The Importance of Loss Prevention in Retail Businesses


To combat loss, you must understanding the most common causes. They include external and internal theft, supplier fraud, inventory shrinkage, and administrative errors. In this post, we’ll explain loss prevention best practices, such as retail security, proper cash handling, and staff buy-in.

Retail Loss Prevention Is Crucial

Loss, also called shrinkage, takes away from your hard-earned profits. More seriously, it can lead to problems that make it impossible to stay in business. While loss may occur in any industry, prevention is especially critical for retail stores.

If shrinkage is too high, you may have to raise your prices, which can damage your relationship with your customers. You may find yourself unable to pay employees, purchase inventory, and cover your building lease. The risk is especially high for businesses that already have low profit margins, like grocery and liquor stores.

Investing some money and effort into loss prevention is likely to lead to higher profits and more business growth.

Addressing loss can have unexpected benefits for your business, beyond saving money. For example, if you find that internal theft is frequent, you may need to revamp training or install surveillance cameras. If administrative errors are causing shrinkage, you can address factors like outdated software.

High, ongoing shrinkage can be a sign that your business model isn’t working. Perhaps you’ve implemented loss prevention strategies, but your loss percentage is still high. If this is the case, you might need to employ new sales or marketing tactics to generate more profit overall.

How to Start Planning

It’s essential to understand the different types of loss to begin preventing them. Understanding how loss occurs will help you develop a strategy to avoid it.

Loss can occur inadvertently or through deliberate action. Theft and fraud are examples of loss that happen because of an employee or other person’s purposeful actions. Errors and mistakes, while unintentional, also lead to loss.

Internal Theft

Internal theft, or employee theft, is when an employee steals money or property from their employer. This type of loss is surprisingly common. Compared to non employees, employees are 15 times more likely to steal from their place of business.

External Theft

External theft leads to 36.5 percent of shrinkage, according to a National Retail Federation study.

The two main types of external theft are shoplifting and organized retail crime (ORC). Shoplifting is when a person steals while acting as a customer, and can be planned or spontaneous. ORC, on the other hand, is a planned form of theft involving two or more participants.

In addition, your employees should be aware of return fraud, which occurs when a shoplifter steals an item, then returns it to the store for cash.

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