Retailers tackle criminal element with internal controls

Carolyn Yates
June 16, 2008
Written by Carolyn Yates
With the growth of retail organized crime in the Canadian marketplace, the types of security measures being employed by retailers is also growing, according to a new survey of medium and large retailers from PricewaterhouseCoopers (PwC) and Retail Council of Canada (RCC).
The survey, conducted by PwC and RCC between October 2007 and March 2008, included responses from those in executive positions within loss prevention and security in the retail industry. It found that there are many types of criminal activity in retail stores, and respondents still expect the most likely source of financial losses in the future will come from traditional merchandise theft. The top two identified were merchandise theft by customers (62 per cent) and merchandise theft by employees (33 per cent).

Survey respondents indicate they are reducing their risk of losses by using the following internal control measures:
91 per cent perform pre-employment screening before hiring new staff
71 per cent rotate employee duties, where possible, in their stores
86 per cent avoid having employees work alone in their stores
100 per cent provide training and training materials to employees on store policies specifically related to theft prevention

“Annual theft in retail in Canada at mid and small sized retail establishments is about $3.6 billion dollars,” says Derek Nighbor, senior vice-president national affairs at RCC.

“With a focus on the so-called traditional sources of theft, will retailers be prepared to meet the upcoming challenges faced by emerging technology threats? Only five per cent indicate that they expect pin-pad tampering to be an issue in the future,” says Ian Booler, of the performance and risk practice with PwC in Canada.

Respondents to the survey indicated using a wide variety of store security and loss prevention measures to control store operations. A growing number of retailers are using technology to help prevent theft — 100 per cent of survey respondents use alarm systems and 90 per cent use video surveillance, usually in addition to greeters and fitting room attendants.

“We’re dealing increasingly with much more organized and sophisticated criminal activity,” says Nighbor. “The best defence against fraud and theft is by hiring and retaining good staff.”

“[Technological] options have become a cost effective measure to monitor store activity — not only for criminal activity, but also for monitoring internal theft and employee security,” says Booler.

The survey also shows a correlation between the growing use of video surveillance and the increasing rate of prosecution. Retailers now have the ability to provide law enforcement agencies with the evidence required to appropriately prosecute offenders. Those caught stealing can expect that Canadian retailers will take action. Eighty-five per cent of respondents dismiss employee offenders with cause, 62 per cent proceed with criminal charges against the employee and 80 per cent pursue criminal charges against their customers.

While video surveillance is one thing, combining it with loss prevention software to analyze for patterns of fraud is even more effective.

“What you do is ideally”¦ combine the two, so when your software identifies a pattern of fraud at the cash register, it can also immediately bring up the associated video from those transactions,” says Phil McDouall, Director of Retail Solutions and Marketing for March Networks. “That’s a very powerful combination, because it saves retailers millions of dollars; they can catch people doing things and prove it; they can literally investigate ten times as many cases as they could before.”

“It is clear from the survey results that retailers are backing-up their policies with the appropriate actions to show the public and their staff that such activity will not be tolerated,” says Diane Brisebois, President and CEO of the RCC.

Retailers have always faced loss from criminal activity. The average loss is 1.7 per cent over a year, according to the National Retail Federation. “It’s not unusual to hear of individual stores that go as high as 10 per cent, which, when you’re doing literally millions of dollars worth of business, and you’re losing 10 per cent, is a big number. A retailer using [theft prevention] tools will typically be under one per cent,” says McDouall.

“Retailers are fortifying their control environment,” says Booler. “However”¦ street gangs, technology based crime, and traditional theft must be prioritized to ensure that losses are minimized and shrink rates remain within the industry norms.”

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