got senior executive support and getting all parts of the business to think shrink are undoubtedly vital, both can arguably be seen and interpreted as merely window dressing. This is where the third component becomes very important: ensuring that loss prevention is embedded in the organisational structure and culture. It becomes very difficult to ignore shrinkage when it has become part of your everyday duties, tasks, thinking and strategic development.

Developing your Shrinkage Road Map

The following is a summary of the key factors that should form part of developing your strategic Shrinkage Road Map process to create a consistent low shrinkage environment.

Strategic factors

• Establishing senior management commitment: making sure that senior executives are aware and supportive of the need to prioritise loss prevention.

• Ensuring organisational ownership: making sure that all of the functions within the organisation recognise the importance and value of prioritising loss prevention.

• Embedding loss prevention: making sure that loss prevention is part of the fabric of the business and acted upon by all departments.

Cultural factors

• Providing strong leadership: generating energy, direction, focus and a vision for loss prevention in the company.

• Generating KPI barometer management: creating and analysing data to enable decision-making according to an evidence-based approach.

• Prioritising people: making sure that the company employs the right people and motivates them accordingly to take shrinkage seriously. Also concerned with creating a loss prevention team that is multi-faceted and forward thinking.

• Prioritising innovation and experimentation: recognising that retailing and loss prevention is a dynamic arena that requires new thinking and a willingness to change.

• Talking shrinkage: keeping shrinkage on the agenda through a range of communication strategies.

• Emphasising procedural control: ensuring that process adherence is a key part of what loss prevention does, but also recognising a balance has to be struck between service and control.

Operational factors

• Creating store management responsibility and accountability: without the active support and engagement of all store staff, but particularly managers, loss prevention will not be properly controlled and minimised.

• Encourage team members to ‘get involved’ and ‘make the difference’:

- Create awareness in order to activate your team members’ will to choose between right and wrong.

- Conduct training on loss prevention.

- Instil motivation.

- Provide support.

- Show appreciation.

• Development, implementation with the continual and complete enforcement of all employee loss prevention policies by management: written loss prevention policies especially around cashier and back door accountability must be compiled for each type of theft. There must be specific consequences in writing should the policy be violated and there must be continual and complete enforcement of all policies. Verbal rules are not adequate – they must be written. Failure to activate your employees’ will to choose between right and wrong resulting from one’s failure to compile written loss prevention policies for each type of theft will result in a dishonest person being confronted with making three choices:

- Continue stealing,

- Stop stealing, or

- Quit job

Solving shrinkage problems

One factor common to all types of crime and deviant behaviour is as a result of low self-control. It is argued that when the components of crime are carefully reviewed, we observe that it is a lack of control by the individual that results in engagement, regardless of any social or economic factors.

This being the case, then it should be fairly easy to not only explain retail theft resulting in terms of low self-control, but also to the manner in which we design an environment that minimises the opportunity for those losses to occur.

It is said that all types of crime have the same universal characteristics:

• It provides immediate gratification.

• It is easy and simple.

• It provides excitement.

• There are no long-term benefits.

• It requires little skill and planning.

• It results in pain and discomfort for the victim.

These characteristics appear appropriate to retail crime. For example, we know that the majority of employee dishonesty falls into the category of merchandise theft; i.e. pass-offs, merchandise in personal bags, or brought out with the trash. This is a relatively easy-to-commit crime that does not require much skill or planning. Even in cases of refund and credit card fraud, it is rare that we see any elaborate or new method of operation. Additionally, when one compares the long-term benefits of stealing to those of continued employment, it is clear that employee theft is not a successful endeavour, they are never going to get rich or retire from their activity.

So how does low self-control fit into the retail environment?

Like criminal acts, there are universal characteristics of a person with low self-control, including:

• No concern over the rights and privileges of others if they interfere with the individual’s personal satisfaction.

• Impulsive behaviour.

• Inability to form deep and persistent attachments.

• Poor judgement and planning in attaining goals.

• Apparent lack of anxiety or distress over social (group) maladjustment.

• Tendency to project blame onto others.

• Inability to take responsibility for failures.

• Lack of dependability.

• Tendency to create drama over trivial matters.

A careful review of these characteristics provides greater understanding into retail crime behaviours. First, it makes sense, according to the ‘low self-control’ theory, that the majority of employees would be honest. In order to maintain a job, an employee needs to have a fairly stable level of self-control. They need to show up for work, do their job and perform to the company’s acceptable level of standards.

Secondly, almost all team members are exposed to the same level of risk-free opportunity to steal, so it seems reasonable to conclude that the decision to steal is based on an internal factor, rather than external.

Since risk-free opportunity still plays a key role in theft and that employee theft is a relatively easy method that requires little skill or planning, it stands to reason that you need to ensure that the level of difficulty for success is high – remove risk-free opportunities. The best way to accomplish this is through consistent presence at the coalface, as flawlessly executed and targeted training and awareness programmes.


If there is to be any success in developing a sustainable low shrinkage and safe environment, it must first secure genuine senior executive support for the prioritisation of the problem. Leadership must ensure that shrinkage is not just the responsibility of one department, but also that the rest of the business must recognise that they had a role to play in its management.

Without this, none of the above-mentioned key component parts of the organisational Shrinkage Road Map process strategy needed to manage shrinkage can be effectively introduced, operationalised nor sustained and be an influential change agent that is needed in creating a consistent low shrinkage environment.

For more information, contact Christopher Cobb, UWC, +27 (0)72 633 2339, [email protected]

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