For Retailers, Fighting Shrink is Really a Battle to Keep Their In-Store Consumers

Nov. 2, 2023
By Phil Lempert, SupermarketGuru, Consumer Trend Tracker, Food Trends Editor, NBC’s Today, and Author

In an age of unprecedented technological advancement, brick-and-mortar stores are facing an age-old problem with renewed vigor: shrinkage, or the loss of inventory due to theft, errors, or fraud. In my discussions with retail CEOs, it’s one of their major concerns!

With the retail landscape becoming more competitive by the day, the implications of shrink are massive, denting profits and affecting business sustainability. Zebra Technologies’ 16th Annual Global Shopper Study finds that 82% of retailers agreed that minimizing fraud/shrink is a significant challenge, and according to the National Retail Federation (NRF) Security Survey  retailers lost $122 billion due to shrink in 2022. Forty-nine percent, according to Zebra, expect to deploy loss prevention analytics by 2026.

Retailers are faced with the decision to put up plexiglass doors over shelving, and in some cases (as in ice cream cases) securing the doors with chains and locks. Both are creating untold problems for the stores and the shoppers. For the stores, it’s the balance between the cost of securing goods, installing devices that allow customers to “call for assistance” and the reality of a diminished labor force. A recent Inside Edition investigation found that shoppers who asked for assistance had to wait many minutes, with one shopper having to wait 15 minutes to get a tube of toothpaste! For shoppers, this process has added time — and more importantly, annoyance and frustration — to their shopping trips. The implication is that the store doesn’t trust their shoppers, and the result is either that shoppers go elsewhere or online to buy their goods — both of which undermines the retailer’s relationship and sales.

The multi-faceted causes of retail shrink add to the retailer’s dilemma. As a result, the implications, and solutions on how to fix the problem, are much more difficult.

  • Shoplifting is the most common form of shrink. As prices rise and economic disparities become more evident, some consumers resort to theft, either out of need or as a form of opportunistic crime.
  • Employee Theft is often more damaging than shoplifting and can range from pilfering products to manipulating transaction records.
  • Administrative and Paperwork Errors including mismanaged inventory, human clerical errors, or faulty pricing can also contribute to shrink. (Keep in mind that not all shrink is nefarious.)
  • Vendor Fraud can also be a factor where suppliers might intentionally shortchange a retailer, not delivering the promised quantity or delivering substandard goods.
  • Organized Retail Crime (ORC) or Flash Mob Robberies, which emerged and proliferated during the pandemic, continue to be a major factor in both shrink as well as for in-store shopper and employee safety creating even more concern. ORCs are more sophisticated and organized than shoplifting; these are groups that “smash and grab” quickly, entering stores stealing merchandise in bulk, and then reselling it.

So why has all this happened and become such a major problem for retailers?

The reality is that the economic downturn and uncertainties over the past few years correlate with increased theft as individuals struggle to make ends meet. At the same time, we have witnessed the “ease of resale,” where online platforms and marketplaces make it easier for stolen goods to be quickly sold to unsuspecting buyers. As discussed in-depth in my last CMA column, self-checkouts are also an invitation for theft unless monitored closely.

At the store level, there is inadequate staff training on two levels: employees might not know the signs of theft as many are not trained adequately in loss prevention, and even more importantly what to do if they observe theft and how to communicate internally — as well as to the shopper — without putting the store or shopper in an uncomfortable or even adversarial position, which could lead to litigation or arrest.

Recognizing the gravity of the problem, retailers are becoming proactive, adopting a mix of traditional methods and innovative technologies to counter the rising shrink problem. Enhanced surveillance has become a “must-have” in the retail environment. Gone are the days of grainy CCTV footage. Retailers are now deploying high-definition cameras, often combined with analytics, to detect suspicious behavior. Radio Frequency Identification (RFID) tags, especially on apparel and high-priced goods, are becoming more prevalent. These tags are attached to merchandise and can trigger alarms if they’re not deactivated at the point of sale. For lower-margin goods, such as toothpaste, the cost of the RFID chip is too expensive to implement. New technologies such as the Ambient IoT devices (with current costs at less than 10 cents and dropping rapidly) will become prevalent. On the back end, retailers are using advanced software to track inventory closely, ensuring discrepancies are detected in real-time.

Retailers are limiting or even eliminating self-checkout. While self-checkout offers convenience for some shoppers, it’s also an avenue for theft. Some retailers have added more attendants to these areas, implemented weight-sensitive areas to detect if an item hasn’t been scanned, added scanners at floor level to detect products that may be on the shopping carts bottom rack, integrated facial cameras into the self-scan touchscreen where customers can see themselves being videotaped and even asked security guards to check the self-checkout receipts with the items in shopping bags. Some retailers are even deploying facial recognition software, especially in the store’s high-theft, high-priced areas. This technology can alert staff when it recognizes a shopper’s questionable movements; and when there is a collaboration with law enforcement, recognize if a known shoplifter enters the store. However, the use of this technology (as well as that of the facial cameras on self-checkout) is controversial, raises privacy concerns and diminishes shopper trust and enjoyment of the shopping experience.

One of the most powerful deterrents, in my opinion, is to engage customers. A simple “Can I help you find something?” can dissuade potential shoplifters. Engaged customers are less likely to steal, and engaged employees are more likely to notice someone acting suspiciously.

There is little doubt that retail shrinkage is an ongoing battle. As thieves become more sophisticated, retailers must adapt and innovate. If we don’t, we are just driving shoppers from our stores and to online shopping sites. The stakes are high, with not only billions of dollars on the line, but also the trust of the consumer. The cost of shrinkage doesn’t vanish; it’s passed on to consumers in the form of higher prices, and we are currently witnessing the reactions and changing of shopping behaviors.

The silver lining is that as retailers become more proactive and harness the power of technology, we can hope for a future where the retail experience is not only enjoyable for customers, but also secure and profitable for businesses. It’s in all our best interests to protect and enhance the in-store shopping experience!