Employee Theft, an Unhappy Fact Even in Thrift
It may be more expensive than shoplifting
Why it matters
Community thrift operations generate revenue for their cause by extracting value from donated goods. Understanding the leaks in the bucket between the value received and the value realized can help guide operations and improve the bottom line.
Several things cause inventory shrinkage. Paperwork errors, errors at the checkout, damaged goods, mispricing, and shoplifting to name a few.
Today’s episode is about internal theft.
Internal theft is something no one likes to think about, and is sometimes reluctant to act on. We hire people we think we can trust, spend a large part of our work day with them, we get to know them and sometimes their families. We share stories and experiences. It’s hard to think that a smiling face might be up to no good.
Specific thrift industry data is hard to come by. Still, there are interesting facts about employee theft that are pertinent. There is no reason to think thrift is any different.
According to a Zippia report, 75% of employees admit to stealing from an employer at least once. The same report indicated employee theft costs employers fifty billion dollars per year.
business.org says 22% of small business owners report employees have stolen from them.
A National Retail Federation study indicated that over half of internal theft cases were for over $1,000.
There is a percentage of employees that will never steal no matter what, a percentage that will find a way to steal no matter what, and a percentage that will steal if it’s easy enough, or theft becomes part of the culture.
The huge hidden expense is employees that work out a system to steal and make it a part of their routine. A few times in my retail career an employee that has been found out has been doing it for a while. I am not talking about the cashier taking $20 now and then. Decent cash controls surface those fairly quickly.
The biggest thrift challenge is the lack of inventory accounting. Since thrift doesn’t assign a value to an item or specifically track it until it’s priced to go to the sales floor, it’s hard to see missed value earlier in the supply chain.
Except for consignment stores, almost no second-hand shop keeps track of every single item at the point of receipt.
Then there is the self-justification that is a part of deciding it’s ok to steal. “They got it for free so it isn’t really stealing.” Thieves choose not to look at the obvious loss of future value.
A few of my worst real-life examples:
In a traditional store I ran, the receiving manager was in league with truck drivers. We received most of our goods direct store delivery via common carriers. He was signing for complete orders while the drivers skimmed a percentage, paying him off in cash.
He was finally caught when he signed for a pallet of special order goods but only took in one case. Eventually, I started asking where the pallet was because I ordered it for a promotion, had been billed for it, and had a signed receipt that he accepted it. From there the truth eventually came out. He had been working with multiple truck drivers for over a year. Our best estimate was $50,000 in losses. He messed up when he got greedy.
At the thrift donation door, how easy would it be to skim items regularly?
In a thrift production employee case, one that dealt with donated jewelry would simply palm and pocket small gold and silver items. We caught on because that store seldom had real gold and silver goods to sell. Once we narrowed down the suspects we watched CCTV cameras for a while. Turns out it was a daily routine. We also figured out the pawn shop she sold things to. She even wore stolen jewelry to work.
The bottom line, she had stolen thousands and thousands of dollars of jewelry over years. She was so comfortable and slick she did it with employees working right next to her. We never found any evidence co-workers were involved. She had been a long-term trusted employee.
In another thrift example, a hard lines producer would intentionally underprice collectibles that he came across. He would text a friend to purchase those items as soon as they hit the sales floor. They were reselling on eBay.
Then there was this odd situation. One of my stores' management teams loved a specific college student that sometimes worked donations and the back room on weekends. At the end of his weekends, the whole back room was sorted, well organized, and ready for Monday’s production and business. It was never as overcrowded as the other weekends. He was nearly magical in how well he seemed to manage the heavy weekend donation flow.
Turns out, not so much.
One day the manager noticed that the trash compactor was full whenever he had worked the previous weekend. We checked compactor pull patterns, and sure enough, it seemed to fill up on his weekends. We set some cameras up to get a better idea of what was going on. Yep, he was simply throwing fresh raw donations away. Hundreds to thousands of pounds every shift. Who knows what was lost?
You might have noticed some examples above created outliers, and unusual situations that led to their discovery. In the jewelry example as well as the sorted warehouse example, outliers led to the discovery. Not every outlier means something nefarious is going on, but they are worth additional investigation.
Sometimes an outlier points to a training issue, an operational deficiency, or simply a market difference between stores. They can also be the result of an innovation or idea that should be duplicated in other locations.
Malcolm Gladwell loves outliers, sometimes they point to a different kind of innovation.
Another red flag is stuff out of place. If you are a regular reader you know I am not a fan of clutter. In addition to other issues, clutter masks theft. When a store from the front to the back is organized and everything has a home, out-of-place items jump out.
A few unexplained things I have run across:
A Harley Davidson leather jacket by a fire exit at the far end of the back room. Sure enough, the panic alarm was turned off.
A new in-the-box microwave oven sitting on the dock with no one around. Somehow no one knew how it got there.
A shopping cart of power tools in the wrong part of a warehouse at the end of a workday.
A jar of jewelry hidden in the break room.
Empty product boxes where they shouldn’t be.
Employees in a hurry to leave before everyone else, while management is tied up.
Employees carrying packages to their car during their shift.
Employees being overly friendly with specific customers.
Not every red flag points to theft. Sometimes it’s training, sloppiness, or people in a hurry. Still, noticing things that don’t look right will inform ways to improve operations.
Deterrence starts with standards and expectations.
6 things you can do to minimize theft.
1. Trust but verify. When goods are priced and ready to go to the sales floor, at a minimum they should be spot checked by management. It’s a best practice to make sure quality, cleaning, and pricing standards are met. The person underpricing collectibles was caught that way.
Pricing is somewhat subjective, and no one knows everything about everything, so by itself, occasional mispriced goods don’t mean something is going on. When it happens over and over it’s time to ask questions.
2. Be unpredictable. Show up when and where you are not expected. If a manager normally works Tuesday nights, show up on a Friday night. On a regularly scheduled weekend off, drop by for a couple of minutes. Or change up shifts from time to time. Spend an hour working in an area you don’t normally spend time.
3. Don’t be a desk jockey. Management presence and being interactive on the sales floor and the back room are one of the best deterrents and have all sorts of positive benefits. Some companies give management so much administrative work this can be a challenge. If you are an executive, look at how much time a manager has to spend on emails, reports, follow-ups, teams calls, and all the other stuff that a corporate office tends to push to the store. If you are in store management, be careful not to spend too long in the office at one time.
Even when doing a big project requiring office time, I like the twenty-minute rule. Never go more than that long without walking the floor. It isn’t only a deterrent, it’s a great way to make sure staff is on track with the business of the day.
4. Walk around alone, slow down, and look at stuff. Look inside Gaylords, around doors, around employee lockers, around the compactor and dock doors. First thing, the end of the day, and between shifts are good walkabout times. When something seems out of place ask yourself how it might have gotten there. This is another reason to expect everything to have and be in their home.
5. In a previous job, we installed cameras across the enterprise expecting to find customers stealing, and minimize fraudulent injury claims. They did that. We were surprised at how many employees we caught stealing. The jewelry example above is a great one. We could have never caught her without cameras and video, quite a bit of it. State-of-the-art HD cameras are worth the investment.
Cameras are a substantial expense, if misused they can seem Orwellian. I once knew a District Manager that would watch cameras in the evenings and even call stores if people were standing around too much. To me, that borders on creepy and there are better ways to address productivity issues.
6. Prosecuting can be controversial to some. Never prosecuting employees or shoplifters sends an expensive message. When the worst-case scenario for an employee is losing a job, especially a near minimum wage job, that group that might or might not steal is more likely to. Still, how and why, is something that should be considered before being faced with the decision. In the moment, emotions can get in the way of a good decision.
In conclusion
If you are in the retail thrift world, know that you are not exempt from theft. You may be even more susceptible. That vision of mission, the natural compassion for our fellow humans can get in the way of good judgment. Those things can also be gateways to unscrupulous employees.
Ask why. Trust but verify.
Thanks for reading!