According to the results of the annual Global Retail Theft Barometer released on Thursday, losses from shrink, which includes shoplifting, employee or supplier fraud and administrative errors, cost retailers around the world more than $128 billion last year, $42 billion of which was from the U.S. alone. However, the study, which was underwritten by an independent grant from Checkpoint Systems, also found that shrink was down slightly overall from 1.36 percent of retail sales in 2012 to 1.29 percent last year.
While shrink in the U.S. also declined from 1.5 percent to 1.48 percent, the cost of retail crime in the country as a percentage of revenue rose 27 percent to 1.74 percent last year from 1.37 percent in 2012. The results of the survey were based upon phone and written surveys conducted in 24 countries among 222 retailers representing more than $740 billion in sales in 2013.
Norway (.83 percent of retail sales) and Japan (0.97 percent) recorded the lowest shrink rates in the study, while Mexico (1.7 percent) and China (1.53 percent) saw the highest rates.
According to Ernie Deyle, a retail loss prevention analyst who conducted the study on behalf of Checkpoint, said that there are two primary reasons why overall shrink declined in this year’s retail theft barometer: An increased number of retailers from other countries that took part in the study and greater investments by retailers in some countries in implementing loss prevention measures.
“The better performing shrink countries were on the higher end when it came to spending on resources, technology or countermeasures to combat loss,” explained Deyle. “Contrarily, countries on the higher end of the shrink range also were on the lower end of the resources that they used or spent to control loss. That was kind of an interesting compare and contrast that was very evident in this year’s study.”
Despite the slight decline in both U.S. and global shrink rates, the study still paints a pretty gloomy picture when it comes to the impact that theft is having on retailers. The study found that the annual cost of shrink to U.S. shoppers, as passed on from retailers, averaged slightly more than $400 per household. U.S. discount stores (2.78 percent or retail sales), pharmacies/drugstores (2.16 percent) and supermarkets/grocery retailers (1.38 percent) saw the highest shrink rates due to the widespread prevalence of organized retail crime and lower loss prevention spending for some of them. In fact, almost all types of retail stores in the country were affected by dishonest employee theft and shoplifting. Deyle said retailers that want to put a significant dent in their losses from shrink need change the way they view their loss prevention departments and that LP professionals also need to become more business savvy.
“The companies that look at their loss prevention departments as a tactical performance improvement type of group, the more effective they are as far as profitability,” added Deyle. “The loss prevention industry is not what it used to be 15 to 20 years ago. The loss prevention environment professionally was largely made up of retired police officers who were focused on shoplifting, but not anything really beyond basic crime statistics. In today’s day and age with the technology we have at our fingertips and the analytics that we can discern from a business performance standpoint, the loss prevention executive has to have greater depth in their business acumen, they need to be financially savvy and understand the elements of P&L, as well as from a technology standpoint of how to best use technology to their advantage. It’s not just about cameras or inventory control devices or tags, if you will, that set off alarms, but it is being very tactical in how we deploy resources, where they are most effective and how to continually adapt, evolve and change so they can stay ahead of curve when it comes to people that are trying to cause damage to the business.”
The study found that many organizations are, in fact, dedicating more resources to their loss prevention efforts, which Deyle said is due in large part to the evolution of product protection methods. Retailers who took part in the study said that electronic article surveillance (EAS) antennas, labels and hard tags were the most effective methods used to protect 49 percent of their highly vulnerable products. Additionally, the use of source tagging RF labels prior to arriving at retailers has increased globally and continues to build momentum according to study respondents, while 50 percent of U.S. retailers plan to increase or maintain the number of source-tagged SKUs.
“Instead of just having defensive merchandising schemes where you are locking up product, retailers have evolved into both a presentation-type of environment while also having the proper protection,” Deyle said. “If you go into a chain drug, grocery or mass merchant store and you go to the deodorant section or razor blade section, the fixture is now front-face and will push forward the next item on the shelf after one is taken. Technically, if someone is trying to commit shoplifting and wipeout a whole shelf of deodorant or razor blades, they can no longer do that at will in a matter of seconds. It’s delayed access, but it also gives you the grand opening appearance that all of the shelves are full.”
And while shoplifting was the biggest cause of shrink in 16 of the 24 countries surveyed, employee theft actually ranked first in the U.S. at 42.9 percent, followed by shoplifting at 37.4 percent. Deyle said that this is still an issue where no one has been able to come up with a definitive answer, however, anecdotally there are definite differences in cultural norms that could account for this gap in the U.S.
“What would be considered a taboo or abnormal behavior has become normal where you see things such as flash mob incidents where people come in and basically ransack a store to just evidence of shoplifting because of the stresses from an economic standpoint based on unemployment rates and so forth, so there is a lot to do with it in that regard,” added Deyle. “But the one thing that I will also say is very difficult to quantify in the U.S., which is maybe why it is underreported, is the fact that you can’t report what you don’t know and, by and large in the U.S., people are very reluctant to confront shoplifters.”
When it comes to what retailers could be doing better to combat shrink overall, Deyle believes that there needs to be accuracy in the data that’s being reported.
“It is basically calling out your bumps and bruises. In the past, some retailers may have called inventory loss a markdown versus an actual inventory loss or made it margin erosion versus shrink, so accurate measurement and integrity in the measurement allows you to manage it more effectively,” said Deyle. “That’s probably been one of the biggest improvements from an overall industry standpoint is the ability to accurately measure performance with regards to inventory loss.”