What Is Loss Prevention? Strategies and Examples (2025)

Loss prevention is how you prevent inventory loss and preserve profits. It’s a huge concern for retailers. The National Retail Federation reported $112.1 billion in retail losses in 2022, up from $93.9 billion in 2021. 

It’s no wonder that 52% of retailers increased their loss prevention technology spend in 2023. They know that theft, fraud, and unexplained inventory shrinkage can quickly eat up profits.

Managing loss prevention can feel overwhelming. By implementing a few key security measures, however, you can reduce your risk of loss and improve profitability. This guide discusses the top types of loss, and strategies to prevent them, with examples from popular retailers.

What is loss prevention?

Loss prevention refers to any practice that reduces a business’s losses from theft, fraud, and operational errors. The goal of loss prevention is to eliminate preventable loss and preserve profits. It’s primarily found in retail, but also exists in other business environments. 

Loss prevention includes:

• Internal protocols and guidelines: A formal system to minimize or prevent losses
• Security systems: Modern tools like inventory tracking devices, POS systems, and anti-theft equipment
• Loss prevention personnel: Training professionals who monitor the store and deter theft 
• Incident tracking: Recording and analyzing security events and investigations 
• Revenue protection: Monitoring and addressing factors that negatively impact business income 
• Operational oversight: Preventing financial drain through better administrative accuracy and efficiency

Theft (internal and external) accounts for nearly two-thirds (65%) of overall retail shrink, with organized retail crime (ORC) being a significant contributor. In addition to more technology, companies have also increased funding for additional security equipment and third-party security personnel to combat loss prevention, as per the NRF report. 

Purpose of loss prevention 

Retail loss prevention consists of identifying and addressing shrinkage causes. Businesses often implement strategies like hiring a loss prevention manager or installing security cameras to improve loss prevention and increase profits. 

Loss prevention continues to be challenging on both digital and retail fronts, from skilled cybercriminals to shoplifters who steal low-priced items. But that’s only one element of loss prevention. 

According to the NRF’s security survey, loss prevention teams are also working to protect store associates and customers. A majority of respondents report increased incidents of:

• Guest-on-associate violence (77.6%)
• External theft (74.1%)
• Organized retail crime (70.7%)
• Cyber crimes (58.6%)
• Mass violence/active assailants (56.9%)

Loss, also referred to as retail shrinkage, robs your retail business of its profits. The higher your shrinkage rate, the harder it will be for you to stay in business. Addressing loss can lead to unexpected benefits beyond saving money, including better employee training, improved security and prevention measures, and better customer service.

Causes of inventory loss

Organized retail crime (ORC), external theft, or shoplifting

Retail theft or shoplifting is a major cause of loss for many businesses. This includes unauthorized removal of physical goods, money, or other valuable items. 

Customers or employees often perpetrate shoplifting with the intent of stealing goods from the business without paying for them. Retail stores are particularly vulnerable to shoplifting due to easy access to merchandise and lack of supervision.

Fraud or internal theft

Fraud or internal theft happens when a business is manipulated for financial gain. It can occur through misappropriation of funds, time theft, falsified expense reports, etc. 

Both customers and employees can cause internal theft and can cost organizations thousands of dollars annually. A good POS system can help mitigate employee theft. For example, with Shopify POS, you can:

• Restrict access to sensitive functions like refunds, discounts, and inventory adjustments. This prevents unauthorized employees from manipulating transactions for personal gain. 
• Provide staff PINs linked to each transaction, creating an audit trail and making identifying suspicious activity easier. 
• Prevent employees from taking advantage of unattended registers during interrupted transactions or from processing unauthorized transactions.
• Require manager approval for certain transactions, adding an extra layer of oversight.

Accidents, fire, or natural disasters

Unexpected events can bring about various losses, including physical items, data systems, confidential information, inventory, and many more. Businesses need to develop a plan to minimize these risks and recover from these losses.

Administrative errors

Inaccurate record keeping can result in significant losses for a business, including incorrect inventory counts, missed deadlines, duplicate orders, and incorrect payments. Maintaining accuracy and avoiding major losses requires keeping accurate records at all times.

Ecommerce fraud

Ecommerce fraud refers to bad actors exploiting online shopping platforms and payment systems. This could be fraudulent chargebacks, account takeovers, fake returns, and identity theft. 

It’s hard for retailers to face ecommerce fraud, because everything is anonymous, and the tactics get more sophisticated yearly. Fortunately, tools like Shopify Protect help retailers fight back against fraud with built-in chargeback protection. 

Supplier fraud

Supplier fraud involves deceptive practices by vendors or supply chain partners that result in inventory or financial losses. Some situations include: 

• Billing for undelivered goods
• Substituting inferior products
• Price inflation
• Kickback schemes

Loss prevention strategies and tips

1. Create a security policy 

A security policy or code of conduct helps prevent loss and keep people safe. Outline specific rules and expectations for employees and customers in your store. 

For employees, your policy may include:

• Locking the store’s doors at night
• Not allowing certain items within your store
• Guidelines for handling difficult situations, like shoplifting or fights

For customers, your policy may include:

• Guidelines for respecting other customers and employees
• Directions for reporting potential theft to store staff 
• Rules against stealing or damaging items 

If someone breaks your policy, you can take action to enforce the rules, like asking the person to leave the store, alerting a security officer, and/or calling local law enforcement. 

2. Use CCTV throughout your store

You can also keep your store safe by monitoring activity with CCTV (closed-circuit television). These cameras can watch entry points into the store, like the customer entrance and loading docks. They record what’s going on so that you can see if anyone’s trying to get in who shouldn’t.

Using CCTV also acts as a deterrent for potential thieves. It gives the appearance of strong security and shows you take losses seriously. 

3. Invest in a POS system with security features

POS (point of sale) systems with security features can help you prevent loss. Retail stores use POS systems to process transactions. Typically, a POS system includes a tablet or computer, a cash drawer, and a card reader, allowing employees to process sales easily and accept payments.

Examples of security features include:

• An employee login system requires people to enter a password so you don’t have to worry about unauthorized access or theft. 
• Real-time sales and inventory tracking helps you quickly and easily see which items are in stock and can help identify missing items or unexpected fluctuations in sales. 

Investing in a POS system with security features makes a lot of sense for retail store owners. It helps protect against potential loss and gives insight into sales and inventory.

4. Build awareness and education for loss prevention

Retailers need to invest in effective employee training to prevent shoplifting and other types of fraud. Educating staff on recognizing and preventing crimes can further protect your business and customers. 

It’s easy to get loss prevention training. You can take an online course from the Loss Prevention Academy or Loss Prevention Foundation or hire a third-party security and loss prevention expert to train your employees.

Train your employees on the rules and expectations of your security policy. Meetings and training are good ways to remind employees about the policy. You can also post signs around the store to remind customers about the rules. 

5. Create an effective inventory control system and monitor it regularly

Inventory control is a system that retailers use to manage and track their inventory levels. This includes tracking product flow in and out of the store and keeping accurate sales records. 

Follow these steps to implement an inventory control system:

1. Choose the inventory control method that works for your business. You can do this using perpetual inventory, where stock levels are continually updated, or periodic inventory, where stock is counted regularly.
2. Set up a system for tracking inventory levels. You can do this manually with spreadsheets or an inventory management system.
3. Maintain inventory records and monitor stock levels regularly. Having alerts set up for low stock levels and reordering products as needed can help.
4. Regularly audit inventory levels to make sure they’re accurate.
5. Implement strict access controls and monitoring systems to prevent inventory loss for high-value or high-risk products.

With Shopify’s inventory management tools, you can quickly spot missing items by comparing real-time stock levels with sales records. 

6. Invest in RFID tech

RFID systems have become a popular retail loss prevention technology, with nearly 39% of retailers researching or testing them. In recent years, RFID has replaced electronic article surveillance (EAS), a traditional retail theft measure, to improve inventory visibility across the supply chain. 

RFID, or radio-frequency identification, tracks and manages inventory by attaching small tags to products. A special machine, called an RFID reader, can read these tags quickly and easily.

RFID can help retailers prevent losses in many ways. For example, you can use RFID tags and readers to track the movement of products throughout the store. 

You can attach RFID tags to products and install RFID readers at the store’s entrance and exit. If a customer leaves the store with a product bearing an RFID tag, the reader will pick up the signal and sound an alarm. It can alert store employees to possible thefts so that they can take action.

7. Attach security tags to items

Security tags come in various forms, like ink tags, spider wraps, and hard plastic cases. They are useful for protecting frequently stolen items and act as a deterrent and alarm trigger. 

When someone tries to remove them or leave the store without deactivating them, the tag damages the product or triggers your store’s security system. 

8. Improve your store layout 

Design a store layout that makes the floor more visible to staff. 

• Use low shelving units to keep clear sightlines across the store.
• Place high-value items within view of staff areas.
• Install mirrors in blind spots.
• Use good lighting and keep displays organized. 

You can also place your checkout counter closer to the entrance/exit so that staff can monitor folks going in and out.

9. Start with better hiring practices

A careful hiring process helps you hire trustworthy employees who support your loss prevention efforts. Some ways to improve your retail hiring practices include:

1. Conduct multi-stage interviews with different managers to get various perspectives.
2. Ask scenario-based questions to see how candidates handle security situations.
3. Pre-screen employees with criminal background checks. 
4. Verify past employment and references. 

Establish a probationary period for new hires with more supervision. Regular performance reviews during the early periods can also identify concerning behaviors early on. 

10. Use a third-party accountant

Work with an external accountant to ensure your accounts are accurate and up-to-date. They can give you an unbiased look at your records, identify any discrepancies in your profits and losses, and help you track inventory more effectively. 

11. Hire a loss prevention specialist

These professionals are trained to identify potential areas of vulnerability and implement measures to help combat theft or fraud. They can analyze security protocols, train staff on best practices, and coordinate with law enforcement when necessary to create an effective retail security strategy.

Examples of successful loss prevention in retail

Now that we’ve covered the basics, let’s look at some successful loss prevention plans out there in the wild. Whether your current budget is $100,000 or $0, every store can learn from these case studies.

A retailer stops theft at self-checkout

A major retailer tackled self-checkout theft by implementing enhanced surveillance. Their solution places customer-facing cameras at eye level, displaying shoppers’ faces back to them with clear monitoring notifications. 

Additional cameras focus on scanning areas, allowing loss prevention teams to verify each transaction. This dual-camera approach provides both a psychological deterrent and practical monitoring capabilities.

A grocer identifies suspicious patterns with its POS

Rather than relying on time-consuming video surveillance, a regional supermarket chain improves its loss prevention strategy using intelligent point-of-sale monitoring. 

The system collects and analyzes transaction data to identify suspicious patterns automatically. This allows the loss prevention team to focus on addressing confirmed irregularities instead of watching hours of footage.

A fashion retailer improves visibility with RFID

A luxury fashion retailer uses RFID technology to identify products using radio signals. The RFID technology is in a small tag, typically in the swing ticket, and embedded into the product through a textile RFID label to assist with stock and quality control. 

The RFID tag also holds custom multimedia content specific to the product for customers to watch on in-store display screens or phones. These tags communicate with consumers’ phones and provide information about product origin and recommended design options.

A jewelry store prevents loss with staff permissions

A mid-sized jewelry store implemented role-based security after discovering unauthorized discounts were affecting profits. They created tiered staff permissions:

• New associates could process sales and check inventory.
• Supervisors handled larger refunds and special discounts.

The store also gave each employee unique PIN codes for transactions. When an associate attempts to issue a $100 refund, the system automatically flags it for supervisor approval. The store reduced unauthorized transitions by creating clear accountability at every level. 

Create a loss prevention plan for your store

Loss prevention helps protect your company assets and revenue, whether you have a single store or 40. By implementing effective strategies like surveillance systems, employee training, and inventory management, you can keep preventable losses to a minimum and boost profits. 

Your store’s loss prevention plan should be tailored to your specific needs and goals to balance loss prevention measures with customer experience.