Reduced security spending linked to increased retail shrinkage as retail theft reaches 115 billion dollars worldwide

(10/11/2009)

According to the third annual edition of the Global Retail Theft Barometer, the level of global retail theft reached $114.8 billion in 2009, representing a significant increase of 5.9% over last year’s total of $104.5 billion.

The study monitored the costs of shrinkage and crime in the global retail industry between July 2008 and June 2009, and found that the rise in shrink occurred in all regions surveyed, with the greatest increase in North America (+8.1%), Middle East-Africa (+7.5%) and Europe (+4.7%).

“Retailers attribute one third of the increase in shoplifting to the economic recession,” noted Professor Joshua Bamfield, Director of the Centre for Retail Research and author of the study. “Many have also noted a change in the type of offender and in the type of products stolen.”

“While most businesses have suffered as a result of the recession, few have been as hard-hit as the retail industry,” said Rob van der Merwe, Chairman, President and CEO of Checkpoint Systems, Inc., the sponsor of the study. “While retailers have had to cut budgets in most areas, this year’s study shows the adverse effect of cutting spending too deeply in the area of loss prevention. 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.”

“The 2009 study also 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,” continued Professor Bamfield. “However, the correlation between $900 million in decreased security spending and a $10 billion increase in theft is very significant. It highlights the importance of continued advancement and improvement of loss prevention programs, as reducing theft is key to the success and growth of retailers’ businesses.”

Loss prevention spending in 2009 was equivalent to an average of 0.31% of retail sales.

Global Retail Shrinkage Rates

Compared to last year’s survey, the losses of retailers in the 12-month period year ending June 2009 rose in 38 out of the 41 countries surveyed. Shrinkage, as a percentage of retail sales rose by 5.9 percent this year to a global average of 1.43%. This is a significant departure from the previous two years, in which shrink as a percentage of retail sales decreased.

While North America and Europe make up 40% and 38.4%, respectively, of global shrinkage, the highest country-specific rates were found in India, Morocco and Mexico and the lowest in Hong Kong, Taiwan and Austria.

“Although there are commentators that view retail crime as a harmless or intriguing social phenomenon or simply as a ‘cost of doing business’, this ignores the impact of the cost of retail crime to the general public, which, in 2009 cost 553 million families in the 41 countries surveyed an extra $208 on their shopping bill,” said Professor Bamfield.

Shrinkage by Global Vertical Markets

Shrinkage varies according to business type, vertical market and country. In 2009, some of the highest average shrinkage rates were found in apparel/clothing and fashion/accessories (1.84%) or cosmetics/perfume/beauty supply/pharmacy (1.77%).

In apparel/clothing and fashion, the highest shrinkage losses were seen in accessories (3.85%) and in fashion/tailored clothing (3.64%). These product groups suffered the highest shrinkage in all regions surveyed (North and Latin America, Europe, Asia-Pacific and Middle East-Africa).

For food items/groceries, the highest shrinkage was reported in fresh meat with 3.38%, which is two and a half times more than the global shrinkage rate of 1.36% for foodstuff. Luxury cooked meats also reached a high shrinkage rate of 2.72%.

Global Cost of Retail Crime

In the 2009 edition of the survey, the global costs of retail crime (the charge that crime imposes on retailers) was $120.5 billion including loss prevention costs. It is made up of shoplifting losses (40.5 percent), employee theft (33.8 percent), supply chain losses (5.3 percent) and loss prevention costs (20.3 percent).

While shrinkage has increased, security spending has decreased almost everywhere. In North America and Europe, loss prevention expenditure tends to be higher than in emerging markets. In North America, loss preventing spending represented 0.40% of retail sales, a fall of $811 million from 2008. In Europe retailers spent an equivalent to 0.29% of retail sales compared to 0.34% in 2008.

In Latin America, loss prevention spending was 0.18% of sales, a reduction of $33 million. In Asia-Pacific the average for security spending was 0.17% and in Middle East-Africa 0.20% against a global average of 0.31% of retail sales.

“It is interesting to note that spending on security systems and equipment fell by a much greater amount than spending on outsourced security personnel,” commented Bamfield. “While a combination of several approaches to security is most effective, there are definite advantages to increase the effectiveness of personnel by employing a comprehensive shrink management solution and strong loss prevention processes.

Merchandise Theft

Merchandise theft reached a total of $64.51 billion in 2009. The amount of merchandise stolen by shoplifters and employees represents 72% of the total shrinkage. Most merchandise was stolen by shoplifters, who were responsible for $48.8 billion of stolen goods. It is here that loss prevention can have its greatest impact by deterring would-be shoplifters and enabling merchandise recovery.

Economic Recession Impact

“There is some criminological evidence that crime rises as unemployment rises and there are indications that crime is a much more important issue for retailers now than two or three years ago,” said Professor Bamfield.

“Some offenders may otherwise face real hardship. People whose family income has fallen because of unemployment or work-sharing may feel that they need to steal in order to maintain their previous lifestyle. The failure of the financial system and the political class in many countries has disillusioned many people, who may feel that they have to look after their own interests - however illegally - because no one else can be trusted to do so,” continued Bamfield.

The survey shows that shrinkage and offending have increased over the past year, and that retailers attribute one-third of increased shoplifting, and a little more than one-fifth of increased employee theft, to the recession. “It seems that the pattern of offending has altered. This is likely to be truer of shoplifting than of employee theft as employees are more eager to retain their jobs when there are fewer jobs available,” said Bamfield.

Most Vulnerable Merchandise

Thieves tend to focus on small and easily-concealed, expensive, branded items that have considerable popular appeal and are easily re-sellable: electronic games/Wii, DVDs/entertainment, iPods/MP3 players, clothing, cosmetics/face creams/perfumes, alcohol, fresh meat/expensive foodstuffs, which appear most frequently on the list of most vulnerable merchandise. Other most-stolen products are razor blades/shaving items, mobile/cell phones and watches.

Apprehension of Thieves

The number of shoplifters and employee thieves apprehended by retailers amounted in 2009 to 5.8 million – an increase of 500,000 compared to the previous year. Of those apprehended, 85.6% were shoplifters and 14.4% employees.

The average amount stolen or admitted by shoplifters was $225.90 ($436.24 in North America). The average employee theft was $1,889.02 in North America compared to $2,535.52 in Europe.

Related topics:  Crime and Fraud Prevention   Physical protection   Security market data   Tagging vandalism and theft prevention 

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