Joanne Cachapero
"Inventory shrinkage" is the term for financial losses resulting from a combination of shoplifting, employee theft, administrative error and vendor fraud. As more retailers come to market, shrinkages continue to grow, totaling $31 billion overall in 2004. Shoplifting accounted for 34 percent of retail losses that year, or nearly $10.5 billion in lost sales. Those statistics are according to the 2005 National Retail Security Study, conducted for the past 16 years by the University of Florida, which analyzes data from 107 of the largest U.S. retail chains. While adult retailers were not included in the survey, proprietors of brick-and-mortar adult stores face unique challenges when it comes to theft.

"I've thought high and low about why we get hit so hard," says David Dew, owner of Dr. Love's Erotic Superstore located in San Diego. "It's something I struggle with every day."

Dr. Love's, which is located on a busy street in the Pacific Beach neighborhood, caters to women and couples, carrying a full assortment of lingerie, novelties, sex toys, DVDs, bachelorette party supplies and seasonal merchandise. Sandwiched between bars and restaurants in an area populated with college-age residents, Dew attributes part of his shoplifting problem to the location. He also feels people steal sex toys because they are often too embarrassed to buy them.

Dealing With Drunks
"We have to deal with people who are drunk and have extended courage, so to speak," he explains. "Plus, we're a pretty good-sized store with about 4,000 square feet, and we're loaded with inventory, big and small."

Dew uses a Sensormatic EAS (electronic article surveillance) system with doorway sensors and alarm tags, a standard for most adult stores. But he finds thieves simply tear the stick-on tags off the merchandise.

"So, with our sex toys, we started using clothing sensors," Dew says. The hard plastic tags are pinned through the clamshell packaging and removed at the register."

Despite a computerized inventory tracking system, product that is marked or rung up incorrectly affects accurate inventory numbers, making it difficult to pinpoint exact losses to theft.

Another issue for Dew is motivating employees to be on the lookout for suspicious activity. He also needs to make sure the employees are not perpetrating the theft themselves.

"I guarantee employee theft is a pretty big factor," Dew says. "Probably even bigger than I think it is."

In order to combat employees giving their friends a "five-finger discount" at the register, Dew has recently invested in a new DVR system with fourteen cameras from Dedicated Micros Inc. The system offers the ability for online remote monitoring, as well as easy camera configuration and archiving capabilities. The Digital Sprite 2 system he chose also offers a Text-In-Image feature that allows data, like receipt tallies from each individual sale, to be recorded onscreen at the time of purchase, along with video from a camera focused at the checkout register.

Like Dew, most store owners use a multipronged strategy to combat product shortages. For Ray Pistol, president of Showgirl Videos, Talk of the Town and several other adult retail businesses in Las Vegas, the first line of defense is a watchful eye and effective management.

"We attempted the tags and detector at Talk of the Town, but what we found is all that does is make them run faster as they go out the door," Pistol laughs. "Even if the alarm bell goes off, your clerks can't go running down the alley chasing the guy. The cops aren't going to respond in time."

Pistol trains employees to take a proactive approach. If they suspect a shoplifter, "you customer service them to death," he explains. "Introduce yourself, ask what their name is, ask where they live, how long have they been there, where did they go to high school. They like to do their work anonymously, so if you make them the star of the show, they don't like that."

For employees, "supervision and training is what it's all about — and motivating," Pistol adds. "Whenever a clerk catches someone being bad, we'll tend to whip $100 out of the register and give it to them. That's real good incentive to have someone looking around."

However, Pistol says employee theft probably accounts for 75 percent of his product losses overall. He uses different techniques for dealing with untrustworthy sales staff.

"I'll leave something totally unguarded, but that's the hole that I'm watching," he says. "It's the old trick of putting an extra $20 in his count bag and seeing if he reports it or keeps it.

"The other good thing to do is [use] shoppers. Have a friend go in, buy certain items and pay cash for them. Note the time and what they bought, then go back and check that sale."

Although losses vary month-to-month, Pistol estimates an average loss of 5 percent.

"But," he said, "when you figure the profit margin of a typical company is 15 percent, they're taking 5 percent off the top."

Monica Aguon is the store manager at Adult Emporium in San Diego, located next to the 32nd Street Naval Base. Open 24 hours, 365 days a year, the store offers nearly 50,000 DVD titles for sale or rent.

While inventory loss is relatively low, Aguon says, the 2,500-square-foot store uses detectors with alarm tags and a camera system. Even with observant clerks and other precautions, shoplifters still strike — usually between 4 p.m. and midnight.

"It's mostly small stuff," she says. "It's when they start getting the dongs and the pocket pussies. That stuff gets pretty costly. Or DVD covers. That's also costly. A new release can be $20."

Despite pulling all DVDs out of displayed box covers, Aguon says people steal them anyway. And recently, she started using wire lanyards, similar to those used in department stores to secure high-ticket clothing, to thread through the pocket pussies making them impossible to steal without destroying the product.

What motivates the shoplifters? Besides getting something for free, a compulsive thief gets a thrill out of beating the system.

"We had this guy that used to come in here," Aguon says. "I called him the Cutter. He'd take a box cutter and cut out around the outline of the dong, on the back of the packaging so he could take it right out and walk out with it. That's kind of weird."