Retail shrinkage: Are locks the best way to stop shoplifting?

Retail stores are beginning to look like plastic fortresses, and the trend isn’t likely to wane anytime soon, thanks to retail shrinkage.

Bruised by a shoplifting problem that cost the industry $94.5 billion in 2021, drugstores such as CVS and Walgreens as well as megastores like Walmart and Kroeger have been putting everything from batteries and booze to makeup, baby formula, razor blades, and cleansers in locked plastic cabinets.

One retailer even went so far as to say it was considering “putting everything behind showcases to ensure the products are there for customers who want to buy it.”

Such measures – on top of potential store closures in more theft-plagued cities like Los Angeles, San Francisco/Oakland, New York, Houston, and Miami – could curb what the industry calls retail shrinkage. But industry executives also know they need to strike a delicate balance between security and customer experience.

“It’s poisonous to our perception of the store,” says Paco Underhill, founder of Envirosell, a behavioral research and consulting firm.

Battling shrinkage: Security vs. convenience

To be sure, annoyance with the security practice could be reducing overall sales by 15% to 25%, Joe Budano, CEO of Indyme, a technology company selling retail security devices, recently told Axios.

That’s because customers know they don’t have to suffer such inconvenience. Most head to a physical store because they enjoy the experience of checking out and comparing physical products before purchasing them. If that’s disrupted or taken away, many will likely throw up their hands, walk out, and spend their money in less garrisoned outlets or online.

For their part, retailers understand this risk and have been trying not to overreact. But they’ve also been between a rock and a hard place.

Retail shrinkage has always been an issue. But at the tail end of the pandemic, few stores were fully staffed, meaning there weren’t enough eyes watching small and easy-to-grab items. Between petty theft and a 26.5% spike in organized retail crime (ORC) activity in 2021, retailers say shoplifting has been soaring.

Indeed, the average retailer is losing 2% to 3% of sales to shoplifting now compared to 0.7% to 1% before the pandemic, Burt Flickinger, managing director of retail consultancy Strategic Resource Group, told CNN.

Walgreens has second thoughts on stepped-up security

Naturally, those big numbers – against the backdrop of a rise in organized crime – alarmed retailers like Walgreens, which saw a 52% jump in shrink in 2020 and 2021, causing it to lock up product, deploy security guards, and close stores.

Now, though, the drugstore chain is feeling as if it might have gone too far and is considering simply partnering more with local law enforcement to address the problem.

“Maybe we cried too much last year,” Walgreens CFO James Kehoe said during an earnings call in January. “We probably put in too much, and we might step back (on security).”

Some retailers are using less obvious methods of combatting theft. For example, Walmart reportedly equips employees at self-checkout with devices that allow them to see what customers are buying and pause the transaction if they spot anything suspicious. But from the customer’s perspective, it simply looks like a technical error with the self-checkout machine.

3 ways retailers can battle retail shrinkage, sans locks

Stepping back won’t make shrinkage disappear, however, which means retailers still need to make several changes to deter shoplifting in ways that don’t make customer feel under siege.

Here are three steps retailers can take to combat retail shrinkage: 

1. Deploy modern technology
2. Remap the store
3. Support legislation

Technology such as security tags, sensors at gates, and cameras are par for the course. They should be placed as inconspicuously as possible to minimize making customers feel watched. Also keep an eye out for emerging technological solutions, such as embedding RFID chips in high-ticket items like power tools. The idea is that, if the store doesn’t activate those items upon purchase, they won’t work – so stealing them gets thieves nowhere. Lowe’s hardware is reportedly testing such a system.

Artificial intelligence (AI) and video analytics could also soon prove useful in scouring video feeds to look for patterns of suspicious behavior that could indicate a crime is about to occur (like Minority Report but without the creepiness).

Remap the store: Envirosell’s Underhill, who has studied shrinkage for decades, suggests making a few modest changes to how stores operate.

Since most retailers have data on which items thieves are targeting the most, retailers should relocate these from difficult-to-watch parts of stores to more heavily trafficked, visible locations, he says.

Also, look for ways to subliminally tell shoplifters they’re being watched. One way to do this is to make periodic PA announcements in a very friendly voice saying things like, “security to section eight please, security to section eight.” Another is to post signs saying the store has camera systems or shelving technology tracking product movement.

“These are ways of addressing the problem that cost almost no money,” Underhill says. “Whatever you do, though, you want to make sure it helps you still be a very friendly store.”

Legislation: Retailers can also get behind legislation as it comes along to make shoplifting less attractive to crime organizations. For example, the recently enacted Integrity, Notification, and Fairness in Online Retail Marketplaces (INFORM) Consumers Act requires online marketplaces to verify the identities of large third-party sellers.

In essence, the law seeks to make it harder for organized crime to move their loot online. More such legislation is likely to emerge as retail theft continues.

Don’t turn off shoppers

Whatever steps retailers take to head off retail shrinkage, it’s critical to avoid turning physical stores into fortresses.

Consumers have alternatives, and they will take them if in-store experiences remain poor.