Retail loss prevention (in some retailers known as Asset Protection) is a form of private investigation into larceny or theft. The focus of such investigations generally includes shoplifting, package pilferage, embezzlement, credit fraud, and check fraud. "Loss prevention" or "LP" is used to describe a number of methods used to reduce the amount of all losses and shrinkage often related to retail trade. These are all things used by very skilled and experienced LP professionals. Among larger retailers (like J.C. Penney) there is a recent trend to include crisis management, workplace safety, customer safety programs and public liability risk management into the traditional loss prevention job structure.
[edit] Sources of theft
The objective is to maximize profits through reducing retail theft, also known as shrinkage. According to the 2006 National Retail Security Survey, retail operations suffered an average annual inventory shrinkage percentage of 1.57% in 2006.[1] According to the survey, shrink is divided into 5 categories:
- 46.8% from employee theft,
- 31.6% of shrinkage comes from shoplifting
- 14.4% from administrative error
- 3.75% from vendor error
- 2.86% from unknown error.
Although most retailers experience a shrink percentage of less than 2%, some smaller retailers often experience monthly and annual average shrinkage percentages as high as 20%.
[edit] Types of Retail Loss Prevention Investigations
[edit] Shoplifting
Main article: Shoplifting
Shoplifting is one of the most common property crimes in the United States today. Anyone can be a shoplifter, and this is an important fact for loss prevention investigators to understand. Those who focus on stereotypes such as race and age generally have a difficult time detecting shoplifting. Statistically, shoplifting occurs at approximately the same rate each day of the week and December is the only month in which convenience stores suffer appreciably increased losses. The 12-17 age group is statistically the most active shoplifting group in relationship to its size, followed by the 18-29 age group.
According to the 2004 17th Annual Retail Theft survey conducted by Jack L. Hayes International, 689,340 shoplifters were apprehended by 27 of the major U.S. retailers. This figure was a 4.86% increase from the 657,414 shoplifters apprehended in 2003. In 2004, $70,039,564 was recovered from shoplifting apprehensions, compared to $68,927,833 in 2003. In 2004, the average dollar value for a shoplifting apprehension was $101.60.
Retail Loss Prevention departments are run very differently from retailer to retailer. Centralized loss prevention departments are generally more common with discount retailers. Retailers like Target use a centralized command system in which there are floor people, a department manager, and a district manager. Decentralized loss prevention departments are more common among clothing retailers. Retailers like Dillard's, for instance, have decentralized loss prevention departments in which there are usually only store investigators and sometimes off-duty police officers to assist in the arrest of shoplifters.
Attitudes towards shoplifting have shifted greatly in the last two decades. Retailers now want their investigators to focus more on prevention of theft rather than apprehension of shoplifting suspects. This is a result of numerous false arrest charges over the last two decades that have cost retailers millions of dollars in lawsuits. A false arrest is known in the loss prevention world as a "bad stop". A bad stop generally occurs when an investigator arrests a suspect who turns out not to have stolen any merchandise. Another reason in favor of preventing the loss rather than making the apprehension is safety. There have been numerous Loss Prevention agents killed while trying to apprehend a shoplifter.
Investigators must use their best judgment when establishing probable cause. Most retailers today have established certification programs which a loss prevention employee must pass before they can make arrests. These programs usually consist of a buddy system, which pairs a new investigator with an experienced investigator. These programs usually span several months.
One common method of bypassing steps is establishing the selection of merchandise. This is usually done by noting what a suspect was holding when first observed. If seen later with several items they did not have before, it may be reasonable to assume that the merchandise belongs to the retailer. Many feel that good judgment is the key to making successful apprehensions. At times not all conditions can or will be feasibly met to make an apprehension. However it is still possible to prevent the loss.
Some investigators have been known to attempt forms of consent searches in an attempt to obtain probable cause without legally detaining a person. It may be explained to the customer that "we need to check your receipt to be certain you were not double charged," or some other reason. However such techniques, while not constituting false arrest, may still result in the firing of a loss prevention investigator if they are a violation of company policy. Others feel all steps must be met before any action is taken. This second approach is used to protect the company from lawsuits resulting from "bad stops" which insult innocent shoppers.
The strict adherence to the rules of apprehension have also come about as some criminals try to defraud the loss prevention industry by "egging on" or pretending to steal as a way to get LP officers' attention, while others in the store are doing the stealing. Alternately, some people simply try to get themselves arrested falsely, for the purpose of suing the company. However, most companies allow investigators to use required measures in order to stop and detain shoplifters. This often includes the use of force while employing handcuffs.
[edit] Embezzlement
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Employee embezzlement is the theft or taking of property or funds entrusted to an employee by an employer. The most common type of retail embezzlement is cash theft. Other types include ringing up fake gift cards, passing merchandise, discount fraud, and, of course, theft of merchandise. Embezzlement investigations are widely known in the loss prevention industry as "internal investigations".
According to the 2004 17th Annual Retail Theft survey, 63,289 employees were apprehended for dishonest activity. This is an increase of 4.01% or 60,850 employees over the figures of 2003. Retailers recovered $42,468,681 from incidents stemming from employee dishonesty in 2004, an increase from 2003's of $40,025,937. The average case value for an apprehended dishonest employee in 2004 was $671.03. This figure is notable, since it is nearly seven times the value of the average shoplifter apprehension.
Employee embezzlement is usually handled by investigators who generally have five or more years of experience in retail loss prevention. Cash theft is generally investigated using cash office audits that appear on exception reports and CCTV cameras. Fake gift cards are usually investigated through the use of an electronic journal in which the gift cards are logged.
The passing of merchandise is usually discovered through the use of an exception report in which a particular employee is shown to have an unusual amount of voids or no-sales. Generally merchandise is rung up by an employee and subsequently voided out. The merchandise is then passed to a person at the counter, usually a friend or family member of the employee.
Other forms of employee theft that are discovered via the use of exceptions reports are discount and commission fraud. Discount fraud is the fraudulent use of an employee's discount to reduce the price of merchandise for someone else. Generally this is done by an employee passing their discount card to a friend. Commission fraud is usually accomplished by ringing large return purchases back to another employee or recent ex-employee.
Merchandise theft is often investigated though the use of CCTV cameras and investigator observations. The items stolen by employees tend to be small items which either have a high dollar value or are edible. Stockrooms have a particularly high level of employee theft and are often investigated using CCTV. Loss prevention often tours stockrooms looking for "stashes", out-of-place merchandise, and price tags. Typically a covert CCTV camera is placed in the areas of high opportunity for theft.
A recent trend with larger retailers is to actively pursue prosecution against employees who are embezzling. This is because employee embezzlement cases usually carry a far higher case value than do shoplifters, and, in most jurisdictions, embezzlement is codified as a felony offense. This can lead to lengthy investigations that may last for months. Still, particularly in small dollar cases, many retailers believe that they will never recover their losses; they often release employees suspected of embezzlement outright.
[edit] Credit card theft
Stolen credit cards find their way into retail stores as much as or more than online retail websites. This is usually for several reasons. Retailers have generally relaxed their procedures for checking credit cards, to shorten customers' time spent at the cash register. Also, purchasing merchandise first-hand afford a credit card thief some anonymity, as opposed to providing a mailing address for an online sale.
Credit card theft is generally investigated by loss prevention personnel who receive a tip from a local police investigator investigating a stolen card. Typically the use of a stolen card can be easily found using the store's electronic log, which will specify the register at which the stolen card was used. Sometimes CCTV video of the transaction exists and can be used by the police to establish a suspect or close a case. Today, most retailers are not liable for the use of stolen cards, unless they have chosen to override the chip and PIN and accept a customer's signature when they could have accepted a PIN. However, retailers today frequently establish their own credit institutions and issue their own in-store only credit cards. In-store credit fraud is likely to become an increasing problem for loss prevention investigators in the next decade.
Some of the inherent problems with in-store credit lie in proper employee training. Temporary cards are regularly given out to customers who forget to bring in their own card. Mail fraud may also be used to intercept cards, and the use of these cards may go unnoticed for days if a clerk fails to check ID or if the true card holder never calls in a complaint. Also, in the opinion of some experts[citation needed], many retailers make adding a new name to an existing account far too easy.
[edit] Check / Cheque fraud
Check fraud is generally accomplished in one of two ways. The first is by writing a check that is manufactured to look like a real document, which in fact has no real value or no real bank account to back it up. Typically this is done by suspects who are experienced in forgery. The second method is check kiting, in which the suspect writes a check for a high dollar purchase, then withdraws the funds from the account before the check clears. Check kiting is usually done when suspects establish a fraudulent bank account under a false name.
Retailers reserve the right to reject a check for any reason. Most low-level store employees have no experience in detecting forgery and check kiting, and thus these stores are very prone to be the target of such fraud. Typically when checks are rejected by store management, the suspect raises the issue with the manager, in hopes that they will pass the check. Commonly those who create fraudulent checks hire minorities to make their purchases. When a check is rejected, a common scare tactic to get the retailer to accept the check is to claim racial bias.
Sometimes an experienced investigator can detect obvious forgery by examining the check or by calling the bank to verify that the account actually exists. When a false check is passed, investigators can sometimes salvage it by taking it to the bank before the suspect has the opportunity to withdraw the funds. Typically check fraud is done by a large group of non-local individuals who travel from state to state. Purchases are usually made in the late afternoon right as banks are closing. When an account actually exists, fraudulent or not, the suspects are usually able to withdraw the funds before the retail store can detect the fraud.
[edit] Safety and loss claims
Over the past decade, most large retailers have begun incorporating safety programs into their loss prevention programs. One or just a few worker compensation or public liability claims can cost a store as much in lost profit as shoplifting. Retailers are beginning to take a tougher stance towards negligent violations of safety protocols by employees. Often the outcome of an investigation into an employee's unsafe actions can result in their termination from employment. Some loss prevention programs consider employee safety investigations as serious as internal theft cases. Increasingly, loss prevention managers are being held accountable for reducing both worker compensation and general loss claims as part of their own performance review.
Among the industry leaders in loss prevention safety programs is Sears, which includes safety audits, safety committees, safety certifications, and thorough safety investigations into their loss prevention programs.
[edit] Margin loss and sweethearting
Retail Loss Prevention departments are becoming increasingly more involved in investigating losses which affect the margin of products and services. Typical areas of investigation include the overriding of PLU prices, price matching from competitors, and reduction of service fees such as delivery or protection agreements. While unintentional margin loss is reduced by educating employees and managers, the term for intentional margin loss is "sweethearting." Sweethearting generally occurs when an employee promises a deal to a customer in order to close a sale, or otherwise reduces the price of merchandise for dishonest reasons. Sweethearting investigations involve research into employees' finding competitor price matches to give to customers; overriding prices for their customers, friends, and themselves; and markdown of fees such as delivery and protection agreements.
[edit] Problems with investigators
A common frustration among retail loss prevention professionals is the perception of being seen as a glorified form of security, often by the same retail executives who employ them. Both industries typically do use the same or similar equipment. Loss prevention professionals see themselves as being proactive, while the security industry is often reactive in nature. The line between security and loss prevention has become increasingly blurry with the recent advent of uniform door guards and preventive measures to control safety, shoplifting, and embezzlement.
Investigators often find themselves in dangerous situations caused by retailers who do not provide sufficient training or the necessary equipment to deal with and leave investigators unable to react appropriately. For instance, while a loss prevention investigator is expected to make arrests, many companies forbid them from carrying any form of weapon, or sometimes even touching suspects, in order to prevent lawsuits of the company for use of force. However, these are "courtesies" that a suspect is unlikely to return, and may leave an investigator helpless to defend themselves.
Another problem facing retail loss prevention today is the wage associated with entry-level investigators. The compensation scale for the front-line investigator has not changed since the mid 1990's. Most investigators in the US are paid under ten dollars per hour making them feel under valued and less motivated. Budget reductions, that often take place due to the loss of profits, often target the in-house loss prevention departments, because they are seen as a support function that has no direct relation with sales. The result is the reduction of the manpower required to make detentions safely for both the shoplifter and the investigator. Sometimes investigators decide that the potential danger associated with the position is not worth it for near-minimal wage and thus quit, refuse to make arrests or, worse yet, act dishonestly.
[edit] Bag checks and false arrest
The legality of bag checks by retailers is often questioned. The reason for bag checks is simple: it's cheap and it works. Most retailers use Electronic Article Surveillance (EAS) to determine when a bag check should be conducted. EAS sensors are placed on high dollar items to deter shoplifting; however, items containing large amounts of metal have been known to set off EAS alarm towers.
Retailers can only legally search a customer's bag without probable cause if the customer consents. Usually an investigator requests that the door personnel search a bag because a sensor set off an alarm tower, or because of what they or other employees have seen in the store. If store personnel use force to detain a customer to look in their bag, it may become a false arrest. In some instances, refusal by a customer to consent to a bag search will result in the customer being "trespassed" (asked to leave and warned not to return under penalty of criminal trespass prosecution) or losing their membership from a store. Membership is lost when a person refuses to consent to have their bag checked. This is achieved by the retailer displaying signs and often loudspeaker announcements that a condition of entry to the store is pursuant to the customer showing their bags and its contents on the way out. To refuse to follow through with this condition means you have entered the store without agreeing follow the rules of the store and are thus banned from entering the store again. This is s store policy not a legal statute, however there are laws governing the use of bag checks and rules to follow when doing a bag check.
[edit] Felonies, misdemeanors, and local laws
Laws pertaining to shoplifting vary from state to state. Generally most state laws include an exclusion of limited liability for retailers to conduct searches of persons they believe to be shoplifting. Simply put, retailers are allowed by law to detain and question shoplifting suspects for a reasonable amount of time for the purpose of recovery of merchandise, provided that they have reasonable grounds to suspect the person. However, these laws generally do not apply to incidents of false arrest and excessive force.
Laws vary from state to state pertaining to when a shoplifter can be stopped and apprehended. In Arizona, concealment of merchandise is considered a crime and a shoplifter can be stopped as soon as concealment is established. In states like California, concealment is not a crime and a suspect must exit the store before an arrest can be made.
Some state laws can lead to unusual and severe charges being brought against a shoplifter. In Arizona, a shoplifter can actually be charged with felony third-degree burglary. In California, a person can be charged with attempted robbery if they use physical force while attempting to shoplift. In some jurisdictions a person convicted of shoplifting multiple times may face a felony sentence following conviction.
Most retailers follow a generalized corporate guideline which serves as a national blanket policy for the arrest of shoplifters, although some smaller retailers still decide their own policies on a store-to-store basis. Generally these policies state that a shoplifter can only be stopped and arrested after they leave the store. Some retailers like Macy's and Wal-Mart have been known to use local laws pertaining to shoplifting to their advantage.
In most states, shoplifting is only considered a felony when merchandise in excess of $250 is stolen. Some states classify shoplifting as a felony offense regardless of price. In some states the dollar amount for shoplifting to be considered a felony is $2,500. Most felony shoplifting suspects, however, are only charged with misdemeanors by police, in order to process them through the criminal justice system more efficiently. Many misdemeanor shoplifters are released by loss prevention investigators after the recovery of the merchandise. Generally these shoplifting suspects are not charged with any crime and are trespassed by store management, and or, the Loss Prevention agent.
One common example of false arrest is the detainment of an individual based only on speculation of concealment and not an eyewitness to the act. False arrests can be costly to companies and often result in lawsuits or large monetary settlements. Settlements are preferred by companies wishing to avoid the negative publicity of court cases. Some jurisdictions render partial immunity to merchants and their employees from being liable for a false arrest as long as they have probable cause to detain.
[edit] Equipment, tactics, and technology
[edit] CCTV camera systems
CCTV is an abbreviation for Closed Circuit Television. CCTV camera systems are common to almost all loss prevention departments. The obvious benefits of CCTV camera is that the investigator can gain a better view of a suspect, record incidents, and not reveal themselves to shoplifting suspects. Some retailers use two-man teams in which one person uses the CCTV camera system to detect shoplifters and a floor man follows the suspect and apprehends them.
CCTV camera systems have been drastically modernized in the last decade. Most systems now record digitally as opposed to using videotapes. Many systems now include a computer server that contain video for months at a time. One drawback of many of these digital recorders is their inability to move and view more than one fixed area of the store. However, new digital cameras overlooking registers have greatly increased the number of internal cash thefts being resolved.
CCTV is one of the most effective tools ever used, not just by loss prevention, but the security industry in general. Firms which offer leases on such systems have brought costs down to a point where the franchise owner can consider it economically justifiable. A quality CCTV system, including a video recorder and monitors (at least one of which is visible to the public), is a proven deterrent with many related benefits, including protection from employee theft. A well-advertised visible system also acts as a holdup deterrent, and, when thefts do occur, prosecution is simplified.
[edit] Covert CCTV cameras
Covert CCTV cameras are a fairly r
