Solving Retail Theft
Leveraging two proven approaches to mitigate theft while improving customer experience
Theft in retail today
Did you ever have that one kid in elementary school who ruined class privileges for everyone? We’re starting to experience that in retail as a result of theft. Leaders of major retailers like Walmart and Target have warned of increased prices and potential store closures as a result of lost profits from shoplifting.
While retail theft isn’t a new concept, the rate and scale of it in recent years is increasing at an abnormally alarming rate. A National Retail Security Survey estimated losses from shoplifting in America in 2021 at $94.5 billion. Perhaps more alarming, though, is the 26.5% year-over-year increase in theft retailers reported for 2021. This exponential growth is due in part to professional shoplifting networks stealing tens and hundreds of thousands of dollars of products. In the words of Mark Matthews at the National Retail Federation, “The kind of theft that’s mostly happening isn’t run-of-the-mill shoplifting. It’s organized crime.”
Essentially, theft is already extremely expensive, and it’s getting a lot worse very quickly.
Of course, retailers aren’t just rolling over and accepting their shrinking profits as the new normal. There are a variety of hardware and software anti-theft solutions, but the challenge with combatting theft using technology is that as technology evolves, so do thieves. So any retail advantage created is short-lived at best, especially when it’s touted by publicly traded retailers as evidence of their innovation to drive up the stock price, alerting thieves of what to prepare to counter. In contrast to technological attempts to assuage theft, some retailers have hired human security guards to keep watch at their store entrances and exits. However, as CVS experienced, guard intervention with suspected theft can lead to bad press that is arguably more costly than the theft itself.
As retailers implement more anti-theft measures, they risk damaging store experiences for the purchasing customer, who still represent the vast majority of retailers’ store visitors (about 10% of Americans have shoplifted at least once, but professional theft represents a much smaller demographic). For example, putting small and expensive items behind a locked cage in an isle may help prevent theft, but it also makes every customer feel like they aren’t trusted when they need to find a store employee to escort their products to checkout. And customer sentiment and convenience directly influences sales. Some estimates postulate sales can drop 15-25% as a result of locking up items in an aisle.
The customer experience for the majority shouldn’t be damaged by the minority of people committing theft, but retailers cannot stay in business if the current rise in theft continues.
So what can be done?
What if there was a way to both improve the customer experience while also eliminating the opportunity for theft to take place? Before addressing solutions, it’s worth clarifying that there are many types of theft, but the solutions in this article address customer shoplifting at physical retail locations.
How to prevent theft and improve experience
Regardless of the anti-theft solution, as long as a thief can take possession of an item before completing payment for it, theft will continue. This concept of possession before purchase has been the standard brick and mortar retail business model for centuries.
Meanwhile — in the same time frame — customer experiences have fundamentally transformed in almost every other field. Transportation has advanced from horses to the brink of space tourism, communications from from letters to FaceTime, etc. It’s time to evolve mainstream brick and mortar retail — but not without precedent.
Physical retail has two main differentiators over online shopping, making them important to maintain with any anti-theft solution. These are:
- The ability to see and touch the product available for purchase before making a purchase decision
- The immediate gratification that comes from selecting an item and leaving the store with it
Retail showrooms preserve both of these capabilities while preventing possession before purchase. They provide the tactile benefits of physical retail by allowing customers to interact with products, then — once completing a purchase — they are given access to the product to take home. This concept has been popularized across two established forms of retail showroom models: direct and representative inventory selection.
Direct inventory selection
This approach allows customers to interact with the exact product they intend to purchase before relinquishing possession in order to advance in the shopping experience. This approach works well for products with slight variations across the inventory, such as fresh fruits and vegetables at varying levels of ripeness, or products with slight differences across styles or feature sets.
For example, at most car dealerships, customers can interact with the exact vehicle they want to take off the lot, but they don’t have access to the car’s title before completing their purchase. In grocery, Hema Xiansheng — an Alibaba supermarket in China—is leveraging direct inventory selection to allow customers to pick their items andput them in a bag tagged to their customer ID. They place the bag onto a vertical conveyer belt that connects with an overhead conveyer network to collect all the customer’s bags in a staging area accessible post-purchase.
Technically, this approach does abide by the mainstream retail approach of customer product possession before purchase, but direct inventory selection makes theft much more obvious. Customers should never be walking toward a register or exit with any inventory, allowing employees to easily flag and redirect, or at least record, theft in progress.
Representative inventory selection
This system enables customers to interact with exact replicas of the items they intend to purchase, then they receive a pre-packaged version of what they paid for. In contrast to direct inventory selection, representative inventory showrooms are ideal for items that can be consistently produced without variation so that interacting with a showroom model of a product provides the same experience a customer can expect from what they take home.
Mass produced technology is a natural fit for this approach, as exemplified by Apple and Microsoft stores. However, the model is also applied in other markets, such as apparel retailers like Bonobos. Customers try on representative apparel in a single color and style to find their size, then shop for colors and styles, and receive the garments in their size and preferred style post-purchase.
Retailers with extensive product SKUs can benefit from representative inventory selection as well. Walmart and Kroger — each with 100,000+ products for sale per store — both trialed the technology necessary to bring representative inventory selection to life with scan-and-go program, allowing customers to scan products as they pick them up instead of at checkout. Walmart has continued this feature for its paid Walmart+ members. Customers could use this same scanner technology to scan representative single items in store aisles, and the inventory for that item could then be pulled from warehouse shelves in a non-customer facing part of the store and prepared for the customer post-checkout. Walmart is already transitioning its physical stores to be part fulfillment centers, making this divided store footprint a new normal.
With representative inventory, retailers can largely eliminate theft by physically securing model units of representative inventory to the store or making inventory dis-functional if removed from the store. Even if representative inventory is stolen, it represents a fraction of accessible inventory otherwise available in traditional possession before purchase shopping experiences.
How showrooms improve customer experience
Both direct and representative inventory selection create more convenient shopping experiences by removing the need to carry all their prospective purchases with them across the retail store until checkout. Without carts to store products in, isles can be narrower, and (for representative inventory) without multiple duplicate products accessible, shelves can be smaller. Both of these factors decrease the space customers have to travel.
Each model also mitigates the bottleneck effect of waiting in line to checkout with all of ones products. For representative inventory, if customers are using technology to scan items as they traverse the store, that data can provide detailed insights on customer activity in the store (such as path, time standing in front of a display, etc), as well as send customers targeted advertisements as they approach certain parts of the store.
Most importantly, though, direct and representative inventory selection make theft significantly more obvious to spot and difficult to conduct, while treating every customer equally and not making paying customers feel like they’re distrusted or inconvenienced by the retailer.
The future of physical retail
Despite the growth of digital commerce, physical retail remains a huge opportunity for retailers that are willing to evolve with market leaders to improve customer experiences and mitigate the shoplifting that’s eating into their margins. Change is never easy, but neither is watching an industry’s theft grow at 26.5% year over year. Retailers need to follow the example of innovative peers and lean into the showroom model through adapting the direct or representative inventory selection models to fit their needs and their customers’ preferences.
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