Research shows organizational structure in retail can curb in-store theft

Retail companies should engage frontline employees in the ongoing battle to reduce in-store theft, according to new research from M. Johnny Rungtusanatham, Canada Research Chair in Supply Chain Management and Professor of Operations Management & Information Systems at York University’s Schulich School of Business.

Johnny Rungtusanatham

The paper “Retail inventory shrinkage, sensing weak security breach signals, and organizational structure” is published in Decision Sciences.

According to the paper, retail inventory shrinkage arises from two primary sources: theft or administrative errors. The former includes employee thefts and shoplifting and constitutes the larger portion. To combat this phenomenon, retailers have invested in technologies to monitor (e.g., security cameras), detect thefts (e.g., sensors at entrances), and deter thefts (e.g., locked cabinets), as well as in visible security personnel. The Walmart greeter, for example, is there not only to welcome you but also to demotivate shoplifters. The same is true of the Costco employee checking receipts at the exits. Despite these efforts, retail thefts have not abated, with losses piling north of $50 billion.

What else can retailers do? Schulich’s Rungtusanatham and his colleagues – Hung-Chung Su (University of Michigan Dearborn) and Kevin Linderman (Pennsylvania State University) – provide some insights and practical steps retailers can take in their research paper.

Analyzing inventory shrinkage data, store attribute data, and employee survey data from a Fortune 500 U.S.-based retailer with over 1,000 brick-and-mortar stores, the researchers offer three suggestions:

  1. Raise the alertness of in-store, on-the-floor retail personnel to potential and actual security breaches. Think of a security breach as a specific opportunity arising from the convergence of physical factors (e.g., an open door that should have been locked) and time factors (e.g., holiday sales) that allow an individual – employee or shopper – to be motivated to engage in illegal behavior.
  2. Formalize in-store procedures and protocols to prevent and to react to retail thefts. Such formalization bolsters retail personnel alertness and should begin by soliciting their inputs. Sadly, according to the National Retail Federation, only 40 per cent of retailers have formal in-store loss prevention committees.
  3. Delegate decision-making regarding security breaches to frontline employees. Doing so speeds up detection and reaction time. For the Fortune 500 U.S.-based retailer in question, adopting these suggestions could lead to inventory shrinkage savings of between $4.5 and $16.7 million (USD) (or, approximately $1.8 to $6.7 million (USD) from curbing thefts).

To read the full study, visit https://onlinelibrary.wiley.com/doi/full/10.1111/deci.12524.

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