Operations

Is Retail Theft Stealing the Shopping Experience?
Is Retail Theft Stealing the Shopping Experience? 1440 428 ASG

After allegedly stealing more than $75,000 in items from popular retailers like Target, Nike, Best Buy, REI and Dick’s Sporting Goods, two men are facing prison time for their roles in the thefts that stretched from June 2023 to January of this year. The San Jose, California, incidents are among those garnering national attention as retailers continue to look for solutions to combat a problem that has long been an issue for businesses worldwide.

From employing undercover surveillance teams to sticking items behind locked cases and removing self-checkout kiosks, many businesses have begun taking matters into their own hands to crack down on retail theft.

While there’s little doubt that retail theft is detrimental for businesses, some experts question whether retail theft is truly as formidable as media reports claim. Is it truly the cause of lack luster revenue performance for certain retailers and, true or not, has the perception impacted how customers shop?

Organized Meets More Violent Retail Crime

A National Retail Federation survey found that retailers reported a 26.5% increase in organized retail crime incidents in 2021. Organized retail crime (ORC) groups often operate with a high degree of sophistication, often out of the public view.

They may:

  • Use advanced techniques, tools, and strategies to carry out thefts, evade detection, and quickly move stolen merchandise.
  • Focus on high-value merchandise like electronics, designer clothing, and more that can be easily resold on the black market.
  • Leverage technology to aid in their criminal activities. This could involve the use of electronic counter-surveillance tools, communication devices, or techniques to disable security systems.

On the flip side, viral TikTok videos of smash and grabs are making consumers fearful, and retailers are being forced to take action – not just to protect their property and profits, but to ensure that their customers feel safe when coming into the stores.

Market researcher and journalist Pamela Danziger explained in an article in Forbes, “Retail crime is far from a victimless crime committed against a faceless corporation that can absorb the losses. Real people are the victims. And increasingly, retail criminals are using terrorist tactics of aggression, intimidation, even violence to put anyone off who might interfere with their crime.”

Target CEO Brian Cornell revealed to Investor’s Business Daily that the company saw a 120% increase in theft incidents involving violence or threats of violence during the first five months of 2023 and that inventory shrink would reduce profits by more than $500 million compared to 2022.

Is Retail Theft Really the Reason Stores Are Closing?

Recently, the National Retail Federation was forced to walk back serious claims about retail theft losses. Originally, the organization claimed that “half of the industry’s $94.5 billion in missing merchandise in 2021 was the result of organized theft.” However, retail experts estimate that number is closer to 5%—an extraordinary discrepancy.  Perhaps even more noticeable to consumers are the store closures of popular retail chains like Target after theft and organized retail crime in cities like Seattle, Portland, San Francisco and New York City.

Though employee and customer safety should not be overlooked, The Robin Report says blaming retail closures on organized retail crime may be exaggerated, and some of those closures may simply be attributed to mismanagement.

While shoplifting, employee theft, and organized retail crime may all play a role in undermining retail profitability, some of the culpability for retail closures may lie with inventory management issues and operational decisions as well.

In fact, retail analysts have pointed to inventory management as a significant challenge in the past few years amid excess merchandise and missing demand forecasts. They say better inventory management processes and upgraded systems can be a top strategy in loss prevention.

In Reality, Shrinkage Hasn’t Changed Much Year Over Year

According to the National Retail Federation, “… the average shrink rate in FY 2022 increased to 1.6%, up from 1.4% in FY 2021.” These numbers were “in line with shrink rates seen in 2020 and 2019,” according to the 2023 Retail Security Survey.

According to the same survey, external theft accounted for 36% of losses, yet 27% was attributed to process, control failures, and errors, leading Just Style to ponder whether “organized retail theft has become a convenient cover for internal flaws such as bloated inventories, heavy discounting, and employee theft.”

In a conversation with PBS, Neil Saunders, retail analyst at Global Data questioned the reality of the claims that retail theft is out of control.

“I think one of the reasons retailers mention theft so much is that it provides a narrative for things that are happening elsewhere in the financials,” he said. “So we have had a lot of retailers this year, for example, saying, well, our profitability is slightly down, our margins are slightly down. One of the reasons for that is because rates of theft have increased.”

Retail Theft: Impact on In-Store Experience for Customers

While some theft prevention measures can be successful, it’s important for businesses to understand that they may also influence the customer journey. Retail theft can have a significant impact on customer experience, affecting both the immediate shopping environment and the long-term relationship between retailers and their customers.

Balancing security with a positive shopping environment is crucial for retailers seeking to retain and attract customers. Here are several ways in which retail theft and the prevention strategies can influence customer experience:

Increased Prices

To compensate for losses incurred due to theft, retailers may raise prices on their products. This can result in higher costs for law-abiding customers, impacting their budget and diminishing the perceived value of shopping at a particular store.

Intrusive Security Measures

Visible security measures, such as surveillance cameras, security personnel, and anti-theft devices, can create an atmosphere of suspicion and discomfort for customers. Excessive security measures may make customers feel as if they are being treated as potential criminals.

Stockouts and Reduced Variety

Retail theft can lead to stockouts and reduced product variety. When items are frequently stolen, retailers may choose to limit their availability or discontinue them altogether. This limits choices for customers and may lead to frustration.

Increased Security Checks

Some retailers implement more stringent security checks at the checkout to prevent theft. This may involve additional bag checks or scrutiny of purchased items, leading to longer wait times for customers and potentially causing inconvenience.

Unpleasant Shopping Environment

Retailers may rearrange store layouts or use locked cases for high-value items, making the shopping experience less convenient. Disorganized displays and locked cases can contribute to a less pleasant and efficient shopping environment.

Stricter Return Policies

To combat fraudulent activities associated with retail theft, retailers may implement stricter return policies. This can inconvenience legitimate customers who may face more hurdles when returning products.

Damage to Brand Image

High levels of retail theft can tarnish a retailer’s reputation. A perception that a store is a frequent target for theft may lead customers to question the overall safety and security of the shopping environment.

Loss of Trust in Staff

If retail theft is a recurring issue, customers may start to lose trust in the store’s ability to provide a secure shopping experience. This lack of confidence can extend to store staff, leading customers to question the effectiveness of employees in preventing theft.

Diversion of Resources

Retailers may divert resources away from customer service initiatives to invest in theft prevention measures. This reallocation can impact the quality of service and attention that customers receive while shopping.

How Retail Theft Will Influence Retail Location Strategy

Retailers strategically choose locations for their stores based on various factors. Will retailers choose to avoid high-theft areas, or are they implementing innovative strategies to mitigate the risk associated with certain locations?

Already, we are seeing retailers close inner city stores where crime is higher and retail theft is more common. It is likely that new retail openings will factor crime statistics into their location strategy decisions. According to Investor’s Daily Business, the following retailers have already taken action:

  • Whole Foods closed its flagship store in downtown San Francisco in April after opening in March 2022.
  • Walmart closed four Chicago stores in April, citing annual losses in the “tens of millions of dollars” (but did not explicitly mention theft).
  • REI announced plans in April to close one of its best-performing stores in downtown Portland, citing shoplifting and higher crime. The outdoor retailer spent more than $800,000 on extra security in 2022.

Where Do We Go from Here?

Local and federal agencies are also coming to the assistance of retailers by providing new laws, better enforcement, and other support. The U.S. Congress introduced a bipartisan bill, Combating Organized Retail Crime Act of 2023, that expands federal enforcement of criminal offenses related to organized retail crime.

The bill is one of several collaborations needed to curb retail theft and address the threat of organized retail crime. Retailers will not only need to balance the prevention measures they take to avoid alienating shoppers but also work closely with authorities and each other to turn the tide.

Ultimately, the fight against organized retail crime requires a multifaceted approach that encompasses legislative support, collaboration among retailers and law enforcement agencies, and strategic deployment of security measures. By working together and remaining vigilant, retailers can better protect their assets and uphold the integrity of the retail industry.

The Hidden Cost of Returns
The Hidden Cost of Returns 1440 428 ASG

We have all done it. Find the perfect item, order a size up or down, maybe a different color, and keep the one we want…right?  Well, we’re paying for it.  

From clothing to cameras, mattresses to mowers, the retail industry is inundated with returns—over $100 billion of them each year. It’s a conundrum. Consumers buy with the guarantee of free returns, and they return about 20% of all purchases. 

But those free returns aren’t free.

They cost retailers enough to often cut into profitability. So, while retailers offer free returns to remain competitive, the hidden costs are adding up.   Those “hidden” costs then are added back to the cost of the product raising prices.

“Shoppers are making buying decisions based on retailers’ return policies, according to a new consumer research study. Free returns are important to shoppers when making an online purchase, and a majority of consumers check a retailer’s return policy before deciding to buy.” – Forbes

How can retailers manage these hidden costs without losing loyal customers? And what are the hidden costs that retailers need to better manage?  

When it comes to the cost of returns, it’s more than just the cost of the refund for the returned merchandise that retailers are absorbing. Other hidden costs must be factored in that impact both the retailer and the consumer.

Shipping Cost

It’s more than just the cost of shipping that costs the retailer; it’s the labor involved in managing the entire carrier network. Most retailers offer a variety of shipping options for returns, including specified drop-off points that don’t require the customer to even package the return. 

Flex Logistics points out that, “the transport costs not only include the transport from the collection point to the warehouse, but also the trips to and from the repair center (if necessary) and the movements to recycle, reuse or dispose of the shipment’s original packaging.”

Retailers must determine the value of the return to determine if it’s worth the cost of shipping it back. Some items (seasonal, low-margin items, and items that can’t be resold) cost more to return than to have the customer keep or dispose of them. For items that can be returned, a third-party logistics partner can help manage and control costs.

“For low-retail-price-point, low-margin merchandise, and many food/perishable product companies, many companies find it is cheaper or feasible to tell the customer to keep the product than to take the product back as a return. Also, consider the customer’s time, frustration, and the shipping cost as well as your center’s return processing expenses.” F. Curtis Barry & Company

Customer Service

The labor spent on customer service teams responding to complaints and issuing return authorizations adds to the profit loss. These costs are exacerbated when customers are forced to follow up multiple times for a refund due to lost merchandise, poor inventory management, or slow response times. Customer service costs are increased when the service team has to manually review return policies on a customer-by-customer basis, chase down returns by coordinating with the shippers and manage refunds. 

Retailers can start to reduce costs by automating the returns process. If the retailer’s policy is to allow returns, then the more of that process that can be automated, the better. Retailers use everything from AI and automated return systems that allow the customer to use a QR code to drop off an item at a specified location without having to contact customer service, which reduces the cost of after-purchase customer service. 

It’s a tricky balance because how the return is handled can often determine whether the customer returns.

Warehousing & Refurbishing

The cost of storage is high but having to receive returned merchandise can add significantly to that cost. Leasing space, employing people to manage deliveries, ascertaining the product’s condition, and potentially refurbishing the product for resale all add costs that eat directly into profitability.

Technology is a critical factor in reducing return costs. It provides visibility throughout the entire return process, from managing refunds to collating information about what products are returned and why, so that retailers can make decisions about merchandise. Some technology can even help retailers manage returned inventory to fill backorders and new orders. Third-party partners can help manage the overall returns program to reduce costs further.

Retailers Aren’t the Only Ones Bearing the Hidden Costs of Returns

The $100 billion in retail returns annually isn’t just costing retailers. There’s a sustainability factor at play, too, when calculating the impact of more trucks on the road and more merchandise heading to landfills. While brick and mortar receive fewer returns and can restock more of the items that come back, it is still costly. But online orders result in an approximately 25% return rate, and that’s taking a heavy toll—not just on profitability, but also on the environment. 

“All of that unwanted stuff piles up. Some of it will be diverted into a global shadow industry of bulk resellers, some of it will be stripped for valuable parts, and some of it will go directly into an incinerator or a landfill …. We can dispense now with a common myth of modern shopping: The stuff you return probably isn’t restocked and sent back out to another hopeful owner.” – Atlantic 

An estimated 6 billion pounds of landfill waste and 16 million metric tons of carbon emissions are generated by returns each year, according to Tobin Moore, CEO of returns solution provider Optoro, in an interview with CNBC. 

CEO of returns solution provider Optoro, in an interview with CNBC.

As more brick-and-mortar retailers offer online shopping and free returns and shipping to compete with their ecommerce competitors, their return costs are quickly rising. “While traditional retailers have been retooling and upgrading to capture more online sales, back in the shipping department an unintended consequence has been piling up—mountains of returns. And worse.” – Forbes

Maximizing Efficiency in Returns Management

If the customer’s needs aren’t met, the biggest loss to retailers is the return customer. Customers who must jump through hoops to complete returns or who wait a long time for a refund get frustrated. The next time the customer chooses to shop, they will likely choose a competitor. 

The first step in making retail return management more efficient and cost-effective is to employ data analytics to understand what is being returned, how often, and for what reasons. 

A return policy should be designed with the customer experience at the forefront. Retailers don’t accept returns for any other reason than to improve customer service, increase customer retention, and amplify customer loyalty. To make the return management program as effective and cost-efficient (and sustainable) as possible, retailers will need to invest heavily in technology that can automate and track returns, minimize the labor impact, and maximize the repurposing and valuation of the merchandise being returned. 

There are no perfect solutions; customers want to have the option to return what they buy, whether they’re in the store or on the website. If the retailer doesn’t offer that option, they may simply lose the sale. So, the key must be to ensure that return management is as much a priority as every other component of your retail strategy.

Operational Translation: Q&A with Rachel Williamson
Operational Translation: Q&A with Rachel Williamson 1440 428 ASG

DTC operations details are crucial but an often overlooked part of creating a great in-store experience. Seasoned retail advisor, Rachel Williamson of Running Great Stores, shares operational insights on helping DTC brands find success going from clicks to bricks.

Q: How did you get into the retail industry and why did you decide to make retail consulting your career?

Rachel: Retail was an “accidental” career. I was working my way through college, and I did what lots of other students do; I got a job in retail. I realized I was pretty good at it and I really enjoyed it. I decided to take time off before pursuing law school to see if retail was going to be my career.

I had a great role as a men’s buyer for a small company, and my career took off from there. If we fast forward over the last 30 years or so, I spent time working for iconic brands and I’m so grateful for that. They taught me lessons both on how to be an operator, and also on how to be flexible and resilient because those are, I think, characteristics that are vital to being successful in retail.

Q: Retail trends come and go, and over the past 30 years in retail, I’m sure you’ve seen quite a few. What trends are you seeing in the retail industry at the moment?

Rachel: The direct-to-consumer (DTC) customer is absolutely expanding the most right now. They are looking for guidance from people that have been working in brick and mortar because that is where they are growing.

My strategy is not a magic pill, but let’s say all things are equal: you have a great product and enough of it. You know how merchandising works. Your customer understands your message, your story, and your brand. Then we look at operations; the fundamentals of operations are always going to move you ahead from a financial point of view.

The biggest reason why businesses aren’t working or running the way they should be and having the output that they should have is that there’s such a lack of clarity.

Q: How do you help retailers on the store side gain the clarity necessary to be successful?

Rachel: We start by understanding the desired store experience and work back from there to clarify roles and responsibilities. We help them define what success looks like for each role. That is how we tackle it from the store side, but we often also need to look at the business operations side. We help them to be more strategic and prioritize. How a store operates and how the business operates are umbilically connected.

Q: When working with a DTC brand, how early in the process do you engage with them? What does the process entail?

Rachel: Typically, by the time I get brought in, the DTC brand is working with someone like Asset Strategies Group (ASG) to help them find the right physical space. As the location decisions are made, I begin to help them think through the customer journey and the experience that their stores will deliver. This is the starting point. The experience online is very different than the experience in brick and mortar. We help them think through this creatively, then it becomes more tactical. DTC brands know their product and their consumers love them. They have a great online customer experience, but they admit they feel overwhelmed about running great stores. We can help them address every aspect of running a store through our Retail Playbook™. Once retailers see this tool, their mind is eased.

Q: What do stores need to do after opening day to ensure operational excellence?

Rachel: Once the store has been opened, we train the team on what running a great store looks like. We implement the Retail Playbook™ with the store teams. The Retail Playbook™ answers questions like, how do I hire talent? How do I onboard them? How do I develop them? How do I deliver effective one-on-ones? What is my review process? What happens if somebody isn’t performing? It’s everything around the people pieces but also goes deep into how to engage the customer and KPIs to focus on as levers to pull to impact sales results. It is about helping teams understand the behaviors that deliver results.

The final piece of the Playbook is around operational excellence. This includes the operational components for keeping the store filled in, managing inventory levels, loss prevention, health and safety, and more. So every single process you can imagine for running their specific brand is now all in one place, in the customized digital Retail Playbook™.

For DTCs, their sense of relief when we get to this point is incredible. It is perfect for helping a generation of digital natives learn how to operate in brick and mortar. We are seeing amazing success with this formula.

Q: So, is the benefit of the Retail Playbook™ for DTC retailers that it includes a lot of things they just haven’t thought about?

Rachel: Yes. An example is inventory management. Sure, they’ve got a way that inventory is managed on their e-commerce site, but they haven’t thought about whether the same system can manage brick-and-mortar sales. They often haven’t thought about injuries and incident reports. How do we recycle here, and what does the city require? They don’t know what they need to be worried about and what they do not need to worry about.

The Retail Playbook™ also helps retailers understand the fundamentals of running great stores so they can operate consistently across locations.

Whether you started as an e-commerce business or as a brick-and-mortar store, the fundamentals are the same. Once they understand the fundamentals of running a store, they must execute consistently.

The problem is that fundamentals are not sexy, right? It’s boring to do the same thing over and over. As humans, we like to invent; we like to create. And some people are just wired that way. They don’t want to execute something that’s already been figured out for them. They want to tweak it and create a new way of doing it.

When this happens, the brand standards can be desecrated as the brand becomes defined by the manager who runs that specific location. If you have 50 locations with 50 managers doing it 50 different ways, you no longer have a brand. What you have is a bunch of stores that all run differently. A true brand wants consistency from location to location. Imagine how you would feel if you went into Mcdonald’s and your fries tasted differently than you were expecting. It isn’t a good brand experience. Those fundamentals are really where the excellence lies.

Q: In some ways, DTCs have a lot to learn about selling in a physical space, but are there advantages you see for DTCs moving to brick and mortar?

Rachel: The biggest advantages are that they have a product, they know what their customers want, and they have data to prove it. I could open a store tomorrow, but I don’t have a product to sell. I’ve got all the knowledge to run a great store, but I have no product. Am I going to be successful? Of course not. Likewise, you can have an e-commerce site today and the product is great. You’ve got a steady flow of inventory and everything you need to be confident in what you’re selling now. You’re moving into brick and mortar and don’t know the first thing. But is that something you can learn? Yes, easily.

It makes so much sense for direct-to-consumer businesses to move into the brick space because they already have the most important things–a great product and a business plan. Everything else is easy, and we can help them get that figured out. But if you don’t have the product, we can’t even have this conversation.

Path to In-Person: A DTC Guide for Physical Retail

See the Guide >

Q: You seem to love working with DTC brands. Why is that?

Rachel: The really cool thing about working with digitally native brands is they’re not saddled with “the way it’s always been done.” That thinking gets in the way of many companies and limits them unnecessarily. And even experienced retail managers say, “we can’t do it that way,” whereas DTCs have no baggage. They say, “let’s try it.” I think it has helped DTCs move into the brick-and-mortar space and be successful so much more easily than other retailers.

The other thing about direct-to-consumer brands is that they’re good at using design thinking as it relates to the customer. They are quite open about the customer and their challenges. They can evaluate how their business addresses those challenges and how they make the customer experience the center of everything they do. They have a more innate sense of how to use empathy to understand their customer’s pain points. I find that a very open way of thinking is beneficial to the DTC customer, and it makes the transition into brick and mortar super easy.

Q: What do you say to the people who proclaimed retail was dead during the height of COVID?

Rachel: While we were going through COVID, the media narrative was that brick and mortar was dead. I don’t have a crystal ball, but I have been in retail a long time, and the truth is, It’s never going to die. Sure, there are things we choose to have delivered to our doorstep, commodity items. But nothing replaces the fun of going out and having an experience and visiting retail locations and meeting and falling in love with brands.

This interview is part of our continuous DTC series, Path to In-Person: A DTC Guide to Physical Retail

See the Full DTC Guide >
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