Project on Retail

Shrinkage

Retail under Threat

Submitted By:
Clevin Carvalho

K.Vamsikanth

Shalini Kumari
Submitted To:
Sudeshna Roy
Prof. Shinu Abhi
 INTRODUCTION
Inventory Shrinkage
 A shortfall between inventory based on actual physical counts and inventory based on
book records.
 A term describing the loss of products from inventory due to shoplifting by customers,
employee theft, damaged and spoiled products that are thrown away, and errors in recording
the purchase and sale of products.
 A business should make a physical count and inspection of its inventory to determine this
loss.
 RETAIL SHRINKAGE – AN OVERVIEW

 Retail shrinkage is the difference in the value of stock as per the books and the actual stock
available in the shop.
 A survey in 118 retail chains in India, shows the shrinkage rate is 3.10.

Employee Theft:
✔ Also known as “internal shrinkage”, this is caused by the employees of the store such as pilfering
merchandise, cash, provisions etc.
✔ Employee theft and embezzlement of accounts cause almost half of the total retail shrinkage.
✔ Cashier caused shrinkage occurs in ways of wrong recording of transactions, forging receipts,
misuse of the register or computer etc and accounts for almost 61 percent of the total employee caused
shrinkage.95 percent of businesses experience employee theft and 75 percent of theft goes unnoticed.
This problem is a hard nut to crack due to lack of visibility of the transaction

Some examples are:

– Writing up a cash sales slip for merchandise but destroying the ticket after the
customer leaves and pocketing the cash.
– Recording a false cash refund and pocketing the cash.
– Taking merchandise without paying for it.
– Extending unauthorized discounts or credit card refunds for friends.

Shoplifting:

✔ Otherwise called “commercial burglary”, this is one of the most common crimes. In slang
language it is
 expressed as “five-finger discount” in Australia and US, and jacking, chaving, and nicking in UK.

✔ Studies show that one out of twelve customers might be a shoplifter. Professional shoplifters are
called “boosters”. s
✔ Shoplifting can occur at any time. Anyone can be a shoplifter; a regular customer who never
intended to steal but gave in to temptation and opportunity, or a seasoned professional.

Administrative Errors:

✔ Administrative and paperwork errors such as mark up and mark down of the prices cause around
15 percent of the retail shrinkage.

✔ Paperwork errors can happen almost anywhere in the merchandising cycle. For
example:

– Marking goods at a price lower than the retail price recorded on the receiving
record.
– Failure to record all markdowns.
– Miscounting physical inventory.
– Clerical errors causing the book inventory to be higher than it should be.
– Timing is of particular importance. When comparing the actual physical inventory
count to the perpetual book inventory, care must be taken to ensure that every
invoice representing goods that have been received before the physical inventory
count is included in the calculation of book inventory.

OVERAGES:

✔ Although shortages are normally expected, it is not logical to have counted in the
physical inventory more than the book figure indicates.
✔ Goods are stolen, but not donated to the store. Therefore, overages are due largely
to errors in record keeping, although they may be due to an employee trying to cover up the
theft of merchandise.

Some examples are:

– Recording markdowns without actually reducing prices on price tickets.
– Overstating the physical inventory.
– Including in the physical inventory count merchandise that has not yet been
recorded in the book inventory.

Types of Retail Loss Prevention Investigations

Embezzlement Control:
 – Employee embezzlement is the theft or taking of property or funds
entrusted to an employee by an employer.
– The most common type of retail embezzlement is cash theft. Other types
include ringing up fake gift cards, passing merchandise, discount fraud, and, of
course, theft of merchandise.
– Embezzlement investigations are widely known in the loss prevention
industry as "internal investigations".
– Cash theft is generally investigated using cash office audits that appear on
exception reports and CCTV cameras.
– Fake gift cards are usually investigated through the use of an electronic
journal in which the gift cards are logged.
– The passing of merchandise is usually discovered through the use of an
exception report in which a particular employee is shown to have an unusual
amount of voids or no-sales. Generally merchandise is rung up by an employee and
subsequently voided out. The merchandise is then passed to a person at the
counter, usually a friend or family member of the employee.
– Other forms of employee theft that are discovered via the use of
exceptions reports are discount and commission fraud. Discount fraud is the
fraudulent use of an employee's discount to reduce the price of merchandise for
someone else. Generally this is done by an employee passing their discount card to
a friend. Commission fraud is usually accomplished by ringing large return
purchases back to another employee or recent ex-employee.
– Merchandise theft is often investigated though the use of CCTV cameras
and investigator observations. The items stolen by employees tend to be small
items which either have a high dollar value or are edible. Stockrooms have a
particularly high level of employee theft and are often investigated using CCTV.
Loss prevention often tours stockrooms looking for "stashes", out-of-place
merchandise, and price tags. Typically, a covert CCTV camera is placed in the
areas of high opportunity for theft. To reduce the amount of employee
embezzlement, stores like Wal-Mart, check their employee's or venors bags and
 purchases before they exit the store. Store personnel's also supervise vendors
when they enter the backroom or stockroom.

Credit card theft Control:

– Stolen credit cards find their way into retail stores as much as or more than
online retail websites.
– This is usually for several reasons. Retailers have generally relaxed their
procedures for checking credit cards, to shorten customers' time spent at the cash
register.
– Also, purchasing merchandise first-hand afford a credit card thief some
anonymity, as opposed to providing a mailing address for an online sale.
– Most retailers are not liable for the use of stolen cards, unless they have
chosen to override the chip and PIN and accept a customer's signature when they
could have accepted a PIN.

Check / Cheque fraud Control:

– Check fraud is generally accomplished in one of two ways. The first is by

writing a check that is manufactured to look like a real document, which in fact
has no real value or no real bank account to back it up.
– Typically this is done by suspects who are experienced in forgery. The
second method is check kiting, in which the suspect writes a check for a high
dollar purchase, then withdraws the funds from the account before the check
clears.
– Check kiting is usually done when suspects establish a fraudulent bank
account under a false name.

Margin loss and sweet hearting Control:

 – Retail Loss Prevention departments are becoming increasingly more
involved in investigating losses which affect the margin of products and services.
– Typical areas of investigation include the overriding of PLU prices, price
matching from competitors, and reduction of service fees such as delivery or
protection agreements.
– While unintentional margin loss is reduced by educating employees and
managers, the term for intentional margin loss is "sweethearting."
– Sweethearting generally occurs when an employee promises a deal to a
customer in order to close a sale, or otherwise reduces the price of merchandise
for dishonest reasons.
– Sweethearting investigations involve research into employees' finding
competitor price matches to give to customers; overriding prices for their
customers, friends, and themselves; and markdown of fees such as delivery and
protection agreements.

Equipment, tactics, and technology

Camera systems:
✔ CCTV is an abbreviation for Closed Circuit Television. CCTV camera systems are
common to almost all loss prevention departments.
✔ The obvious benefits of CCTV camera is that the investigator can gain a better view of
a suspect, record incidents, and not reveal themselves to shoplifting suspects.
✔ Some retailers use two-man teams in which one person uses the CCTV camera system
to detect shoplifters and a floor man follows the suspect and apprehends them.

Fake cameras:
✔ Some retailers use fake (or "dummy") cameras in parts of their store, the rational is
that the fake camera will cost less, but make the shoplifter too nervous to steal anything in
front of it.

Electronic Article Surveillance:

✔ Electronic article surveillance (EAS) is a deterrence system used by retailers to deter
shoplifting. EAS involves the use of electronic security towers and electronic security tags.
✔ Hard tags or Sticker tags are placed on items throughout the store and are disabled at
cashier by either removing the hard tag using a detacher or by scanning label tags over a
magnetized strip or label deactivator.
✔ If the tag is not disabled it will activate the alarm tower, which is generally located at
the exit to a retail store. EAS tags & labels are extremely effective in deterring amateur
shoplifting, but most professionals require a combination of hard tags, labels, and ink tags to
keep them in check.

Two-way radio sets :

✔ Almost all loss prevention departments have some form of two-way radio
communication.
✔ This technology is used by investigators to help two-man teams follow a shoplifting
suspect in conjunction with the CCTV camera system or to summon assistance when
apprehending a shoplifter.

Point of Sale:
✔ Point of sale is a form of electronic journal that allows the loss prevention
investigator to see a transaction as it is occurring live.
✔ This system is either displayed on a computer screen or on a monitor linked to the
CCTV camera system.
✔ This system has assisted investigators in closing employee embezzlement cases
pertaining to merchandise passing, merchandise voiding, and discount fraud.

Exception reports:
✔ Exception reports are compiled on an annual basis into a report. Usually the reports
are received monthly or bi-weekly.
✔ They include information on cash audit overs and shorts, no-sales, flagged returns,
employees ringing themselves up, fake employee numbers used to avoid commission docking,
excessive markdowns and/or discounts, and merchandise voids.
✔ Exception reports have dramatically reduced the amount of time an investigator
needs to detect a possible sign of employee embezzlement.

Electronic journals:
✔ Almost every large retail institution has some form of electronic journal which records
all its transactions.
✔ Information such as credit card numbers, gift card numbers, refunds, and
merchandise voids is gathered at the point-of-sale. These journals can then be used to view
and print facsimiles of receipts or checks.

Ink tags:
✔ Ink tags have been around for several decades and are most commonly used by
clothing retailers. Special equipment is required to remove the tags from the clothing.
✔ When the tags are forcibly removed, one or two glass vials containing permanent ink
will break, causing it to spill over the clothing, effectively destroying it.
✔ Ink tags fall into the loss prevention category called benefit denial. As the name
suggests, an ink tag denies the shoplifter any benefit for his or her efforts.

Ceiling mirrors:
✔ Mirrors allow loss prevention investigators to watch activity in a high-theft area
without being seen. Some loss prevention departments have been known to use mirrors to
increase the range of their camera systems.

Bottom of Basket:
✔ Bottom of Basket loss (BOB), occurs when an item is placed on the lower tray of a
shopping cart and the cashier forgets to check the lower tray for items, resulting in the item
not being paid for.

Consent searches:
✔ Consent searches are widely used in law enforcement and are still present in loss
prevention today.
✔ By asking a customer to consent to a search of their belongings, such as shopping bags
and receipts, any illegal search or seizure requirements can be circumvented.
✔ Consent searches in some instances can be used to build on previously existing facts
to establish the probable cause necessary to detain a shoplifter.
✔ In modern retail loss prevention, consent searches are most often used by warehouse
retailers such as Costco and Sam's Club.

Viewing towers:
✔ Although the necessity of viewing towers has been largely eliminated by CCTV camera
systems, they still exist today.
✔ A tower is usually a centrally located observation platform raised above the sales
floor.
✔ An investigator can spend time in the tower while searching for shoplifters or
investigating employees, much in the same manner as with CCTV.
✔ Most towers are now obsolete and being eliminated in many retailers.

Integrity shops:
✔ A common example of an integrity shop is marking a large-denomination bill and
placing it in a cashier's drawer.
✔ The goal is to see if the bill disappears from the drawer or doesn't reach its
appropriate destination, such as a cash office.
✔ The information gained from an integrity shop can be used to initiate investigations or
conduct interviews that could possibly reveal dishonest activity or outright theft.
✔ This is also a good way to find out if an employee is attempting to embezzle.

New technologies to curtail shrinkage:

✔ RFID and other security products play an outstanding role to combat retail shrinkage and prevent
shoplifters from sliding expensive products into their pockets.
✔ They consist of tags with electronic information, and work with an instrument called readers that
captures the information and pass it on to the database.
There are two kinds of RFID tags.

– Passive RFID tags which operate without onboard power source, and use radio wave energy
to turn the microchip attached with the product.

– Active tags that operate on battery power and send information through a transmitter to the
database.

Shrinkage and Spencer Retail – Bangalore

RPG Enterprises, established in 1979, is one of India’s fastest growing business groups with a
turnover touching Rs. 15,000 cr. The group has more than twenty companies managing
diverse business interests in the areas of Power, Tyre, Transmission, IT, Retail,
Entertainment, Carbon Black, and Speciality.

RPG Companies in Retail Sector:

✔ Spencer's Retail
✔ Music World
✔ Books and Beyond

Spencer's Retail Limited is one of India's largest and fastest growing multi-format retailer
with 250 stores, including 36 large format stores across 50 cities in India. Spencer's focuses on
verticals like food and grocery, fruit and vegetables, electrical and electronics, home and
office essentials, garments and fashion accessories, toys, food and personal care, music and
books. Established in 1996, Spencer's has become a popular destination for shoppers in India
with hypermarkets and convenient stores catering to various shopping needs of its large
consumer base.

Sources of theft in Spencer:

According to the 2007 Retail Security Survey, retail operations of Spencer suffered an
average annual inventory shrinkage percentage of 1.57% in 2007. According to the survey,
shrink is divided into 5 categories:

46.8% from employee theft,

31.6% of shrinkage comes from shoplifting

14.4% from administrative error

3.75% from vendor error

2.86% from unknown error.

Spencer’s Strategies to Prevent Shoplifting and Employee
Theft
To prevent shoplifting Spencer relies on its well-trained and alert employees who know how
to spot a potential shoplifter. Employees need to watch for customers who:

– Avoid eye contact

– Appear nervous
– Wander the store without buying
– Leave the store and returns repeatedly
– Linger in a location that employees have a hard time monitoring
– Constantly keep an eye on store employees and other customers.

In addition to trained employees to spot shoplifters, general shoplifting-prevention

techniques include:

– Staying alert at all times.

– Greeting all customers.
– Asking lingering customers if they need help.
– Knowing where shoplifting is most likely to occur in the location.
– Using a log to share suspicions about shoplifters among employees.
– Displaying signs that "Shoplifters will be prosecuted."

✔ When shoplifting is suspected, the employees never directly accuse anyone of stealing
(call security instead).

They give the person a chance to pay for the item they "forgot" to pay for by asking, "Are you
ready to pay for that?" or "Can I ring you up?"

✔ The high officials make periodic (yet randomly timed) unannounced visits to each and
every retail location.

Spot-check inventory/drawer. During unannounced visits, the officials announce: "I'm just
double-checking inventory numbers and doing a register check." They just pick a few
products and check physical inventory against inventory sheets/POS inventory figures.

✔ Their back doors are closed and equipped with alarm it. This is one of the easiest
ways for employees to sneak out merchandise.

✔ The management inspect the garbage before it's taken out.

✔ The security videos are reviewed on a regular basis.

✔ They sometimes, run cash drawer reconciliation. This lets employees know
management is keeping its eye on the ball.

✔ Spencer has an inventory-tracking system. It use a POS system that tracks inventory
automatically or, at a minimum, use paper-based inventory-tracking sheets to send a signal
to employees that inventory is indeed being monitored.

✔ They check the z-tape numbers. If yesterday's z-tape was number 24 and today's is 27,
what happened to 25 and 26? This kind of questions is asked to the employees.

✔ Spencer provide all employees with training on theft-prevention, both shoplifting and
employee theft.

✔ If a shoplifter is caught then sometimes they are forced to buy the items being stolen
by them at a double price.

Conclusion
India has been rated first on the retail theft parameter in Asia-Pacific countries, said the
second annual Global Retail Theft Barometer-2008 survey. The survey, conducted among 920
large retailers across 36 countries by Centre for Retail Research, has find India with the
highest shrinkage rate of 3.10 per cent, an increase of 6.9 per cent over last year.
One thing for sure there is no one shrinkage solution for all retailers since every retail store is
unique. Solid accounting procedures and systems must be developed specifically for your
store and scrupulously followed at ALL levels. Employees must be properly trained to follow
correct procedures. Management must follow up to see that procedures are being followed.
In other words, good management will help reduce the temptation and conditions favorable
for dishonesty and theft and reduce your shrinkage losses. Shrinkage is a variable and
controllable expense. Management's attitude toward and tolerance level for shrinkage is the
controlling factor.

REFERRENCE

1. Primary data about shrinkage in Spencer from Asha Nayyar(employee).

2. Secondary Data from,
• www.google.com
• www.scribd.com