Internal theft - an ever evolving issue

Earlier this year, Lidl was accused of spying on its staff by recording details of employees' daily activities. The retailer remarked that so-called 'spying' had only taken place in stores with extremely high shrinkage - a problem which has cost them €80m (£64.6m) over the past year. But is spying on staff really the most effective way for retailers to tackle the problem? I for one believe not.

Internal shrinkage remains one of the largest threats to the retail industry, costing Europe's stores €8,389m and accounting for almost 44.6% of all stock losses in 2007 alone. According to PricewaterhouseCoopers’ (PwC) latest Global Economic Crime Survey, the greatest risk to retailers is theft by staff or customers and they need to ensure that security systems for monitoring such crime are effective and most importantly, in place.

Although staff fraud is now widely recognised as a concern, when combined with the losses caused by employee error and process weakness/abuse the result is a high priority issue that must be tackled in order to preserve a retailer’s hard earned profits.

Over the past 13 years I have worked with some of the Europe’s leading retailers in their fight against loss. From their experiences, I have learnt that to effectively reduce internal loss, retailers must employ a solution that integrates all aspects of security monitoring, rather than focusing on one specific aspect.

However, internal loss and fraud by their very nature are tough nuts to crack. Just as you get to the root of one problem other potentially more damaging threats are silently eroding your hard-earned profits elsewhere. Understanding why staff steal is essential to tackling the problem, but you also have to be able to adapt quickly. Otherwise, the crafty fraudsters will think of alternative measures, learn how to beat the system and you're back to square one again.

The problem is constantly evolving and that’s where complexities arise. For example, the growth of organised crime within retail, driven by gangs who have employees and customers collaborating against the retailer is becoming an increasing concern.

So, why is internal loss a perennial problem for retailers? Well:
• The retail environment is complex. It is necessary to take into account tens of thousands of SKU’s with stores in a variety of areas, staff from different demographics, fashions, trends, the economic conditions, the weather. All of which affect your business.
• The fraudsters constantly change their modus operandi.
• There is a shortage of resources in most LP departments.
• There are huge volumes of data available but a lack of actionable information.

But most importantly it is a people problem, which makes it unpredictable, dynamic and continually evolving. I am in full agreement with PwC’s view that retailers are among those hardest hit by economic crime. As the downturn worsens it is vital that they now do everything possible to limit such risks in order to protect their profits. Over the years, I have seen the effects internal loss can have on overall shrinkage levels and if left unchallenged, the problem will escalate rapidly, particularly in today's difficult economic conditions.