EXCLUSIVE WEB CONTENT: Loss Prevention: Criminal intent

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EXCLUSIVE WEB CONTENT: Loss Prevention: Criminal intent

By Jenny McTaggart - 02/01/2008
The growing number of retail crimes hitting grocery stores today is forcing retailers to recognize that the customer is not always right -- especially when that "customer" is actually a perpetrator of organized theft. While several recent studies on loss prevention have found shrink rates are holding steady, this brand of theft is on the rise.

The good news is that retailers that have begun adopting new technologies and pushing more investment in training are seeing measurable positive results. Still, plenty of grocers are apparently unaware of the significant drain theft is having on their bottom lines, expert observers say.

In 2006 the median rate of shrink was 1.52 percent of sales -- down from 1.69 percent in 2005 and 2 percent in 2004, according to The Food Marketing Institute's "Supermarket Security and Loss Prevention 2007" report, the latest available research. Yet 59.6 percent of retailers surveyed by FMI reported they'd seen organized retail crime (ORC) incidents increase in 2006.

Nationally, it's estimated that ORC accounts for about $34 billion in losses annually. For the grocery industry specifically, the losses are projected to be $15 billion.

Another report, the "Global Retail Theft Barometer," conducted by the Centre for Retail Research in Nottingham, England, and sponsored by Thorofare, N.J.-based Checkpoint Systems, Inc., estimates the global costs of retail crime to total $108.1 billion. It also estimates global retail shrinkage (stock loss from crime or waste expressed as a percentage of retail sales) cost retailers $98.6 billion, representing an annual "tax" on honest consumers of $287.70 per household in the United States and Europe.

"Organized retail crime is indeed a big and growing problem, particularly in the U.S.," notes George Off, Checkpoint Systems' chairman. "Relatively weak enforcement and weak penalties, combined with easier methods of fencing stolen goods, such as selling on eBay, have made retail theft an attractive opportunity for organized gangs."

Fighting back

In the FMI report, Kathleen Smith, v.p. of corporate loss prevention at Pleasanton, Calif.-based Safeway, Inc., points out that ORC crime not only poses a major financial headache for retailers, but also creates a dangerous health risk for customers, since high-theft products may become compromised during storage or repackaging before they end up back on the shelves.

"We have all seen headlines regarding the prevalence of ORC," says Smith. "However, many in the grocery industry have been slow to respond."

Smith and FMI are urging retailers to fight back. First, companies must familiarize themselves with the seriousness of the crime, and recognize that it's more sophisticated than traditional shoplifting. For instance, these criminals often enter stores in groups of two or more, and they're likely to hit a number of stores in an area.

Guarding against theft takes commitment: Safeway, for instance, tracks losses down to the item level, and keeps a current list of the top 25 high-theft items in its stores, according to Smith.

The grocer then trains in-store cameras on these high-theft products, and urges store associates to be vigilant in keeping track of when the products are stocked and sold, she adds.

Finally, Safeway marks products with some type of identifier so that they're harder to resell. This can help law enforcement agencies identify a specific store as a rightful owner should they recover the stolen goods. Examples include a store stamp, a sticker, or a mark from a felt tip marker. (Progressive Grocer recently named Safeway the Retailer of the Year; see the December 1, 2007 issue, or search for "Safeway" at www.progressivegrocer.com for an in-depth look at this innovative retailer.)

The need for individual efforts from grocers to counter ORC should almost go without saying, but FMI stresses the fight must also extend industrywide, as retailers must organize as robustly as their predators do to be effective.

Retailers should work more closely together to share ideas, and communicate what's happening in their stores. Many are beginning to do just this, through LERPnet (an acronym for Law Enforcement Retail Partnership), a secure national database that lets retailers share information on criminal activity with each other and law enforcement departments across the country.

In addition, the government might be soon turning up the heat as well, thanks to prompting by FMI and other trade groups. Last October two FMI members, Safeway and Target, testified before the House Judiciary Crime, Terrorism, and Homeland Security Subcommittee, to request that legislation be enacted to make organized retail theft a federal felony.

"The hearing was very successful, and the testimony from the witnesses was well received," says FMI manager of communications Kathleen Thomas. "Congress recognized that organized retail crime is a major problem affecting retailers and consumers. We're very optimistic that we'll see a bill introduced in Congress during the upcoming second session that will address the problem appropriately."

Items in demand

Pleasanton, Calif.-based Safeway, Inc. keeps an up-to-date list of the top 25 high-theft items in its stores. The list changes frequently. Here's a sample of what the hot booty was at one point last year, most if it from the nonfood aisles:

Abreva, Advil, Alavert, Aleve, Centrum Multi, Claritin, Enfamil, Farouk Shampoo, Gillette Fusion CRT,
Gillette LTE M3 CRT, Lamisil, Lotrimin, Motrin, Monistat, Oral-B RPL HEAD, Oil of Olay, Pepcid AC, Prilosec, Schick Refill CRT, Senokot, Similac, Tagamet, Tylenol, Zantac, Zantrex Diet.

The inside job, and other sources of shrink

While organized retail crime is a pounding -- and growing -- headache for supermarket operators, the most severe problem they face is actually employee theft.

According to the Food Marketing Institute's "Supermarket Security and Loss Prevention 2007" report, retailers think nearly 40 percent of total shrink stems from employees stealing money or merchandise.

This isn't a new problem, of course: Companies averaged 3.1 incidents of employee thievery per store in 2006, a number that has stayed relatively stable over the past five years, according to FMI. Most companies, not surprisingly, terminate the employees involved in theft incidents. The terminations averaged one to two employees per store over 2006, the report found.

Shoplifting also remains a serious problem. Grocers in the FMI survey apprehended close to 16 shoplifters per store, or 507 per company, in 2006. The average amount taken was $34 per incident, an increase from 2005. Meat was shoplifted the most frequently, followed by health and beauty care products, liquor, over-the-counter medicines, and razor blades.

Gift card fraud is gaining ground. Nearly 77 percent of companies surveyed said they have experienced some type of fraud, theft, or tampering relating to their card programs.

Worthless checks amounted to a median loss of $284,124 per company in 2006.

Credit and debit card chargebacks accounted for $12,480 in shrink per company in 2006.