January 10, 2023

Internal vs External Theft

What causes more damage to a retail operation, external (shoplifting/robbery) or internal (employee) theft? By a nearly 3-to-1 margin, retailers say that internal theft is more extensive than external theft at their establishments. Today, let’s take a look at loss prevention and the characteristics of both internal and external theft to see what you can do as a retailer to prevent theft, fraudulent transactions and other forms of loss.

What is Loss Prevention?

Loss Prevention is the practice of establishing policies, procedures and business operations to prevent the loss of inventory or money in a retail environment. Developing a program around this concept will help you reduce the opportunities for these losses can occur and more specifically, work to prevent the loss rather than react to them after they have already occurred.

How do losses occur?

Most losses happen in three categories: internal theft, external theft, and through errors. Here are some brief descriptions of each category:

Internal (Employee) Theft is the biggest contributor to loss for most retailers, regardless of size or industry. Although some may wonder why employee theft would be the largest category of loss, hands down, every survey, study and comparison across segments has shown repeatedly that those individuals who steal from a business the most are employees.

Internal theft happens in a lot of different ways. Whether light-fingered employees are simply lifting merchandise or conspiring with friends or other store employees to rip you off, inventory theft by employees can quickly put a big dent in your profits and the merchandise available for sale. The point of sale, meaning register transactions, brings lots of other opportunities for employee theft. These forms of loss can range from simply dipping into the till to elaborate conversion schemes that include refund, void or discount thefts that can even cause a “double-dip effect” where your retail operations not only loses money but also simultaneously inventory in a single incident.

External Theft is most often caused by shoplifting, break-ins, robberies or other acts by persons with no connection to the store. Although this form of loss generally does not contribute as much to retail loss as internal theft, it nevertheless remains a major problem that contributes to substantial losses to the retail industry annually.

Controlling external theft not only requires a commitment to educating your employees on quality theft prevention techniques but also an investment in technology that can help prevent shoplifting, making potential robbers aware of your investment in security. By investing in technology like video security and analytics, you can not only demonstrate to thieves that they are being watched but you can also monitor each point-of-sale transaction to help you prevent internal loss as well.

The last major area of loss in retail operations is through errors. Often considered “paperwork errors,” these mistakes can directly cause over 15 to 20 percent of a retailer’s annual loss. Unfortunately, most of the errors discovered in retail are actually caused by employees, so even if an employee isn’t motivated to steal directly from a retail operation, they can still contribute to loss.

These kinds of mistakes can occur in all sorts of places, ranging from checking in inventory to checking out merchandise at the sales counter. They can also include the inaccurate counting of merchandise to improper discounting and mistaken sales transactions. But when a simple mistake happens over and over, it can result in thousands of dollars lost to a retail operation. This is another area where video security and analytics can help track inventory through your retail operation and identify faulty sales transactions before they become a major problem.

How do I know if I have a loss prevention problem?

Losses can be caused by many different sources and through a variety of methods. How you know you may have a problem is to look for potential symptoms that the business is not being profitable. Here are some questions you can ask to see if you may have a loss prevention problem:

  • Your cost of goods or food costs are increasing but your sales are staying flat or decreasing.
  • You notice empty containers, hangers or missing items in your store.
  • Employees are reporting shoplifting concerns.
  • You have been the victim of a robbery over the past year (robbers often look for easy targets).
  • You are losing inventory but no one has reported any theft events (possible employee theft).
  • One employee reports shoplifting incidents but nobody else is witness to these events.
  • Sales fall consistently when a certain employee works.
  • Your cash drawer fails to balance regularly and has small overages and shortages.
  • A certain employee has a high number of refunds, voids or no-sales.
  • Friends or colleagues hanging around and asking for a particular employee.

By using innovative new technologies and capitalizing on the technologies retailers already have implemented, loss prevention can really prove to be a cost-saver for retailers and a time-saver for its personnel. This can only help improve the bottom line and help wireless retailers and their employees not only prevent more loss but also serve customers better and do more business.

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