LOSS PREVENTION: Shrinkage numbers reveal increased challenges

While the current shrinkage numbers clocked in by global retailers may prove alarming, addressing the issues that cause the loss may be the best solution to slow it down. Millette Manalo-Burgos taps data from the latest Global Retail Theft Barometer, to help reveal some of these shrinkage-related issues.

Recently, a provision store owner in Singapore was sentenced to six months’ of jail time after police caught him printing his own barcode stickers and fixing them on various items in supermarkets to obtain them at lower prices. In total, the man was able to obtain goods worth S$4,282 (US$3,161). In other news, a shop-lifting syndicate whose members pose as tourists went on a two-day “shopping-spree” that enabled them to cart off S$17,000 worth of merchandise from various shops around Orchard Road — without sounding off any of the stores’ sophisticated alarm systems.

Luckily for the stores, sharp-eyed police­men patrolling the areas around the shopping malls were able to catch some of the members, and eventually rounding up the rest before they can return to their country.

Crimes such as these are just some of the challenges retailers face not only in Singapore, but in most parts of the region and the rest of the globe as well.

According to the latest study, The Global Retail Theft Barometer 2014-2015 (The New Barometer), shrinkage costs US$123.4 billion to retailers annually. The report presented shrinkage trends across 24 countries in Europe, Americas and Asia-Pacific.

During 2014-2015, Latin America registered the highest average shrinkage of 1.55%, followed by North America at 1.27%, Asia-Pacific at 1.17%, and Europe 1.05%.

Global and regional shrinkage
Based on responses from respondents interviewed for the New Barometer report, shrinkage in retail stores increased during 2014-2015 (as compared with the previous year) across all regions, except Europe. Latin America witnessed the highest increase in shrinkage at 1.07 percentage points (pps), followed by North America at 0.69pps, and Asia Pacific 0.20pps. On the other hand, Europe witnessed a marginal decrease of 0.06pps.

According to the report, while the retail strategists focus on advertising, sales and marketing, these numbers — which is US$123.39 billion of loss in shrinkage — give them a strong reason to reassess their focus.

The report added that there are various reasons that can be attributed to the increase in shrinkage. Some of the key reasons include stressed economic conditions, high unemployment, and low consumer confidence, along with increased internal theft and/or process errors, and the ever increasing tactics from external theft drivers.

Internal theft and external theft drivers, such as organised retail crime (ORC), have been cited as primary reasons for increasing shrinkage across most countries. Sophisticated criminals are said to use creative methods to circumvent security checks, which include switching UPC barcodes on merchandise to show lower prices during checkout, tampering with retail equipment (such as PIN pads), and producing fictitious receipts to return stolen products to retail stores.

The report revealed that ORC is committed by groups that consist of people with designated roles, such as driver, lookout, picker, packer and supervisor. These groups use hand signals, cell phones, GPS devices and online information to develop and transmit merchandise target lists.

Also, temporary nature of employment and lower compensation (compared to full-time positions) are the major reasons for employees to indulge in retail theft. Furthermore, employees who are looking for extra cash or are dissatisfied with their employers generally indulge in such thefts, said the report.

Four sources of shrinkage
The report identifies four main sources of shrinkage — dishonest employee theft, shoplifting, vendor/supplier fraud and administrative and non-crime loss. It was found that 87% of the retailers kept a track of shrinkage caused by dishonest employee theft and shoplifting, while only 75% of the retailers tracked administrative and non-crime losses, and even a lesser number of retailers — 70% — tracked vendor/supplier fraud. It was observed across all regions that vendor/supplier fraud was least tracked by the retailers.

Global shrinkage by country

The New Barometer report says that among the top 10 countries with least shrinkage rates, eight are located in Europe; these include countries such as Norway, Switzerland, France, Poland, and the UK. Countries with the highest shrinkage rates include Mexico, the Netherlands, Finland, Japan and China.

Retailers lost US$36.79 billion due to shrinkage in the US — the highest among all countries — followed by China at US$26.06 billion and Japan at US$14.90 billion.

Out of all the countries where a like-for-like analysis was possible, seven witnessed a decrease in shrinkage during 2014-2015, as compared with 2013-2014, while 10 witnessed an increase. Six out of these seven countries that witnessed a decrease are located in Europe, except Australia.

In 2014-2015, US witnessed the highest erosion (0.69pps).

Loss prevention solutions
To avoid increasing the incidence of shrinkage, retailers employ a number of loss prevention measures which include not only technology installs such as alarm monitoring, CCTV and DVRs, but also hiring more security to physically guard the shop premises.

According to the New Barometer study, during 2014-2015, electronics/appliance/media products specialist retailers spent the highest amount on loss prevention solutions. This was primarily due to the high value and mass appeal of these products that make them lucrative targets for thieves. Furthermore, the loss prevention equipment used to protect these products is expensive.

Other verticals with high spend include convenience stores and supermarkets/grocery retailers. Traditional toys and games stores had the least spend on loss prevention solutions

Apparel specialist retailers, which had one of the highest shrinkage rates across all verticals during 2014-2015, had the second-lowest loss prevention spend. Also, during 2014-2015, most of the verticals witnessed a decline in spend on loss prevention solutions. The highest decline was witnessed by department stores and traditional toys and games stores. Verticals that witnessed the highest increase in this spend included hypermarkets/mass merchandisers, and home improvement and gardening stores.

During 2014-2015, some of the most frequently used loss prevention techniques at the store level included CCTV/DVR (76%), security guards (61%), and alarm monitoring (60%). A total of 80% of the retailers (who used security guards) used unarmed guards, while the remaining used both — armed and unarmed.

Out of the 76% retailers using CCTV/DVR, 57% preferred to have CCTV/DVR installed in the store, while only 23% relied on centrally hosted CCTV/DVR.

In 61% of the stores (that used alarm monitoring), the service was provided by third-party providers. However, it was internally managed by 26% of the respondents and the remaining did both.

EAS (Electronic Article Surveillance — Labels and Hard Tags/EAS Antennas) (73%), and spider wraps and security keepers (44%) were the most widely used tools to protect products.

Some 47% of the respondents conducted at least one inventory cycle count per month, while 23% respondents did it on a quarterly basis. The remaining respondents conducted inventory cycle count once a year.

While there is clearly no single solution to totally eradicate shrinkage within the retail industry, experts agree that implementing a combination of effective strategies to deter theft, efficient and maximised used of available store resources, total support from top management, the right loss prevention solutions, and positive employee attitudes could help in slowing down shrinkage rates.