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Developing a Loss Prevention Strategy That Works

Developing a Loss Prevention Strategy That Works

Theft, fraud, and operational errors cost retailers billions of dollars every year. Profit loss can harm a retailer's reputation and negatively affect customer loyalty. That's why more and more businesses are using new and improved loss prevention strategies and methods to minimize fraud, increase employee awareness, and prevent cybercrime. 

Continue reading and learn more about the importance of loss prevention planning, the forms of fraud organizations may experience, and strategies commonly used to fight against the growing threat. 

What is Loss Prevention?

Loss prevention, also known as asset protection or shrinkage, refers to a set of strategies put in place by businesses and organizations to minimize various forms of loss. These losses can occur due to theft, fraud, accidents, errors, or other unforeseen events and can significantly impact a company's financial health, reputation, and overall operations. 

The primary goal of loss prevention is to protect a business's assets, resources, and profitability by identifying and addressing vulnerabilities and risks. Please note that the idea is loss prevention, and the complete removal of any issues associated with this area of risk management is unfeasible. 

Why is Loss Prevention Important?

Loss prevention (LP) is a significant concern in several industries, particularly those with high risk of loss, such as retail, hospitality, finance, and healthcare. Although it often entails implementing security and surveillance measures, it is not limited to physical security alone. It encompasses various strategies and practices to safeguard a business's assets and operations. 

The 2022 National Retail Security Survey reports that in-store businesses experienced a 49.3% increase in fraud in 2020, which amounts to higher loss rates than online and omnichannel stores, making physical stores the most vulnerable target for break-ins, shoplifters, and organized retail theft. Hence, they experience higher shrinkage.

Forms of Profit Loss

There are many forms of profit loss, but below are the five most common examples:

  • Operational errors occur when employees fail to follow established business protocols or best practices or when the business lacks effective procedures to minimize human error. Inadequate employee training is often the root cause of such errors.
  • Internal loss refers to any financial loss experienced by a business due to the actions of its employees and other members. This may include selling products to family or friends at a discounted price, giving them away without proper authorization, undercharging for merchandise, and not processing sales to prevent employees from keeping the payment for themselves.
  • Internal theft refers to the loss incurred by a company as a direct result of its employees and members engaging in explicit acts of theft, fraud, waste, or vandalism.
  • External theft is a form of profit loss that happens outside the company's employees and members, and it usually involves a customer stealing goods. It can also occur due to customer-perpetrated fraud or vandalism.
  • Supplier fraud, while uncommon, occurs when a company's supplier does not provide the agreed-upon amount of goods that the company paid for or acts in unethical ways when working with a business.

What are Some Loss Prevention Strategies?

Incorporating loss prevention methods into your organization is essential for several reasons, but first and foremost, it protects a company's bottom line. Below are six critical components of loss prevention all businesses need to consider:

Security Measures: Tools such as cameras, mirrors, security tags, sensors, and guards can detect shoplifting and discourage potential thieves. It's also recommended to lock up small, expensive, or frequently stolen items and lock dressing rooms to obstruct common ways thieves hide their stolen goods. Look into using the following tools to reduce the risk of theft and maximize automated methods for protecting inventory:

  • RFID systems
  • AI-based point-of-sale (POS)/self-checkout (SCO) video analytics
  • License plate recognition
  • Self-service locking cases or lockers

Inventory Control:  Implementation of inventory control measures can help prevent shoplifting and other types of theft while ensuring that the correct amount of inventory is displayed and available for customers to purchase. Remember that customers facing in-store stockouts are 21% more likely to leave and buy from a competitor's store, costing retailers over $1 trillion annually. Additionally, it prevents inventory deterioration or damage and reduces instances of employee theft. 

Employee Training: Training employees on security protocols, fraud prevention, and best practices minimizes internal theft and fraud. There are dozens of LP classes that cover methods for employees and managers to remain on top of current industry standards. Look for certification courses from accredited organizations and institutions like the Loss Prevention Foundation (LPF). 

Cybersecurity: Loss prevention doesn't only include physical assets; protecting digital assets and sensitive information from cyber threats, including data breaches, hacking, and malware attacks, is equally important. Nearly half of employers believe that data loss protection, or DLP, is part of the responsibilities of the employees working in the brick and mortar locations. Cyberattacks are responsible for nearly 4.4 billion in losses each year.

Incident Response: An incident response refers to an organization's processes and technologies for detecting and responding to security breaches or cyberattacks. An incident response aims to prevent physical and cyber-attacks before they happen and minimize the cost and business disruption. Ideally, an organization defines incident response processes and technologies in a formal incident response plan (IRP) that specifies how different types of profit loss should be identified, contained, and resolved. 

Auditing and Monitoring: Conducting regular audits and monitoring activities to evaluate the effectiveness of loss prevention measures and identify areas for improvement. Sadly, a majority of inventory loss is caused by employee dishonesty. A 2022 survey found that most employers directly attributed over 54 percent of their losses to employees.

How MicroBilt Can Help

Effective loss prevention plans need ongoing assessment, adaptation to evolving risks, and a commitment to maintaining a secure and ethical business environment. As a result, it requires data and a lot of it. That's where we help.

Here at MicroBilt, we specialize in providing accurate information to make sound business decisions. With over 40 years of helping businesses manage risk, we are ready to help with your loss prevention needs. Using MicroBilt's suite of products, such as our ID verification and authentication tools, we can provide businesses with the means to keep fraud and theft away from their revenue sources. 

Usually, big data isn't available or feasible for small and medium-sized businesses, but MicroBilt has the tools and the know-how to help you sit at the same table as large companies with large budgets for big data. Contact us today to have a partner in your loss prevention strategy.