Fraud and Shrink Prevention Strategies for Retailers

Retail loss prevention (LP) is a rapidly ballooning issue costing the industry nearly $100 billion annually, according to the National Retail Security Survey (NRSS) 1. In the study, on average, retailers saw a 26.5% increase in organized retail crime (ORC) incidents last year. And while LP isn’t a revenue generator, reducing it protects margins and contributes to profitability, mitigating the need for price increases to compensate. The problem is, reigning in shrink is no easy task, especially with the introduction of new and more complex channels that need to be managed for LP, including:

• Buy Online, Pick Up In Store (BOPIS)
• Curbside pickup
• Shipping fraud
• Self-service checkout
• Friendly fraud
• Digital wallets and mobile payments

Retailers must strive to effectively mitigate fraud and theft-related shrink while also grappling with a range of broader business challenges impacting loss prevention. While retailers have an inordinate amount of data at their disposal that could be used for loss prevention, that data is often siloed and systems are unable to connect. Per the survey, many retailers aren’t equipped to handle ever-increasing losses as reflected by:

• Over half (52%) of survey respondents said their loss prevention team would remain the same size
• Only 37% indicated their departments were growing

When asked what functions within LP departments needed to be strengthened, 88% of participants said analytics.

Where to focus loss prevention initiatives

Where do retailers start to fight fraud and shrink? There are three areas to focus on outlined below with illustrative examples:  

• External: Shoplifting organized retail crime (“ORC”), and credit card and gift card fraud  

• Internal: Stolen merchandise or cash, or passing off products by store associates 

• Operational: Cashier mistakes, shipping errors, and merchandise damage  

The key to combatting retail shrink is employing a technology-driven process for transforming raw data into actionable insights. Retailers can gain a holistic view of their operations by combining internal data with alternative data from 10,000 public and proprietary data sources.   

Advanced analytics-based models spot tendencies and patterns that may not have been apparent before, helping retailers initiate preventive measures to safeguard business. Business analytics are informed by past data to make decisions about the present and future — operating proactively to find problem areas rather than reactively.  

How data can be used for loss prevention 

TLOxp^®, part of the TransUnion TruLookup^™ solution line, provides deeper investigative insights to help link individuals and prevent fraud. Our proprietary linking technology helps identify, connect, and rank disparate data in seconds and delivers actionable results in a meaningful way. 

When it comes to internal or external theft and fraud, TLOxp helps identify individuals by uncovering recent and historical data to build a 360° picture.

Use case: External fraud ring

An ORC group targeted a retailer’s store locations in the Southeast region. Bad actors used multiple altered driver's licenses to request fraudulent refunds, making it difficult to positively identify all actors.

Solution

TransUnion’s TLOxp was able to provide a positive identification on one of the suspects with partial information provided and link known associations between suspicious individuals. It identified all the involved members, and the ring was shut down.

Identity verification confirmed the inauthenticity of the consumer-provided information against rich TLOxp datasets.  

Use case: Internal sliding fraud

During weekly research of Exception Based Reports (“EBRs”), a loss prevention manager discovered an apparent sliding fraud scam by reviewing CCTV footage of suspicious transactions. On multiple occasions while working the register, a store associate was obstructing the barcode on high value merchandise and passing the product off to the same customers. The customers paid cash for all transactions. The LP manager began conducting dedicated live surveillance of the associate to uncover other patterns of dishonest behavior. The LP manager monitored returns of the merchandise at their store and other stores in the district, and a non-receipted return was conducted at a neighboring store. CCTV surveillance confirmed that the return was conducted by one of the customers who received merchandise without rendering payment.

Solution

The LP manager was able to obtain a positive identification on the customer with the driver’s license provided during the return. TLOxp was able to identify a connection between the cashier and the customers that were responsible for the sliding fraud scam. A majority of the product was being sold through social media platforms, and social media reports were able to link the cashier and customers to the accounts used to sell the merchandise. 

The retail investigation concluded with a successful interview of the cashier who gave a truthful recount of the events. The retailer was able to counteract shrink.

Verify identities and mitigate risk with confidence

TLOxp helps LP professionals build stronger investigations, uncover ORC, identify connections between in-store theft and eCommerce fraud, and reduce associated shrink. 

When you’re armed with tools that effectively help identify fraud, you have a much higher likelihood of beating it. So, finding useful information with less effort and time spent is quite beneficial. Our advanced analytics-based models and data fusion technology can take even partial data inputs and bring valuable insights to the surface.