According to the Global Retail Theft Barometer, retail shrink accounted for $107.284 billion in 2010. As retailers begin to determine their goals and initiatives for 2011, they need to consider how to identify and prevent the margin-robbing activities that are cutting into their bottom lines. Here are a few commonly missed fraudulent activities and operational errors, along with some tips on how to combat them.
Gift Card Fraud
Gift card fraud has become increasingly significant with the rise in popularity of gift cards. When a credit card is stolen, the perpetrator only has a short amount of time to act until the incident is reported. In a race against the clock, the thief will immediately purchase gift cards. This essentially converts the stolen card to cash and makes the money virtually untraceable. Educate your cashiers on this issue and make it a best practice to request identification on gift card purchases and all credit card transactions.
Sweethearting is one of the most common types of employee theft and is as old as retail itself. Traditionally, when the customer—typically a friend or relative of the employee—went through the checkout line with an expensive item, the cashier would bypass the scanner to avoid ringing up the item. Although this is still a common practice, sweethearting techniques have evolved. Today, it is not uncommon to find a cashier placing his thumb over the barcode on a filet mignon and instead scanning the barcode on a pack of gum, taped to his hand. The result: the friend of the cashier just purchased $15 in meat for 25 cents. When you suspect an employee of sweethearting, look for a repeat customer frequenting the same cashier, particularly during slow hours when lines are short.
Packaging errors often go undetected but can result in significant losses at the POS. In one instance, a packaging issue was causing numerous scanning errors across a retail chain. Here’s how: bottled water cases have barcodes on each individual bottle as well as on the bottom of the case. Because this retailer’s cases were packaged in a clear plastic wrap that was transparent, the scanner was routinely picking up the UPC on the individual bottle rather than the correct UPC on the bottom of the case. As a result, customers were purchasing cases of water bottles costing $5.49 for $0.69, a $4.80 loss that often went unnoticed in medium to large transactions. By quickly identifying the scanning error, the retailer was able to avoid the widespread error that could have cost the chain over $80,000 annually. Train cashiers to identify the correct UPC code when scanning packages that contain separate units, such as water bottle cases.
Building a Bank in the Register
Crooked cashiers often pull off this technique by identifying items that are priced at an even dollar amount, which seldom requires giving change to the customer. Currently, cigarettes are being sold for approximately $9.99 in New York City. For many, this item is a quick purchase that doesn’t warrant waiting for the penny or receipt, so they lay down ten dollars and walk out the door. The employee then voids the order and puts the money in the cashier drawer. This trick allows for large sums of money to be stolen because it appears the employee has completed the transaction. At the end of his shift, he then takes the stolen money from the register and pockets the cash. Be sure to watch for cashiers keeping money next to the register. In many cases, they will use this cash for change and then void the transaction.
According to the NRF, return fraud costs the retail industry an estimated $10 to $15 billion per year. A significant percentage of these losses are due to repeat offenders. To put this in perspective, consider the damage one person can do: in one case of customer return fraud, a woman repeatedly walked into 27 of a chain’s 133 stores, picked up an item from the shelves and “returned” it without a receipt. She admitted to over $10,000 in return theft over the course of 90 days. Pay close attention to return patterns and educate employees on company procedures and policies for refunds.
The prevalence of online coupons is becoming increasingly evident to retailers, as consumers trek in with printouts from their favorite money-saver blog or website. However, this popularity has also spawned an explosion of counterfeit coupons. Although the loss of a few cents doesn’t sound very pressing, counterfeit coupons are extremely detrimental to retailers—especially grocers—who operate under tight profit margins of about one to two percent. To understand the impact that one coupon can have on a store, consider this: one fraudulent coupon can costs a retailer hundreds of thousands of dollars over the course of one week. Stay up-to-date on counterfeit coupons by monitoring websites such as centsoff.com.
Hidden Items in the Cart
Implementing two quick and easy procedures at the point-of-sale will reduce losses due to hidden products: requesting sales circulars and checking for items on the bottom of the cart. Sales circulars may seem harmless, but they can easily conceal costly items such as DVDs, make-up and over-the-counter medications. Similarly, checking the bottom of a customer’s cart may seem excessive, but missing these products can result in substantial revenue loss. Making these procedures habits ensures that all items are properly entered into the order and the customer cannot complete the transaction without paying for all of the products.
Poor Promotion Execution
Promotions that are not properly established in the POS system can account for a significant amount of shrink. When a retailer holds a promotion they pay for the product upfront and bill the vendor back for the items sold under the deal. If the retailer cannot provide proper documentation to prove items were sold under the promotion, they will not receive the manufacturer’s refund. For example, imagine that a retailer is hosting a Buy-One-Get-One (BOGO) deal, but the promotion is not entered correctly in the system. When the employee scans the item, the promotion will not register, which often leads to the cashier bypassing the system and providing the customer with their item for free. Without the POS data to prove that the item was sold under the promotion, the retailer has no way of receiving the manufacturer’s refund. As a result, the chain will lose money for every item that was given to the customer for free. To reduce these losses, hold a weekly meeting to walk the cashiers through the promotions. This will ensure that they fully understand each deal and can explain it to the customer if it is unclear. Give special attention to cross promotion items, such as Buy One A, Get One B for free. Many customers and cashiers misread these offerings to be Buy One A, Get One A for free.