By Joe Skorupa
It's no secret skilled criminals view retailers as soft targets of opportunity, but even the biggest heists pale in comparison to the billions siphoned off by employee theft and shoplifting. Retailers call it shrink, because calling it theft wouldn't strike the right tone at the annual budget meeting. A new study examines what retailers can do in the war against shrink to fight the enemy within.
Six criminals were convicted in Miami of running a multi-million dollar theft ring involving over-the-counter drugs from Walgreen's, CVS, Target and Rite-Aid. Another scheme was uncovered in Australia using stolen credit card IDs to purchase $4.5 million worth of electronic items and gift cards, and then selling them on eBay. And Max Ray Vision, aka "Iceman," was recently convicted of stealing nearly two million credit card numbers and making $86 million in fraudulent purchases.
But these all pale in comparison to employee theft, the largest contributor of retail shrinkage, according to a study by Dr. Richard Hollinger, Criminology Professor at the University of Florida. At $15.9 billion employee theft represents almost half of all retail losses (44%). Shoplifting accounts for $12.7 billion (35%) of losses.
Retail shrinkage averaged 1.52 percent of retail sales in 2008, up from 1.44 percent in 2007. According to the survey, total retail losses increased last year to $36.5 billion, up from $34.8 billion.
Confirming this data is a survey conducted by the Retail Industry Leaders Association, which found that 61% of large retailers report experiencing an increase in amateur/opportunistic shoplifting, 55% experienced an increase in financial fraud; and 72% continued to see an increase in organized retail crime.
Clearly, retailers face significant hurdles when trying to stop criminals like these. Find out how retailers are fighting back against shrink in detail, including graphic charts, in the exclusive RIS custom research study "The Secure Store" by
clicking here.
Benchmarking Loss Prevention Software and Hardware
It takes a full arsenal of weapons to fight back against the dark forces of retail shrink. For example, 60% of respondents say their technology is up-to-date for remote monitoring and electronic article surveillance. CCTV with digital cameras is also up-to-date for 58.3% of retailers, as is sales audit for 50% of respondents.
The top two selections on the loss-prevention budget chart go from one extreme to the other. At the top of the list is the lowest budget, below $100,000, which was selected by 45.2% of respondents. In second places is the highest budget, greater than $1 million, which was chosen by 22.6%.
As you might guess, this is virtually a one-to-one reflection of the size of the responding retailer. Those that budget more than $1 million have annual revenue in excess of $1 billion. Those that budget below $100,000 have revenue less than $500 million, although several were in the $500 million to $1 billion category.
Since every initiative in retailing involves people, processes and technologies, we wanted to isolate the impact of technology and determine if retailers believe it can make a difference in their fight against shrink.
The answer is overwhelming: 60.4% of respondents say that loss-prevention technologies have significant impact in helping them reach its targeted goals. Another 39.4% say it has some impact in helping them reach targeted goals.
Top Loss Prevention KPIs
If you monitor something you control it, so we asked respondents to tell us the top three KPIs they track. Topping the list is shrink by store at 80.6%, which makes it virtually universal across the board.
In second and third place are shrink by department (54.8%) and impact on margin (48.4%). These are the big three, and all other KPIs are well down the list. It is interesting to see that tracking overall exceptions and fraudulent transactions are much less concerning than micro-monitoring individual stores and departments.
We are definitely in the video age, and in-store video has become ubiquitous in retailing. But how is it deployed?
The top two ways retailers are using in-store video today are at POS for associate monitoring and for overall security throughout the store, both of which were chosen by 77.8% of respondents.
While the installation of video systems is done to improve security, there is a growing trend to also use it for traffic pattern analysis and marketing analysis. These two options do not achieve high penetration rates today, but they will definitely grow in coming years.
Conclusions
Key takeaways from the secure-store study include:
>|Strong interest for upgrading loss prevention technologies in 2010 is found in bottom-of-basket detection (33.3%), CCTV with digital cameras (25%), and exception-based reporting software (22.2 %.)
>|Respondents clearly identify two primary sources of retail shrink: employee theft, chosen by 81.8% of respondents, and shoplifting by individuals, chosen by 78.8%.
>|Topping the list of retailer shrink-fighting plans is a holistic strategy that seeks to reduce current shrink levels from all sources (59.4%).
>|60.4% of respondents say that loss-prevention technologies have significant impact in helping the organization reach targeted goals. Another 39.4% say it has some impact in reaching targeted goals. No respondent said it had no impact.
>|Topping the list for loss-prevention KPIs is shrink by store (80.6%). In second and third place are shrink by department (54.8%) and impact on margin (48.4%).
>|The top two ways retailers are using in-store video are at POS for associate monitoring and for overall security throughout the store, both of which were chosen by 77.8% of respondents.