Theft Worldwide Costs Retailers, Consumers $104 Billion Annually: Study<br />

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Theft Worldwide Costs Retailers, Consumers $104 Billion Annually: Study<br />

The level of global retail theft reached $104.5 billion in the past year, and while global retail shrink as a percentage of total sales has declined slightly in the past year, the overall cost of retail crime has increased substantially, according to the "Global Retail Theft Barometer," a new study by the Centre for Retail Research in Nottingham, UK.

"The cost of retail shrink is not just borne by retailers, but by consumers and society at large," said Rob van der Merwe, president and c.e.o. of Checkpoint Systems, Inc., which sponsored the study. "Shrink is a serious threat to retailers' bottom lines, and amounts to a hidden 'tax' on consumers who are already dealing with strain of their tightening household budgets during the economic downturn."

According to the report, global retail shrinkage (stock loss from crime or waste expressed as a percentage of sales) cost retailers $104.5 billion over the past year, equivalent to 1.34 percent of retail sales. In North America, shrink totaled $42.338 billion, or 1.48 percent of sales, with the U.S. accounting for the majority of that figure.

While the global figure represents a marginal decline in shrinkage of $1.56 billion (-1.5 percent) compared to 2007, due in part to the increase in survey respondents and a slight decline in shrink, the overall cost of crime to retailers has increased by $4.7 billion since last year. The cost of retail crime, calculated on the basis of crimes by customers, employees and suppliers/vendors (excluding internal error), plus the costs of loss prevention, was $112.78 billion in 2008, compared to $108.1 billion last year.

"This sum represents a tax imposed on honest people by retail criminals of $229.73 per household, or $71.12 for every single person in the 36 countries surveyed," said professor Bamfield, director of the Centre for Retail Research.

Not surprisingly, employee theft is the largest source of shrink for retailers in North America and Latin America (46.3 percent and 42 percent respectively), while customer theft is the leader in the Asia-Pacific region and Europe (53.8 percent and 46.8 percent respectively).

Globally, customer theft, including shoplifting and organized retail crime, remained the largest source of shrink in most individual countries, totaling more than $43 billion (41.2 percent of total shrinkage). Employee theft accounted for 36.5 percent of shrink ($38.15 billion), while supplier/vendor theft and supply chain fraud represent 5.8 percent ($6.09 billion). Internal errors and administrative failures (such as pricing, process, or accounting mistakes) accounted for 16.5 percent of losses ($17.22 billion.).

The level of customer theft is increasing in North America and the Asia-Pacific market, where the percentage of customer shrink has increased 3.1 percent and 2.3 percent, respectively. In contrast, employee theft in Europe rose from 28.6 percent to 30.5 percent in this period.

Retailers reported that stolen merchandise accounted for 38.4 percent (or $14.6 billion) of internal fraud, while almost one-quarter (23.8 percent) of internal losses were in the form of stolen cash, coupons, vouchers, or gift cards (more than $9 billion).

Current loss prevention systems and processes helped retailers apprehended nearly 5.3 million customer and employee thieves in 2007-2008, the majority of which (84.6 percent) were customers.

The average amount stolen or admitted per customer theft incident was $328. Employee theft sums were more than 5.6 times greater per incident, averaging $1,842. The total value recovered, including customer and employee theft, was $3 billion.

"The primary role of most shrink management systems is to create a strong deterrence for theft by making the risk and reward analysis less attractive for would-be thieves," said Per Levin, president, shrink management solutions, Checkpoint Systems. "People are used to a certain 'lifestyle' and will try to maintain it even if they lose their job or find themselves with a lower paying job due to the recession. The reported $3 billion recovered from over 5 million individuals sends a strong deterrence message to society at large. In the next few years systems and processes will need constant improvements to increase the risk of detection for likely thieves."

Retailers in Europe and North America apprehended the largest numbers of thieves (2.8 million and 2.1 million, respectively), with North America reporting the largest percentage of employee thieves at 32.3 percent.

Refund frauds and false markdowns rose substantially, comprising 19.7 percent of internal fraud ($7.5 billion) -- an increase of 34 percent since last year. Collusion represented 10.3 percent of losses ($3.9 billion). Large financial frauds, also on the rise, accounted for 7.8 percent of internal fraud ($2.97 billion).

North America also reported the highest average dollar amount stolen by customers, at $747 per incident. The high average in North America is thought to reflect the impact of organized retail crime. Average amounts stolen per apprehension in other regions are much lower -- $108 in Europe and $35 in Africa, for example. However, in Europe the average amount stolen per employee thief was $3,145 (compared to $1,391 in North America). In Asia-Pacific, the average amount stolen by employees was $395.

"With the uncertainty surrounding our current climate, we believe the industry can learn quite a bit from the data revealed in this year's GRTB," said van der Merwe. "We suspect the increase in organized retail theft uncovered in the study could be directly attributed to the downturn in our economy."

"Another interesting fact revealed in the survey is that retailers on average provided no specific protection for almost one-third (30.3 percent) of their top fifty most-stolen product lines," continued van der Merwe. "This represents an immediate opportunity for improvement. As the recession increases pressure on shrink, we are partnering with retailers to help solve their biggest challenges. Most of them see the need to improve their shrink management programs and it is critical to develop a targeted approach for the most vulnerable products to protect their bottom lines in 2009."

Thieves are remarkably consistent in their choice of goods, regardless of geographic region, favoring merchandise such as razor blades/shaving products, cosmetics/face creams/perfumes, alcohol, fresh meat/expensive foodstuffs, infant formula, CDs and DVDs, fashion, electronic games, cellular phones, and watches, according to the study.

Retailers estimated that on average they lost between 2 percent and 5 percent of new product lines to theft. Popular products such as the Harry Potter books, electronic games, and recent DVDs reached loss levels of up to 8 percent, causing supply shortages.

Electronic article surveillance (EAS) was the main method of protecting high-theft items (used for 38.3 percent of product lines). Other means of protection included keepers/safers, locked cabinets or locked shelves, cables or loop alarms, and dummy cartons or ticket systems (4.1 percent).

This year's Global Retail Theft Barometer survey reports key findings on retail shrink and crime in 36 countries and on five continents, based on data from a confidential survey of 920 large retailers with combined sales of U.S. $814 billion and 115,612 operating retail outlets. All figures in the report relate to the twelve-month period ending in June 2008.

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