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Increasing Your Profits by Decreasing “Shrinkage” in Your Store
By Kevin M. Mitchell

U.S. retailers lose about $31 billion a year to “shrinkage” (which is a very oh-so-polite way of saying “theft” and more likely to conjure up a certain infamous Seinfeld episode than project the seriousness of the issue). Non-caped crime crusader and criminologist Richard Hollinger, who’s with the National Retail Security Survey, writes that retailers lost 1.7% of their total annual sales last year to theft. This gumshoe also says both employee theft and shoplifting are on the rise, and that this “shrinkage” issue remains the largest category of larceny in the U.S.—more than car, bank, and home break-ins combined.

Here’s my concern. In all types of stores in all parts of the country I often see retailers reacting to this problem in a way that potentially costs them more in add-on sales and return customers than they are preventing in five-finger discounting. Pedals, microphones, and guitar tuners are too often in what Chris Miller of Pacific Store Designs calls “the glass coffin”—locked up in a counter that inhibits potential customers from examining them.

And my favorite: Strings and picks are too often only looked at when a clerk is found and a private viewing is requested, like they are the Hope diamond or something.

I was thinking of this going to my local Borders bookstore last week. I noticed that not only is there nothing behind the counters except well-trained clerks, but they actually wheel books out on the sidewalk. It’s very welcoming to know they trust that if you find something you desire outside, you’ll keep your kleptomaniac tendencies to yourself and bring it in for a purchase. The shopping experience at a Borders or a like-minded retailer is one of trust and confidence—confidence that the more you get to pick up and look at products, the more likely you’ll head up to the cash register.

They think that way because it’s true.

That same week, fate drove me into one of those mega big box music stores, which shall remain nameless. But at this Guitar Center, where I wanted to check out some keyboard modules, I noticed something quite different from the Borders experience (fear not brethren—I didn’t purchase anything there… how could I? I can never find anyone to wait on me). They had a guy, probably named Dylan, in a kind of guard tower by the front door. Now should one have managed to buy something, the lucky shopper would’ve been forced to stop at the guard tower and show receipts and products while Dylan assumed he was guilty until proven innocent, eyeing it all suspiciously before letting him pass out the door.

Doesn’t leave one with a pleasant experience, that’s for sure.

So by talking with experts and looking at how retailers in other industries handle the sensitive and serious issue, I’m hoping we can create a better retail environment and higher sales while being more successful in discouraging or catching thievery. (And while we’re on the unpleasant subject, we’ll also look at ways to protect your store from employee theft.)

Here’s the good news: the number one most effective tool against shoplifting is good customer service.

It Takes a Thief

Mike Delaney is a store detective and author of It Takes a Thief: How to Beat Shoplifters and Increase Profits, which is a wonderful resource guide. He has all kinds of fun statistics he likes to point out:

· As many as one in twelve customers are shoplifters.

· Shoplifters commit an average of 50 thefts before being caught.

· It’s estimated that only 10-15% of the ne’er-do-wells are caught.

· The value of the average amount lifted is $128.00.

Delaney also knows from whence he speakest. He has over 20 years experience … being a shoplifter. He offers many tips to minimize shoplifting in your store, including:

· Fix Your Fixtures. Delaney points out that shoplifters require privacy in order to conceal merchandise. It’s been his experience, especially with smaller specialty shops, that the arrangements of fixtures can inadvertently create an oasis of theft potential for shoplifters.

It’s key that they are arranged in a way that minimizes blind spots. Ideally, the staff should be able to look down almost every aisle. “Once you have maximized visibility by arranging fixtures, consider installing a large convex mirror to view any unavoidable hiding places,” he says.

Bonus: a well-designed floor with fixtures that offer clean sight lines makes for an attractive floor.

· Require a Receipt for All Returns. Many of us, in the interest of customer service, fudge on this obvious rule. Delaney says that many shoplifters steal with the express intent of returning the merchandise to the store with the idea of getting full cash refund.

But this can be a customer service concern. Who is able to hang onto every receipt?

“A compromise policy is to require a receipt for cash refunds and general store credits, and to allow same-item-only exchanges without one. This way, the legitimate customer with a defective product, or with the wrong size or color, is accommodated, but the thief is not.”

· Exceptional Customer Service. Everyone spoken with and every word researched agreed—this is “far and away the single most effective thing you can do to deter shoplifting.

“By knowing where your customers are, offering your assistance, and anticipating their needs, you will virtually eliminate shoplifting. An alert employee is your most effective weapon.”

Delaney offers a couple of other ideas that he says are very effective; I’m certainly not going to argue with this guy. But, for our industry at least, they might have more of a negative impact than a positive one—sort of the cure killing the patient. Still, in stores in particularly tough neighborhoods (I’m thinkin’ the one where Ray Charles was a proprietor in the Blues Brothers’ first movie), they might be necessary:

· Signage. He recommends putting up signs that deter shoplifters of the “Smile—You’re on Candid Camera” variety. He goes so far as to say that since shoplifters “are dishonest people, don’t feel guilty about stretching the truth a little on your signage. For example, a “## shoplifters prosecuted this year. Are you next?”

This is a low-class approach that will likely turn your good, honest, repeat customers off.

· Fake Camera Domes. Can’t afford a camera system? Put up fake ones. Delaney’s point is that this is a big deterrent as every night on the evening news we see some crime captured on a camera. “If shoplifters can be deceptive, why can’t you?”

My problem with this one is that you better not let ANYONE, any employee, even close family members and long-time associates know that this is a sham. Word will get out, even in an innocent way, and if a gnarly thief gets wind of it, he or she is likely to feel like it’s a big ol’ pretty invitation to lift.

Win-Win

I love these tips because they are completely win-win. It would be a good idea to discuss these with your staff with the emphasis being on quality customer service and maintaining an enticing buying environment for your customers. And here’s the big bonus—experts say these discourage those pondering pilferage.

· Be on the sales floor as much as you can—ideally, 80% of the time.

· When walking the floor, get everyone in the habit of looking for and responding to mismarked merchandise, incorrect prices on signs, and unattended price guns.

· Train clerks to make frequent eye contact with customers who have responded “no thanks” when asked if they needed anything (I especially like this one, because when I walk into a store, I knee-jerk a “no thanks” in the most Pavlovian way, and then sometimes minutes later, I realize I’d like some assistance and am sheepishly trying to make contact with a clerk.)

· Keep the cash register counter clear. Especially during the holidays there’s the temptation to pile on the possible add-ons at the counter. Not only is this unappealing and inadvertently gives the shopper a “rushed” feeling, but doing so often blocks the clerk’s view of the floor.

As all agree that the number one most effective way to prevent shoplifting is quality customer service, all experts also agree on number two: you must prosecute those you catch. And that includes those “kids” who are under 16. Yes, they might garner sympathy for being so young, and you might even know their parents. But let’s hear what Delaney has to say on this subject:

“The only time I was every caught, I was 13 years old,” he says. “The police were not called, and I continued shoplifting another 15 years—including the store in which I was caught.”

So don’t release juvenile shoplifters to their parents. Prosecute them.

The Inside Job

We all pride ourselves on being good judges of character, and the idea that an employee of ours would steal from us is hard to grasp–especially those of us who have stores with 20 employees or less and workers who have been with us for many years.

Still, we make the occasional mistake in hiring. Also, people change. Maybe over the years they’ve developed an attitude against you, or maybe they’ve gotten into some debt that lifting some gear out of a shipment would help out.

The stats on this are eye opening. At Retailindustry.com they say the typical dishonest employee theft is $1,023.00. Also, a dishonest employee works for his or her employer an average of nine months.

To prevent employee theft, begin at the beginning—at the hiring stage. Don’t be lazy or too busy to call the references and do a background check. Next, in the orientation process, stress the importance of integrity to your organization. Finally, make it clear what will happen, not what can happen, when an employee is caught palming merchandise.

Also let them know that they might be caught in a compromising position.

Tell the story of that 16-year-old gal, Ashley, who at some point got some pressure from her boyfriend Hawke to just slide over the set of Slinky strings because “who would know?” and “I’ve bought so much gear here they owe me it anyway.” As we often have hired —and wanted to hire—younger, less experienced guys and gals to work for us, it’s a good idea to run such a scenario by your new employee. The best way to prepare them for this possibility is anecdotally: “you know, we had a guy here a few years ago whose buddies in his band would pressure him from time to time to slide them some free strings. What would you do in such a situation?”

Hollinger’s study has also found that retailers that are able to pay higher wages—even if they’re just a little higher—have more dedicated employees who stay longer, and those employees are less likely to cause trouble.

My research on the subject garnered some other not-so-pleasant ways to monitor the possibility of employee theft. At one end, there’s common-sense practices like only authorizing a refund or sign voids or overrings in the presence of a customer; review cash over/short reports constantly; and require at least two employees to be on hand when the store is being opened or closed.

You’ll have to hold your nose on this one, but it’s not a bad idea to peek into the trash collection “at least weekly.” Also it’s said limiting employee access to those markdown pens and remarking machines is a good idea.

But finally, it’s about treating employees with respect and consideration, making sure their job satisfaction level is high, and keeping them informed of the store’s big picture so they feel involved, connected, and a vital part of the organization.

And while the jury is still out on whether the aphorism “crime doesn’t pay” is actually true, you can bet your cat burglar eyewear that keeping it from happening in the first place does pay.

Kevin Mitchell is a 13-year industry veteran, a marketing specialist, a public relations consultant, and a corporate trainer for Fortune 500 companies. He’s also the author of 12 best-selling non-fiction music books, most recently Musician’s Ultimate Joke Book, and a professional musician and teacher.

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