Complete guide to loss prevention for retail stores & businesses

What is loss prevention?

Loss prevention refers to the practices, strategies and technologies businesses use to preserve profits by minimizing inventory loss. Loss prevention strategies must account for a range of potential inventory shrinkage causes, including fraud, operational errors and acts of internal or external theft committed by workers, shoplifters or organized criminal networks. 

While loss prevention policies are typically associated with businesses operating in the retail sector, similar principles can be equally applied to businesses in many other sectors to help leaders reduce inventory shrinkage. Loss prevention plans are standard for businesses like:

• Restaurants

• Wholesalers

• Pharmacies

• Banks

• Manufacturers

Security and loss prevention

In many cases, organizations will hire specialized loss prevention retail security teams to oversee active policies on a day-to-day basis. These loss prevention retail departments will be responsible for managing on-site security systems, investigating incidents and working alongside internal teams to improve existing policies, as well as researching potential new technology solutions.

At present, the development of loss prevention technologies represents a primary focus for many retailers, with 92% claiming this to be a chief driver of store tech investment decisions.

The importance of store loss prevention

While the primary reason for developing loss prevention strategies may be to improve profitability by reducing losses, there are several additional benefits associated with this pursuit. For example, by hiring loss prevention teams to improve store security, businesses can effectively reduce the risks associated with in-store violence and aggression.

Additional examples of real-world loss prevention in retail stores and other business benefits include:

• Enhanced customer experience - Effective loss prevention strategies in retail help staff to ensure suitable amounts of stock are always available on the shop floor, which can reduce the risk of stockouts and enhance the shopping experience for customers.

• Improved inventory accuracy - Comprehensive loss prevention policies help teams improve the operation of inventory management systems. By implementing policies to continually monitor and analyze stock levels, inventory accuracy can be assured.

• Addressing accidents and errors - Administrative, accounting and supplier errors are not uncommon in retail and customer service environments. Enacting repeatable procedures to monitor incoming and stored inventory can help management teams to identify easily-missed errors and adjust systems to prevent repeat occurrences.

• Combating internal theft incidents - Research suggests cases of employee theft cost US businesses as much as $50 billion a year. Creating ongoing loss prevention strategies helps leaders to identify suspicious activities almost as soon as they occur, ensuring incidents are dealt with swiftly and risk factors are appropriately addressed.

Common causes of inventory and profit loss

For organizations to develop effective loss prevention plans and policies, stakeholders must first understand the primary causes of inventory loss within their businesses. To do this, risk assessments must be performed to locate areas in which inventory discrepancies commonly occur. To aid in this process, below are a few common causes of profit loss worth exploring:

• Administrative errors - This covers any instance in which staff makes mistakes that lead to financial loss examples include workers incorrectly pricing items and teams mistakenly overpaying suppliers. The implementation of actionable policies and best practices governing these processes can help leaders mitigate administrative errors.

• Internal theft - Internal theft covers all intentional acts of fraud, theft, waste or even vandalism committed by employees and/​or contractors affiliated with commercial businesses. Loss prevention security teams can mitigate these issues by implementing zero trust policies whereby access to sensitive assets is limited to a select group of staff.

• External theft - This describes any situation where an individual not affiliated with a business intentionally steals or damages assets leading to financial losses. Security and loss prevention teams typically use technologies like access control, CCTV and alarm systems to identify, address and deter this variety of inventory and profit loss.

• Supplier fraud - Sophisticated criminals may attempt to impersonate known vendors using fraudulent invoices, documents and emails to extract cash from businesses. To effectively identify and deter such offenses, security and loss prevention teams must explore the implementation of cyber security technologies and related best practices.

• E‑commerce fraud - E‑commerce sales are expected to account for almost 25% of total retail sales worldwide by 2027. As businesses continue to expand existing online services, loss prevention security teams must be wary of fraudulent activities like false refund requests, credit card fraud, chargeback fraud and phishing/​social engineering scams.

When performing risk assessments to support the development of loss prevention strategies, business owners must carefully consider the above risk factors. Using the findings of these assessments, teams can deploy appropriate loss prevention policies and technologies. 

Organizational loss prevention tips

Before exploring specific business and retail loss prevention technologies and large-scale preventative measures, it’s wise to cover a few organizational tips that can help combat profit loss. Here are a few actionable loss prevention ideas for retail and client-facing teams.

Set leadership examples

Developing a clear leadership structure and ensuring those leaders always follow actionable loss prevention best practices can positively influence employees. For example, a policy may be implemented whereby stock counts are performed regularly during a typical shift. If leaders commit to this process without exception, good precedents can be set.

By ensuring that leaders set a clear example of good loss prevention practices, employees will understand the importance of these actions and know that suspicious behaviors will not go unnoticed. This should form the basis of all further organizational loss prevention policies.

Pre-screen new employees

A business’ workforce is its primary defense against inventory shrinkage and profit loss, so it’s essential to ensure all potential new candidates are suitably vetted before starting their roles. An effective loss prevention best practice is to conduct thorough background checks on all new hires, including speaking to past employers to confirm each candidate’s reliability.

Provide regular training

Employees should be regularly reminded that loss prevention efforts are central to the safety and security of all colleagues and customers. Continuous training and awareness programs can help ensure employees remain vigilant in following loss prevention retail best practices while allowing leaders and managers to share new insights and information.

Training programs should cover effective ways to identify potential shoplifters, how to safely report suspicious activity and how to confirm the validity of customer and supplier requests. Leaders should also consider sharing information about current threats reported in the local area to ensure staff are well informed about new scams and potentially dangerous incidents.

Reconsider store layouts 

Effective loss prevention strategies include intelligent store layouts designed to prevent crime. Leaders can implement a range of store layout best practices to make their businesses less attractive to potential criminals. Examples of effective practices include:

• Clear sightlines - Avoid the use of tall shelving units and displays to provide workers with a clear view of the shop floor at all times to help staff spot unusual behaviors.

• Entrance chimes - Fitting chimes, bells or discrete alarms to all entrances and exits can help staff to better monitor customer activity without disrupting honest individuals.

• Bright lighting - Ensuring both indoor and outdoor areas remain well-lit and visible at all times will help to deter criminality and protect workers from surprise assailants.

• Checkout areas - Make sure checkout areas are positioned in view of main entrances and exits to help workers identify potential shoplifters and signs of criminal activity. 

Consider third-party assistance 

Business and retail loss prevention strategies can be enhanced with support from third-party professionals such as accountants and auditors. By asking a trustworthy external source to review financial records, inventory counts and other forms of loss prevention documentation, business owners will receive unbiased opinions regarding essential processes and activities.

Third-party teams may also be able to identify financial and organizational inconsistencies that internal teams may have accidentally (or intentionally) overlooked. This additional layer of scrutiny can prove instrumental in highlighting exploitable loopholes in existing strategies.

Loss prevention strategies for modern organizations

Alongside the above-mentioned organizational loss prevention tips, modern leaders should explore the use of smart technologies and real-time monitoring systems to support staff in deterring and addressing criminality. The following section outlines five actionable loss prevention strategies that can assist staff in better addressing profit and inventory loss.

1. Develop physical security solutions 

Deploying smart physical security solutions can help employees and security teams monitor high-risk locations autonomously. By limiting the number of people able to access stock rooms and inventory storage spaces using access control readers, management staff can reduce the risk of opportunistic theft and improve the efficacy of later investigations.

Live alerts can be sent to admins warning of suspicious access attempts, with leaders able to immediately revoke permissions when required. Solutions can be further strengthened via integrations with business security systems, such as real-time alarms, sensors and video security cameras, offering security teams additional contextual information to help them plan informed and effective responses.

2. Utilize smart CCTV and video analytics tools

Research suggests that the mere presence of visible security camera systems may reduce crime rates by as much as 51%. However, enhancing these solutions with AI video analytics software can help security and loss prevention retail teams better address threats.

Cameras should be positioned to overlook high-risk areas like stock rooms, cash counting areas, high-value item displays and loading bays, with features such as remote pan, tilt and zoom controls prioritized to ensure ample coverage. Modern Internet Protocol (IP) security cameras connected to a broader cloud-based management system may be deployed to ensure loss and prevention staff can access, review and adjust CCTV systems remotely at all times.

Security cameras for retail stores can be further enhanced with support from AI video analytics tools. Leading video security software leverages AI-powered video analytics to detect and flag incidents that may indicate suspicious behavior, including people loitering in unusual locations or a person running. Admins can then review the video footage and initiate a response if necessary.

3. Enhance Point-of-Sale (POS) systems

Loss prevention policies can be supported through efforts to enhance existing POS systems. For example, management features can require employees to log in and out of POS terminals when processing individual orders. This feature enables security and loss prevention retail staff to see who has used specific terminals at certain times to aid investigations. 

In addition, retail access control models can be applied to POS systems to ensure that only managers can perform high-risk actions like processing product returns. Analytics tools can also be used to continuously monitor POS activity, highlighting suspicious actions or patterns that may indicate theft or fraudulent activity, with admins warned of these behaviors in realtime.

4. Intelligent inventory management solutions

The key to an effective loss prevention plan is to ensure core stakeholders have access to accurate inventory data instantaneously. Developing an inventory management solution capable of continuously monitoring incoming and outgoing stock enables leaders to monitor trends and suspicious actions in real-time, ensuring investigations take place promptly.

Inventory management software can be combined with wider security devices such as CCTV cameras, access control readers and RFID tags to develop autonomous systems. When items enter a facility, cameras can scan unique barcodes and access readers can analyze affixed RFID tags. This data is then automatically logged in an associated inventory management system to ensure security and loss prevention retail staff always have access to accurate inventory data.

5. Electronic Article Surveillance (EAS) devices

EAS tags function similarly to RFID tags, though these devices can be affixed to stock on the shop floor and used to trigger alarms if items are removed from the store unlawfully. Security and loss prevention teams should affix EAS tags to high-value items, with policies in place that enable management staff to remove and deactivate EAS devices only at checkout registers.

If an active EAS tag passes through sensors installed at key entrance and exit points, on-site alarms can be configured to sound and commercial smart locks can be automatically engaged. Security staff may also program CCTV systems to automatically flag footage in response to EAS triggers, helping to speed up investigations and collect vital evidence of criminal activity.

Real-world loss prevention examples

The loss prevention strategies covered above are not only effective in theory. In fact, many of these technologies and smart solutions have been successfully utilized by major retailers across the globe. Below are just a few examples of such loss prevention plans in operation.

Data and video analytics

Major retailers like Walmart and Kroger currently use AI-informed video security systems as part of their wider loss prevention plans to reduce shoplifting and enhance self-service checkout solutions. The deployment of AI-informed video surveillance technologies has been shown to reduce losses associated with shoplifting by as much as 90% in some instances.

Another example is the clothing brand Superdry, who has successfully utilized cloud-based AI security cameras to enhance store security and improve operations. Management teams use AI cameras to monitor out-of-hours deliveries, automatically detect suspicious behaviors and gain valuable insights into how daily processes may be enhanced. Superdry stores have achieved wider security coverage and lower operational costs through the use of these tools.

Smart RFID and EAS tags 

As of 2022, it’s believed that around 15% of retailers have adopted some form of RFID tag-based shoplifting deterrent system. The fashion brand Burberry uses RFID technology to track inventory and provide customers with additional information about specific items, with other similarly positioned companies such as ZARA exploring the use of RFID monitoring systems.

Research indicates that the adoption of RFID and EAS tag tracking systems in commercial environments may reduce shoplifting incidents by as much as 75%, with one major retailer claiming RFID tags helped their loss prevention teams reduce inventory shrinkage by 55%.

POS and inventory control 

The US-based grocery retailer Meijer utilizes intelligent POS systems to streamline existing inventory management and loss prevention operations. These POS solutions are designed to improve inventory accuracy and assist security teams in identifying suspicious activity by automatically highlighting transactions that don’t correlate with expected shopping behaviors.

Conclusion

Inventory shrinkage and profit loss are major issues that impact the operations of small and large businesses across most sectors. However, effectively combating these issues can be difficult due to the vast array of internal and external factors that can contribute to profit loss.

Thankfully, with aid from intelligent organizational policies and smart technology solutions, modern businesses can develop effective loss prevention strategies to deter criminality. By following the tips covered in this guide, security and loss prevention teams should be well-positioned to develop proactive solutions to better protect their organizations.