What the Global Retail Theft Barometer Tells Us about Apparel Theft

Common sense says that if you reduce loss prevention spending during a recession, you'll see a rise in retail theft. That is, in fact, what was found. The level of global retail theft was up 5.9 percent last year, reaching $114.8 billion, according to the third annual edition of the Global Retail Theft Barometer (GRTB).

The study, prepared by UK-based the Centre for Retail Research, is based on confidential survey of more than 1,000 large retail corporations around the world. It monitored the costs of shrinkage and crime in the global retail industry between July 2008 and June 2009.

In the United States alone, retail theft was up 8.8 percent over the previous year, reaching $42.2 billion, which works out to an average of 1.61 percent of retail sales. The increase this past year in the United States was much higher than the previous year, when retail theft rose only 1.5 percent here.

Although some view retail crime as simply a cost of doing business, this ignores the impact of the cost of it to the general public, which in 2009 cost the average American family an extra $435.

Retailers attribute one-third of the increase in shoplifting to the economic recession. While retailers have had to cut budgets in most areas due to the recession, this year's study shows the adverse effect of cutting spending too deeply in the area of loss prevention.

The 2009 study found that retailers decreased their spending on loss prevention and security by $900 million, no doubt in response to their general need to trim budgets in tough times. However, the correlation between $900 million in decreased security spending and a $10 billion increase in theft is very significant. Prudent spending in this area can have a very positive effect on bottom-line numbers, and act as a force-multiplier, especially as budgets for training programs and security personnel are reduced.

There has been a dramatic rise in customer shoplifting related to the recession, particularly in North America. Some 50.7 percent of retailers in North America suffered an increase in shoplifting in 2009. In the United States alone 51.7 percent of retailers had experienced an increase in shoplifting. Still, in the United States, the biggest contributor to shrink remains employee theft at 44 percent, followed by shoplifting at 37 percent.

Most vulnerable merchandise

In 2009, some of the highest average shrinkage rates were found in apparel and fashion accessories. In apparel and fashion, the highest shrinkage losses globally were seen in accessories (3.85 percent) and in fashion tailored clothing (3.64 percent). These product groups suffered the highest shrinkage in all regions surveyed.

Thieves tend to focus on small and easily-concealed, expensive, branded items that have considerable popular appeal and are easily re-sellable: designer apparel, electronic games, DVDs/entertainment, iPods/MP3 players and cosmetics/face creams/perfumes, which appear most frequently on the list of most vulnerable merchandise. The average amount stolen or admitted by shoplifters was $436.24 in North America. Meanwhile, the average employee theft was $1,889.02 in North America compared to $2,535.52 in Europe.

Shrink: The tip of the iceberg for apparel retailers

As detailed in the GRTB and other studies, apparel retailers know that shrink impacts their bottom lines. However, what they might not be considering is the impact that retail theft and shrink has on sales and customer retention. Shrink resulting from retail theft is generally unaccounted for in retail inventory systems.

This unaccounted-for shrink results in inaccurate perpetual inventory that is used by downstream systems to drive replenishment. As such, the retailer suffers a much greater secondary and indirect loss because of silent or unknown out-of-stock conditions that persist and the associated missed sales opportunities, which can be much greater than the value of stolen items. In fact, a study conducted by Massachusetts Institutes of Technology found that these indirect losses accumulate and can be up to thirty times greater than the value of the stolen or out-of-stock item.

Consider the potential losses from multiple customers looking for an out-of-stock item. Retailers suffer in several ways. They lose not only the sale of the individual item, but potentially the sale of the entire market basket. For example, when a customer purchases jeans, he or she often buys other complementary items such as shirts, blouses, belts and others. If that core item is out-of-stock, retailers often lose the entire sale. They also risk losing loyal customers. In a study conducted by the analyst firm AMR Research, some 70 percent of shoppers surveyed said they would shop for out-of-stock items at a competitor's store or website. So the cost of shrink goes well beyond the value of a stolen item by causing the retailer to miss sales opportunities and lose customers.

Loss prevention and innovation

The recession makes loss prevention a more difficult task, but also more important when you consider what's at stake. While 5.8 million theft-incidents were stopped and nearly $6 billion in stolen merchandise was recovered in 2009, it was not enough to keep shrinkage from spiking. But there are still quick wins available. For example, 28 percent of products that are most attractive to thieves remain unprotected.

We have seen significant innovation taking place in the industry, and there are new and effective solutions available today, from comprehensive product protection strategies to state-of-the-art shrink management systems. When brought together in a holistic fashion they can help retailers protect their businesses and prepare for increased sales and profitable growth.

Paul Cataldo is vice president of global marketing at Checkpoint Systems.
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