The High Cost of Retail Theft

Global retail shrinkage improved by 4.8% last year, thanks to strengthened loss prevention efforts and general economic improvements. Even in the United States, which has the second highest loss rate as a percentage of sales, shrink fell by 1.6%. Still, U.S. discount retailers remain among the hardest hit with losses averaging 2.78% of sales — more than double the global retail average of 1.29%, according to the “Global Retail Theft Barometer Study,” which surveyed 222 retailers across 24 countries.

The study, now in its 13th year, is funded by Checkpoint Systems and conducted by The Smart Cube and loss prevention analyst Ernie Deyle.

Worldwide losses cost the industry $128 billion, with $42 billion in the U.S., representing 1.48% of U.S. sales. Mexico with a 1.70% shrink rate and China with a 1.53% rate round out the top three worst performers. Norway at 0.83%, Japan at 0.97% and the U.K. also at 0.97% were the best.

For retailers, particularly those with slim margins like supermarkets, sewing loss prevention programs in the fabric of the operation is particularly important. “You are always going to lose money if you don’t fix the hole in the pocket,” cautioned Deyle.

Worldwide, on average, the leading cause of shrink was shoplifting at 38%, followed by employee theft at 28%, administration/handling at 21% and supplier fraud at 13%. However, in the United States, employee theft proved the bigger culprit at 42.9%, followed by shoplifting at 37.4%.

This higher rate of internal theft may not be indicative of worse employee behavior in the United States, according to loss prevention analyst Deyle. But rather, that the retailers have better controls in some other loss areas and also may be less aggressive about reporting shoplifting.

After discounters, drug stores at 2.16% and supermarkets at 1.38%, have the highest shrink rates in the nation. Researchers attributed this to a prevalence of retail crime rings and lower loss prevention spending by some retailers in these sectors. Meanwhile, department stores at 1.11%, home improvement stores at 1.10% and specialty retail at 0.84% had the lowest loss rates. And while shrink, as a percentage of sales, was down in the United States, the cost of the loss rose 27%, now representing 1.74% of sales, up from 1.37% in 2012. This takes into account not just the losses, but loss prevention spending.

The most stolen items were generally small and easy to conceal. Top favorites among thieves are apparel and fashion accessories, power tools, batteries, mobile accessories, smartphones, electronic games and GPS devices. In the food and health and beauty realm, cosmetics, razor blades, skincare, perfumes, wines and spirits, infant formula, gourmet food and fresh meat were the products frequently taken.

Loss Prevention Tools

The most widely used (49%) loss-prevention tools are electronic article surveillance antenna systems with detection labels and hard tags. Keepers or safers, such as fixtures seen with cigarettes and razor blades, came in second with 16%, followed by locked displays and cases at 13%. Three-alarm accessories accounted for 7%, while dummy cartons made up 6% of the mix. Rounding out the bottom are loop alarms, metal detectors and non-alarmed chains and cables.

Hong Kong spends the most on loss prevention as a percentage of sales at 1.51%, while the United States is near the bottom at 0.42%. As researchers pointed out, there is a point of optimization that retailers must find in order to balance a return on their investment.

Deyle said that advances in technology have changed the loss-prevention landscape.

“We are no longer the dinosaur that existed 10 years ago where product is hidden in dumpsters or we are using CCTV to catch people,” he noted. “Business acumen is elevated.”

For those starting out with loss prevention programs, the most important first step is “to analyze and manage inventory,” advised Deyle. Knowing the source of the shrink enables retailers to implement the most effective solution.

Pay attention to POS, he stressed.

“That is the heartbeat of the business.”

Laura Klepacki is a contributing editor of Chain Store Age.