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Shrink Is Big

Sep 1, 2007

Retailers' loss to theft is higher than many realize. Just ten percent of major retailers believed their level of shrink was high in comparison to their competitors, according to one recent study. Another indicated that retailers recover just 2.7 percent of their losses from theft.

Most retailers wrongly perceive that theft is a bigger problem for their competitors than for themselves. In a study of 107 retailers by the Loss Prevention Research Council (LPRC), just ten percent of respondents said they think their level of shrink is comparatively high.

More than two thirds of the retailers characterized their own level of shrink as average, while 24.5 percent said theirs was lower than average. One reason for this misperception may be that there is no agreed upon method of measuring shrink, the report concluded. IntelliVid, a provider of video applications, based in Cambridge, MA, sponsored the study.

While 42.9 percent of retailers said they measure shrink at cost, 57.1 percent said they measure it at retail price. These differences occurred within and between retail segments.

The research, "indicates retailers often believe shrink isn't a serious problem for them," said Read Hayes, Director of LPRC and a researcher with the University of Florida. "But it's a major issue that retailers measure their shrink differently. They use so many different minute calculations regarding product pricing and distribution center levels."

"If you compare apples to oranges, you are likely to obtain illogical results," Hayes said. "That's why our research team strongly encourages retailers to standardize how they really measure shrink, preferably using the retail method."

According to the report, almost half of respondents said they spend the most time working on loss problems related to internal product theft. Nearly one fourth said they spend the most time working on loss problems related to internal cash theft. A third said they spend the most, or second to most, time working on external theft, including organized retail crime. Other areas of concern are gift card fraud and supply chain theft."

"The study points to the fact that anti-shrink solution providers should continue to help retailers address external shrink threats, such as organized retail crime, while assisting them with technology to combat internal sources," said Patrick Sobalvarro, IntelliVid's President and CEO. "Other studies confirm the extent of the internal theft problem, and in this regard, retailers are correctly applying resources toward internal product theft."

Shoplifters and dishonest employees stole more than $5.8 billion in 2005, according to a study of 24 major retailers by Jack L. Hayes International, a loss prevention and inventory shrinkage control consulting firm, based in Fruitland Park, FL. These 24 companies apprehended more than 670,000 shoplifters and dishonest employees in '05, and recovered more than $127 million, an increase of 17.3 percent over the amount the same retailers recovered the year before.

While recovery dollars were up, Mark Doyle, President of Hayes, said, "The dollar losses are staggering." His firm's study puts the average shoplifting case value at $126.87 in 2005, up 21.5 percent from 2004.

The average amount per incident by internal theft is about 5.7 times higher than the average amount stolen by shoplifters. The average dishonest employee case value at these companies in 2005 was $724.14.

"Theft losses by retailers are a much greater problem than most people realize," said Jack Hayes, head of the company. He noted that the retailers studied recovered just 2.7 percent of their total retail theft losses. "That means that for every one dollar recovered by the companies, $37.05 was lost to theft."

Harm from the rising tide of retail shrink spreads beyond retailers. Hayes noted, "Retail theft drives consumer prices higher, hurts our economy, and even forces some retailers to close their stores and go out of business."

Topic: Business Strategies

Related Articles: security 

Article ID: 330

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