The manufacturing and retail industries have been facing increasing cases of organised retail crimes and inventory losses due to pilferage — internal and external — damage, and fraud. The Christmas season often sees increases in such activities. These losses contribute to shrinking, which cost companies billions of dollars in losses every year.

The term shrinking is used in the manufacturing and retail industries to describe inventory losses due to pilferage, internal and external, damage, fraud, expired goods, Internet crimes, to name a few. Merchants used this term when they were determining the difference between stocks on hand against their actual balance. The term, however, is not precise based on the number of factors that are attributable to the term.

According to a 2021 study by National Retail Federation (NRF), using 63 retailers, shrinking costs retailers $94.5 billion in 2021, up from $90.8 in 2020.

Gabrielle Fonrouge and Melissa Repko (CNBC) reported that companies polled for a survey estimated that retail theft accounted for 37 per cent of the losses; employee internal theft, 28.5 per cent; and process and control failures accounted for 25.7 per cent. Unknown losses and other sources accounted for the rest. These figures are largely estimated because of the difficulty in determining how the losses occurred. Prominent retailers, such as Target, Dollar Tree, Home Depot, T J Maxx, and others, all cited shrinking as a major cost for lower profits.

Repko pointed out that Target lost US$763 million from shrinking in its last financial year. In January, Walmart CEO Doug McMillian reported that theft is higher than it has been historically and that, if it is not corrected over time, prices will be higher or more stores will be closed. Retail crimes, including shoplifting and coordinated theft, have grown to a wider reach, alongside the rise of online shopping which has allowed criminal groups to have a broader sphere of customers.

Organised retail crimes, as defined by the US Department of Homeland Security, refer to the illegal activities of two or more people who obtain valuable items from establishments through theft or fraud as part of a criminal enterprise. The NRF, on the other hand, defines organised retail theft as the large-scale theft of retail merchandise to resell the items for financial gain.

There are those who steal items from stores or factories and sell the items to unscrupulous merchants or individuals who pay them a small fraction of the actual cost of the products. Others just steal for personal consumption.

In a special investigation report from Allied Universal, they found that crimes against retailers are likely to threaten business continuity and financial assets through reduced employee retention, investigations, lawsuits, loss of assets, decreased customers and investor base. The number and impact levels against retailers over the next year will be heavily dependent on a variety of factors, among them in-store and online security of retailers and their supply chain. The retailers’ corporation must strike a balance between security measures and customer shopping experience and efficiency.

Some retailers are tapping into artificial intelligence (AI) to automate warehouse logistics and real-time pricing which is geared to better account for inventory and better shipping experience in-store and online. According to Sensormatic Solutions, an inventory intelligence solution for retailers, the integration of item-level RFID (Radio Frequency Identification) information and loss prevention data creates a real-time understanding of what, when, and how specific items go missing.

This new insight is called “shrink visibility”, which leverages electronic article surveillance (EAS), video surveillance, and RFID inventory-visibility technologies to provide a complete picture of loss events at the SKU (stock keeping unit) level and, in full context, as they occur.

Shrink visibility takes loss prevention efforts to the next level to help retailers do the following:

* track and manage retail shrinkage from all sources, in real-time;

* differentiate between actual store shrink and other forms of inventory distortion;

* pinpoint shrink sources in the store and along the retail supply chain;

* replace after the fact follow-up with real-time response and predictive analytics

There are numerous fraud schemes in the manufacturing and retail industry. Some of the common types of fraud that retailers are susceptible to include improper invoicing; improper billing schemes; bribes; kickbacks or extortion; illegitimate vendors; understocked orders; price inflation from supplier’s employees; accidental errors; improper pricing; point of sale (POS) transaction errors; cash handling mistakes; and wilful damage to inventory.

While retailers have to factor loss into their bottom lines, there is no way to eliminate it. However, there are steps they can take to minimise it. By implementing loss prevention policies and procedures backed by modern technology, retailers can reduce shrinkage, bolster security, and keep employees safe.

Allied Universal advised that minimising shrink is the primary responsibility of loss prevention, and the discipline has developed robust processes and technologies to deter or detect fraud and theft, often backed by enforcement and recovery, as pointed out by Sensormatic Solutions.

Loss prevention uses information from sales floor surveillance, POS exceptions, theft deterrent devices, and EAS alarms at entrances. The function of loss prevention is no longer just people chasing after shoplifters. From sophisticated organised crime to employee theft to human errors, retail losses have a number of causes. Before you can enact effective loss prevention tactics you need to understand the root causes of retail shrink and how they are affecting your business.

While the field of retail loss prevention is rooted in anti-shoplifting tactics, such as EAS tags, it has grown to encompass much more than that. Today, retail security and loss prevention teams are involved in a diverse set of issues — from crime prevention and employee safety to physical security and even supply chain integrity. The duties of loss prevention teams also continue to evolve in response to ever-changing retail security needs. Loss prevention for retailers with multiple stores is complex. For large retailers with many store locations, or many physical assets, monitoring all the potential threats that could impact their employees, stores, and products — at any time, anywhere in the world — is impossible without a high level of situational awareness.

Successful asset protection and loss prevention require a strategic focus. Faced with evolving threats and a constantly changing retail risk landscape, new technology can offer loss prevention teams the situational awareness they need to stay ahead of the risks. By using emergency communication and threat intelligence software, retail security and loss prevention teams can dramatically reduce shrinkage, improve safety, and enhance security across all their retail locations.

Businesses are sometimes blamed by shoppers and employees for facilitating these incidents because of allegedly weak security measures and may therefore experience lawsuits and protests. Retailers who implement more strict security measures may avert some of the long and short-term effects associated with these crimes. Armed security guards can help to reduce crimes and their impact more than video surveillance or other passive security measures as they can respond immediately to potential theft, violence, and other issues thus reducing the possibilities of damage and losses. However, the most effective security solution must include multiple layers of solutions.

This season of retail and commerce brings with it amplified need to secure stock and displays. Doing nothing is not an option.

Christopher Bryan has read for master’s degrees in government and national security and strategic studies. Send comments to the Jamaica Observer or christopher.bryan1000@gmail.com.