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Retailers losing $10M every day


October 31, 2012
By Canadian Garden Centre & Nursery

Oct. 31, 2012, Toronto — Canadian retailers are losing about $4 billion a
year to shrink, which equates to an average estimated loss of $10.8
million per shopping day, according to the 2012 Canadian Retail Security
Survey.

Respondents to the PwC and Retail Council of Canada (RCC) survey
reported shrink rates of between 0.4 per cent in the low range and 2.19
per cent at the high range of their net sales in 2011. The average
shrink rate for all respondents was 1.04 per cent of net sales.

Retail
shrinkage is the loss of inventory caused by different sources such as
theft by employees, customers or organized crime, inventory counting
errors, accounting errors, fraud and damaged product loss. In the U.S.,
the reported average shrink rate is 1.42 per cent.

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“To put retail
shrink in perspective, total dollars lost to shrink is almost the same
amount as the total investment made each year by the entire Canadian
retail industry in their information technology (IT) departments and
more than what retailers invested in their finance departments,” said
Paul Beaumont, director of PwC’s Canadian retail consulting services
practice. “Unlike IT and finance spending however, shrink provides no
benefits to retailers and requires significant time and expense to
identify, manage and prevent.”

You’re being watched

Although
estimated shrink as a percentage of sales remained contained since the
last survey in 2008, many respondents noted a sharp increase in the use
of closed circuit TV/DVR recording systems, observation mirrors and
1-800 tip lines to control losses both in-store and in warehouse
environments. In fact, more than 65 per cent of respondents indicated
that they always use these tools — a significant increase from the 39
per cent who reported using these tools in 2008.

Conversely, only
35 per cent of retailers said they frequently use alarms on
merchandise, a reduction from the 72 per cent who reported doing so in
2008.

“Retailers are using more sophisticated and concealed
tools to keep shrink low while at the same time trying to provide
customers with a better experience interacting with their merchandise,”
said Stephen O’Keefe, vice-president of operations for the Retail
Council of Canada.

The top three items most likely to be stolen
from retailers are alcohol, ladies apparel and cosmetics and fragrances.
Each of these merchandise categories are high volume and high value,
making them more prone to criminal activity both from inside and outside
the store.

Getting caught red-handed

Given the
significant impact shrink has on the bottom line, it is no surprise that
respondents indicated a propensity to prosecute the majority of both
customers and employees caught stealing. Criminal prosecution, civil
recovery as well as banning thieves from stores are all options
retailers have at their discretion.

“Given the difficult
economic environment since 2008, retailers have been carefully
considering all of the options available that discourage theft. Finding
the most effective balance has been a key focus that loss prevention
departments have worked hard to identify,” said Beaumont.

This
begs the question of whether the consequences are serious enough to stop
stealing from within retail operations. According to the report,
estimated theft by external parties including shoplifters and organized
criminals has decreased to 43 per cent since 2008 (then 65 per cent).
During the same period, estimated internal and employee theft has grown
to over 33 per cent from 19 per cent.

“Due to the nature of its
business, the retail industry tends to be at greater risk to internal
crimes such as employee theft,” said O’Keefe. “The focus for employers
is to create a heightened sense of awareness and need for staff to be a
part of the solution, which has resulted in more reporting of incidents
than ever before.”

Given this shift, many retailers have decided
to increase their investments in managing internal theft. Beaumont said
this is wise.

“A dishonest employee with inside knowledge of
retail operations and systems has the ability to do more harm than
typical shoplifters. Retailers that respond with a severe punishment for
an employee send a clear message throughout their organizations that
there is zero tolerance for dishonest behaviour.”

As a result, 88
per cent of respondents charge the employee criminally and nearly all
(94 per cent) dismiss the employee with cause.

“While retailers
have done a good job implementing many important loss prevention
measures, the need for strict internal policies and procedures as well
as performing pre-employment screening and criminal background checks
before hiring new staff are important actions that mitigate risks and
will help reduce losses in the future,” said O’Keefe.

While three
out of five retailers perform pre-employment screenings before hiring
new staff, only 29 per cent request new employees pass a police
background check. This is half as many that said they did so in 2008.

A missed opportunity?

Monitoring
inventory is one of the most proven methods to identify retail shrink,
but the promise of Radio Frequency Identification (RFID) to better
control and account for the movement of products has not been realized
by Canadian retailers. None of the respondents in this year’s survey
indicated they were using RFID technology.

Although the cost of
RFID technology has decreased over time, it can still be costly to
implement overall, and a supporting business case can be difficult to
make, especially during challenging times.

Retailers indicated
that they employ theft prevention policies for internal and external
theft, vendor and supplier fraud and pirating of intellectual property.
While retailers stated that internal and external theft are their
highest concerns when it comes to criminal activity, credit and debit
card fraud including PIN pad tampering, return fraud and gift card fraud
were also identified as significant security issues.


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