After trending downwards over the past couple of years, it seems retail shrink has taken a turn for the worse as it grew to $48.9 billion in 2016, an increase of over $3 billion from the year before, according to the results of the annual National Retail Security Survey (NRSS) released last week by the National Retail Federation (NRF) and the University of Florida.
The survey, which polled loss prevention and asset protection professionals from 83 retailers, also found that the inventory shrink rate rose to 1.44 percent, up from 1.38 percent in both 2014 and 2015 which were the lowest rates ever recorded in the 26-year history of the survey. In addition, nearly a quarter of retailers (23 percent) reported suffering a shrink rate of 2 percent or higher.
“We saw a couple of years of decline in shrinkage percentage and then this year, it wasn’t a dramatic difference but we had movement in the other direction with shrinkage increasing and that gave me pause and it was a bit of a concern,” Dr. Richard Hollinger, criminology professor at the University of Florida and lead author of the NRSS, says.
Perhaps even more concerning, according to Hollinger, is the fact that two-thirds of loss prevention professionals report that their budgets are remaining flat or even declining while shrink rises and remains a significant problem for the retail industry in general. “Here we have one of the worst possible scenarios: shrinkage going up while the tools and resources to fight the battle are going down,” he adds.
If those statistics weren’t bad enough, there are very few bright spots to be found in the rest of the survey for retailers. The survey found that the average cost per shoplifting incident actually doubled to nearly $798.48, which could be attributable to decriminalization and an increase in the felony threshold in some states. In addition, thefts by dishonest employees were found to cost retailers just over $1,922.80 per act, which is up almost $400 in the last two years alone.
Additionally, the average cost of retail robberies dropped to $5,309.72 from $8,170.17 in 2015. However, that figure is more than double the $2,464.50 seen in 2014. Retailers were also asked about return fraud for the first time in this year’s survey and they reported an average loss of $1,766.27.
While a poor economy has been cited in recent years as one of the biggest contributing factors to both shoplifting and employee theft, now that the economy has rebounded and the unemployment rate is at its lowest level since 2001, retailers still find themselves battling internal and external theft. Hollinger says that while the economy may be doing much better overall, its effects haven’t trickled down to consumers on the lower end of the spectrum. “I guess the core economy reflects the improvement in things like the stock market and various investments and the banking industry, but we still have a huge problem in our country as the rich get richer and the poor get poorer,” Hollinger says. “We have an economy that is perhaps getting better as a whole but not everybody in America is riding along on that train.”
When you combine little to no economic gains with a nationwide opioid addition, Hollinger says shoplifting becomes as appealing option to score quick cash with minor consequences to suffer if you’re actually caught and prosecuted.
“One of the things you’ll note if you talk to police officers is that the people that are doing shoplifting, many of them are either addicted to drugs or they have debt problems or other driving forces in their lives that are pushing them to shoplifting,” he explains. “These are not impulse shoplifter or elderly shoplifters; these are people that need the money. Add on top of that organized retail shoplifting teams that go around the country and pick on major retailers shoplifting certain products they know they can go on internet auction sites and liquidate for a pretty good profit.”
For the third consecutive year, shoplifting/organized retail crime accounted for a greater percentage of inventory shrink (36.5 percent) than did employee/internal theft (30 percent). Rounding out the sources of inventory shrink were administrative and paperwork errors (21.3 percent), vendor fraud or error (5.4 percent) and unknown loss (6.8 percent).
For many years, employee theft was either neck-and-neck with or accounted for a greater percentage of retail shrink than shoplifting. However, the rise of organized retail crime (ORC) has resulted in shoplifting outpacing internal theft and becoming a much larger problem.
Although stores are using security technology, such as video surveillance and asset tracking solutions, in greater numbers than they used to, Hollinger says there is no replacement for people when it comes to deterring potential shoplifters. “There’s no deterrent like having a robust number of staff – sales and loss prevention – actually in the stores,” he says. “In the old days, when you walked into a store someone would come up to you and say, ‘can I help you?’ In some cases when you walk into a store now you may get a greeter that will say, ‘welcome to the store,’ but I’ve walked around some of the big box stores and have difficulty even finding sales staff, let alone loss prevention.”
Hollinger says it is really incumbent on the executive leadership at these retailers to realize the significance of shrink and take concrete steps to combat the problem or these loss figures are likely to continue to rise in the future.
“As more and more people go online to do their shopping, it has put a difficult task in the hands of executives. The question is how does a retail CEO spend their money? Oftentimes it is build more stores, put more merchandise in them and increase sales. Unfortunately, the amount of money given to loss prevention hasn’t increased in the same percentage,” he says. “When an expert or outside survey like this shows that you can recover or prevent a lot of your losses in the first place – there’s no doubt that for every dollar spent on loss prevention there would be a huge increase in profitability – but it’s kind of hard to talk about that to a company that is trying to keep its head above water.”
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About the Author:
Joel Griffin is the Editor-in-Chief of SecurityInfoWatch.com and a veteran security journalist. You can reach him at [email protected].
