Researching Ways Retailers can Reduce Losses due to Theft
Retail companies should engage front-line 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. The paper, “Retail inventory shrinkage, sensing weak security breach signals, and organizational structure”, is forthcoming in Decision Sciences and is co-authored by Hung-Chung Su (University of Michigan Dearborn) and Kevin Linderman (Pennsylvania State University).
Retail inventory shrinkage arises from two primary sources: theft or administrative errors. 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. Despite these efforts, retail thefts have not abated, with losses piling north of $50 billion.
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. One, raise the alertness of in-store, on-the-floor retail personnel to potential and actual security breaches. Two, 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 input. Finally, delegate decision-making regarding security breaches to front-line employees. Doing so speeds up detection and reaction time. For the Fortune 500 retailer in question, adopting these suggestions could lead to inventory shrinkage savings of between US$4.5 and US$16.7 million.