Taking stock of shrinkage

For Atlanta retailers Deirdre Staab and Shelly Dozier-McKee, February is inventory month. One Saturday night after closing, a team of about 10 people from Regis Inventory Specialists will arrive at their store, the Scarlet Tassel, where they'll scan, count and enter data along with six store employees.

If all goes as planned, they'll finish the job in about four hours. And hopefully, the final numbers will reveal a shrinkage of less than 1%, a number that betters the national average of 1.6%* and a big improvement over the 2% to 3% numbers that resulted in some changes at The Scarlet Tassel a few years ago.

Those changes, and what precipitated them, were among the topics discussed in an AmericasMart-sponsored seminar led by Staab and retail consultant Stephanie Wagner last month in Atlanta. Staab and Wagner addressed the two main causes of inventory loss in the U.S. — employee theft, which accounts for half, and shoplifting, which accounts for another third.

They began the discussion with an explanation of the 10-10-80 rule, “Ten percent of employees always steal from their employer, 10% percent never steal, and 80% wait and see. In the latter case it can be triggered by a disgruntled employee or something like a lack of a raise — some situation that, in the employee's mind, justifies the theft.”

Prevention starts with background searches and a new employee orientation that clearly communicates the store's polices and procedures. And, says Staab, constant training from day one is key. “We want that new employee to know that we know how they can steal,” she said. “We talk about loss prevention every day and practice it every week, and we review policies and procedures at every staff meeting.”

Staab also recommends keeping a communication notebook by the cash register. “It's how we keep in touch. Everyone can write what's on their mind, managers can reiterate policies, and it includes tabbed sections with up-to-date policies and procedures.”

The Scarlet Tassel also implemented an employee bag check policy. “Most of our employees didn't care,” Staab said, but about 20% of the staff had a problem with it and quit … and our internal theft completely stopped.”

Other signs an employee may be stealing: finding merchandise in the trash or other unlikely places, and employees who make frequent trips to the bathroom or their cars during shifts. “If much merchandise is found hidden in odd places, it's a huge red flag,” Wagner said, as well as finding torn-off price tags in odd places.” Wagner recounted a situation in which a toilet in one store's employee bathroom became completely stopped up with paper price tags that had been torn from concealed merchandise.

Staab and Wagner also advise against allowing employees to ring up family members, which can result in the misuse of employee discounts. They suggest watching for employees bagging more merchandise than paid for or under-ringing items that are later returned for a full refund.

Be suspicious of cash drawers left open after a transaction is complete and take note of employees with personal financial problems. “Desperate times can lead to desperate measures,” Staab said.

Staab also recommends a good point-of-sale system such as the one she uses, Counterpoint by Radiant Systems, and if it's financially feasible, cameras above the register.

When it comes to preventing shoplifting, training employees on what to look for and how to handle suspicious shopping activity are all part of the selling and service training. “Role playing is a great training tool,” Staab said. “We work through different scenarios written on cards that are pulled from a hat.”

Red flags that could signal trouble: unseasonable clothing, strollers (“unfortunately, a great place to conceal things”) and shoppers who seem to be more interested in the staff than the product. “Ninety percent of customers when asked if they need help will say they're just looking,” Staab said. “Be wary when they become defensive and ask 'why are you following me around?'” Staab and Wagner also advise retailers to keep an eye on customers' shopping bags, especially those that look used, worn or empty because they might be lined with duct tape or foil to bypass magnetic sensors.

If a Scarlet Tassel employee feels he or she is witnessing a possible theft situation, they are taught to begin the selling process immediately and, if possible, enlist the help of another sales team member. “We train them to never touch the person — don't put a hand on their stuff or in their bag — and provide a recovery statement so that they know we know they've got the item. 'May I wrap those ornaments under your stroller for you?' It gives them a chance to return the item and save face,” Staab said.

Savvy independent retailers like The Scarlet Tassel are recognized by Home Accents Today each May in our annual 50 Retail Stars issue. If you would like to recommend a store or nominate your own, please visit homeaccentstoday.com for more information, or send me an e-mail at susan.dickenson@reedbusiness.com.

*From the 2006 National Retail Security Survey, a partnership between the University of Florida and the National Retail Federation. The survey was underwritten by the ASIS Foundation, ADT and Stored Valued Systems.