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Store Losses Studied

RETAILERS AROUND THE WORLD spend more than $2 billion every month on loss prevention, yet shoplifting, fraud, and administrative errors just keep mounting. These losses rose 1.5 percent last year to almost $100 billion.

The U.K.-based Centre for Retail Research reached these estimates in a survey of 820 retail companies around the world with aggregate sales of $948 billion. Its Global Retail Theft Barometer was the first attempt to measure retail loss, or shrinkage, internationally.

It found that shoplifters were the largest cause of shrinkage, taking goods worth an estimated $41.5 billion, or 42 percent of total retail losses. Employees stole $34.6 billion, and internal administrative errors caused $16.2 billion in losses. Supplier theft and fraud totaled $6.2 billion.

European stores already have lower shrinkage rates than retailers in the United States, and they are working to reduce them further by adopting more sophisticated loss prevention practices similar to those practiced by U.S. companies. "Europe is following the U.S. with more managerial, audit-finance methods" says Joshua Bamfield, the report's lead author.

"Recently appointed loss prevention people are thinking more like people do at Home Depot or Wal-Mart [rather] than using old-style, heavy-handed policing methods," Bamfield says. However, old habits die hard. Some stores in Spain still post armed and uniformed guards outside their stores, he says.

India, Thailand, and the United States had the world's highest shrinkage rates. Austria, Switzerland, and Iceland had the lowest rates. In general, thieves target high-value items such as cosmetics, alcoholic beverages, and women's wear. Other products affected by shrinkage were razor blades, DVDs and CDs, video games, and small electric items.

European countries are slightly behind the Unites States in electronic article surveillance (EAS). In North America, 45 percent of retailers use EAS technologies, compared with 40 percent in Europe. On average, global companies tag 16 percent of their product lines, while North American companies use source tagging on 21 percent of their lines. The report says 26 percent of retailers plan to adopt EAS by 2010, raising the total number of companies deploying this technology worldwide to 65 percent.

The United Kingdom has Western Europe's worst shrinkage problem. British stores reported losses of €5.60 billion ($8.19 billion) in 2007 as shrinkage rates rose 0.8 percent to 1.34 percent of revenue. "The U.K. does quite badly on all kinds of surveys on crime and dependency," says Bamfield. Shrinkage in the United Kingdom was 14 percent higher than in Germany, Europe's largest economy.

Sean Bowen, head of corporate security at British retailer ASDA, a Wal-Mart subsidiary, says that the government has inadvertently discouraged the police from cracking down on shoplifting. "Shop theft is not a key performance indicator for the police, but domestic burglary and car theft are very high-profile targets for them," says Bowen. But the government is changing that this year to help curb retail theft.

The United Kingdom is experimenting with new ways to combat shoplifting. One experiment under consideration is to install low-security holding pens in large stores and malls to enable police to process offenders on the spot, but that idea is not without controversy. London's Metropolitan Police approached Selfridges & Co., a department store chain, to install a so-called "retail jail" in its flagship store as part of a pilot scheme. However, the proposal faced heavy opposition from civil rights groups. A Selfridges spokeswoman says, "It's not going ahead at the moment, although it is something we are still discussing" with the police.