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Canadian retailers lose over $3 billion annually to crime


September 24, 2009
By Amanda Ryder

Sept. 24, 2009 – Despite challenging economic times and turbulence in both the domestic
and global economies, results of a recent survey of medium and
large retailers for 2008 show that Canadian retailers are continuing
their vigilance against the influences of criminal activity.

Despite challenging economic times and turbulence in both the domestic
and global economies, results of a recent survey of medium and
large retailers for 2008 show that Canadian retailers are continuing
their vigilance against the influences of criminal activity.

Key findings:

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– Despite the existence of some proven prevention methods, corporate
policies and monitoring procedures, the loss of inventory, (known as
retail shrinkage), translated to just over $3.0 billion in losses for
Canadian retailers in 2008 or $8.5 million per shopping day in Canada.

– Shrink rates of the retailers surveyed ranged from 0.4% of net sales
at the low end to 2.3% of net sales at the highest. 76% of respondents
reported shrink rates below 1.25% of net sales.

– Employee theft is the largest loss area (35%), with shop theft
(including organized crime activity) rated at 32%.

– The survey confirmed the importance of the store-level staff in theft
prevention – 70% responded that store operations staff is most
accountable for prevention of losses at the store level.

– 90% percent of retailers surveyed perform daily loss prevention
measures at the opening and closing at each of their stores; 85% use
proactive measures to detect cash theft by employees at least every
seven days – these are some of the methods that are being employed to
prevent and detect losses.

– Retailers surveyed indicated that their controls begin before they
even buy merchandise from suppliers – 94% scrutinize vendors as part
of vendor selection process and 61% dedicate loss prevention resources
to the supply chain process.

Retailers continue to employ strong governance practices when it
comes to theft prevention with most having policies in place that
define the consequences of shoplifting, internal theft, vendor or
supplier fraud and the pirating of intellectual property. Similar to
the findings of the 2007 survey, retailers also indicate a strong
tendency towards prosecuting offenders caught in the act of stealing.
Sixty per cent of respondents prosecute employees more than half of the
time when an employee is caught stealing, while 79% prosecute customers
more than half of the time in the same scenario.

"Going forward, retailers may be less apt to pursue costly legal
action against employees and customers for theft as a result of
budgetary pressures from the economic decline – particularly where they
have proven that they can continually prevent or detect it," says Ian
Booler, Director, Advisory Services at PwC. "Based on the combination
of the responses related to policies and procedures and combined with
the shrink levels, we know that when strong governance practices are
combined with proven theft prevention methods, Canadian retailers can
effectively monitor and control established theft risks. In addition,
those retailers who have leveraged a good mix of technology, processes
and people, are better positioned to identify and address new theft
risks as they come into the Retail market."

Despite the fact that online retail sales account for an estimated
2% of total annual Canadian retail sales (statistic provided by RCC),
the theft risks related to this sales avenue has caught the attention
of management as a potential source of loss, 55% of respondents
indicated that they run an online store and all respondents indicated
they routinely monitor online transactions for fraud as part of their
loss prevention procedures.

Losses related to fraud from returns, credit cards or gift cards
remain areas of high concern and considerable sources of loss. However,
the survey shows that alarm systems, closed circuit TV and armoured car
pick-up services have become industry standard practice as measures to
reduce losses and monitor theft risks. These are proven methods that
apply equally to all different types of retail segments in the market.

"While retailers have resources dedicated to preventing losses, they
are still heavily reliant on the staff working on the front-lines,"
says Bill Yetman, Chief Operating Officer for the Retail Council of Canada.
"We also see that with tightening economic conditions, pressure is
increasing to minimize losses and protect the bottom line. Every
retailer is looking to do 'more with less' and staff on the front-line
will be increasingly counted on in the coming year."

Survey results confirm that retailers in Canada
make significant investments working on the front lines. For instance,
store operations staff compensation contains a measure for 'shrink' or
loss measure and theft prevention training done in person is by far the
most common and indicated as the most effective way used by retailers
to train employees on loss prevention. It is also now a common best
practice to perform pre-employment screening before hiring new staff.
In fact, over 75% of respondents perform pre-employment screening as a
routine procedure. Some retailers go even further, just under 50% of
retailers request new employees to pass a police background security
check as part of the hiring process as a means of ensuring they are
protected against internal theft.

"One way to identify areas of improvement within individual retail
locations is through comprehensive site reviews and visits," says
Yetman. "Ninety per cent of our respondents said they perform periodic
security audits of their locations to ensure that all security elements
are reviewed as compared to corporate policies and procedures. It is
clear that, where possible, establishing security best practises should
be a priority for Canadian retailers and the survey results indicate
that it is."


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