Employee Theft:The Largest Source of Shrink in North America
Employee theft was regarded as the greatest shrinkage problem in North and Latin America, according to retailers. Thirty-five percent of shrinkage was attributed to employee theft – an increase from 2010. And shrink, or unaccounted for merchandise in a store’s inventory, is higher worldwide according to the Centre for Retail Research’s Global Retail Theft Barometer for 2011 (GRTB 2011).
The report, released on Tuesday, came from an independent survey of trends in retail crime and shrinkage in 4,750 retail corporations in 43 countries. The report has been published annually since 2001 and contains information on theft trends, stolen items, the impact on companies, loss prevention policies, and how companies spend money on security. Other causes of loss noted in the report were vendor fraud, internal errors, and accounting mistakes.
Customer theft, including shoplifting and organized retail crime (ORC), was the main cause of shrinkage in most countries, costing retailers $51.5 billion in 2011. In North America, however, dishonest employees were the largest source, accounting for 44 percent of retail shrink -- $47 billion in shrinkage compared to $37.8 billion in 2010. The second largest source of retail shrink came from shoplifting and ORC. The shrinkage rate in North America rose by six percent in 2011.
“We’ve always had this result,” said Professor Joshua Bamfield, author of the report. Bamfield says the issue is two-fold. “In other countries there may be more employee theft that they don’t know about so they don’t report – when in the U.S. they’re so focused on the problem that they’re always looking for it so they apprehend a large number of employee thieves…,” he said in an interview with Security Management.
Bamfield said in past research he’s found that there is a positive relationship between employee theft and the use of seasonal or part-time workers. “Many are part time or short term and [working retail] until something else turns up,” he said. In many cases these people have less vested in the company and may not feel bad about swiping merchandise.
And when employees steal, they’re stealing more, the research shows. The average stolen by “customer thieves” is around $372, according to GRTB 2011. Employees who get caught admit to stealing almost five times that amount. In Latin America, the amount stolen by employees was eight times the amount stolen by customers. This demonstrates that preventing employee theft it is at least as important as preventing shoplifting, the report states.
The section of the report that addresses North America surveyed 197 North American retailers and 96 across Latin America.
Most shrink occurs in cosmetics and beauty supply, clothing, and auto parts and building materials, respectively. The lowest rates were in liquor and beer, electronics, and sporting goods. Vendor fraud accounted for less than five percent of shrink in North America.
Stores that specialize in certain items like electronics, beer, or sporting goods are often smaller with less area to protect than a Wal-Mart for example and have lower shrinkage rates, according to GRTB 2011.
Globally shrink increased almost seven percent over the past year to more than $119 billion, a figure that now represents 1.45 percent of global retail sales, according to the report. The country with the lowest shrinkage rate was Taiwan (.91 percent of retail sales). The highest was India (2.38 percent).
Another global trend says Bamfield, is that thieves tend to steal branded merchandise. “A retailer in Italy will have exactly the same complaints [as one] in Boston, Massachusetts, so it’s become relevant around the world,” he said. That said, regions still have their problem items. In the U.S., infant formula is stolen in large quantities, but this is less of a problem elsewhere. In Latin America and Asia, medical equipment is often stolen. And in Northern Italy a lot of Parmesan cheese is stolen, Bamfield says.
Shrinkage is lower now than it was at the beginning of the last decade, but it went up again after the recession when many companies had to make cuts to their loss prevention teams. After seeing shrinkage rise again, retailers began to implement new countermeasures. The overall shrinkage trend is downward though, Bamfield said. “What retailers are doing seems to be having an effect.” GRTB 2011.pdf