Last year, there were over a million shoplifting cases reported, with an average of $318 lost in each incident. But these are only the cases tracked by the FBI; most aren’t reported. A survey by Business.org found that 40% of small businesses saw an increase in shoplifting since the pandemic.
Shoplifting is widespread, with 88% of small businesses having experienced a customer shoplift; 14% of incidents happened daily and 28% of incidents have turned violent. While in-store shopping has been way down due to the pandemic, consumers likely will return when it’s safe to do so. If you have a bricks and mortar store, what can you do about this serious problem to prevent a problem and/or handle the aftermath of one?
1. Recognize the problem
Shoplifting is a term used to describe theft by customers in a store. However, shoplifting can also be the result of employees walking away with company merchandise. Losses to inventory can also result from destruction occurring through fires or natural events. Combined, you will experience “shrinkage” in your inventory.
Examine your vulnerability. Where are your losses coming from? Try-on rooms where merchandise is stuffed in backpacks, handbags, and baby carriages? Employees walking off with supplies, electronics, or cash? Identifying key weaknesses enable you to devise some solutions.
2. Create an anti-shoplifting policy
It’s a good idea to have a formal policy about shoplifting that employees can follow. Include:
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a) Details on how employees can detect shoplifters (e.g., customers wearing bulky clothes in contrast to weather conditions; avoiding eye contact)
b) Steps to take when a shoplifter is spotted (e.g., knowing when and how to confront a suspected shoplifter; calling police)
3. Deploy security measures
Determine what you can afford to install as preventive measures, including:
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a) Security cameras
b) Mirrors to enable your employees to view customers as they look around your store, ending blind spots
c) Signage by entrances, exits, and in dressing rooms to the effect “Free ride in a police car if you shoplift from this store.”
Large companies, such as Walmart, are using AI to analyze surveillance camera footage in real time (e.g., detecting when a customer at a self-checkout puts an item in a bag without scanning it). AI solutions are probably too costly at this time for small businesses and there has been serious criticism about their effectiveness, but watch AI solutions for the future.
4. Use inventory management software
Some theft of merchandise will likely result no matter how careful you are. It’s essential to keep track of your items and monitor your inventory theft. There are various inventory management software options, some of which are better suited for particular types of businesses. Find the best options at:
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a) Business.org
b) The Blueprint
5. Take proper write-offs
The stuff is gone. Now what? Be sure you don’t wind up paying taxes on inventory you no longer have. For accounting purposes, in accordance with GAAP (generally accepted accounting principles), businesses may maintain a shrinkage expense account as a complement to the inventory account. When losses result, the shrinkage account is increased by the same extent as the inventory account is reduced.
If, for tax purposes, you maintain inventory, there are two ways in which to handle losses: add the value of stolen items to the cost of goods sold (COGS) or separately deduct them (and then reduce beginning inventory or purchases to lower COGS). The aim of the tax treatment is to lower gross profits and reduce taxable income.
Inventory losses are handled differently if you are a small business that meets a gross receipts test (for 2020 and 2021, it means having average annual gross receipts of not more than $26 million in the three prior years). Inventory items are treated as non-incidental materials and supplies, which are deductible when “used or consumed” (i.e., sold to customers). Because of the theft, arguably the items may be treated as “consumed,” and deductible, at that time.
Final thought
The Blueprint’s A Small Business Guide to Inventory Management provides helpful information for those getting started with an inventory-based business.
