Recession Increases Retail Shrink Threats

January 25, 2010

This article is included in these additional categories:

Retail & E-Commerce

The ongoing economic recession has caused many retailers to both experience higher levels of shrink and make combating shrink a higher priority.

These are two of the main findings of Loss Prevention 2010: Retailers Battling Shrink in Tough Times [pdf], a recent study developed in partnership by Retail Systems Research and the Retail Industry Leaders Association (RILA).

Shrink Rises, But Retailers Beat Average Loss

According to the study, 44% of retailers said the economy caused shrink to rise in 2009, and another 37% said it stayed about the same. Only 20% said it fell. Not surprisingly, 68% of retailers said the priority of shrink increased between 2007 and 2009, and another 25% said it stayed about the same, with 7% saying shrink became a less critical priority.


Despite these percentages, almost half of retailers said their shrink levels are better than the industry average of 1.6% of sales. Forty-seven percent said their shrink levels are better, 30% said they are about the same, and 22% said they are worse.


Growth, Organized Crime Increase Shrink Threat

Retailers are finding growth and organized crime as two of their biggest shrink threats. When asked to name their top three business challenges related to shrink, 61% of retailers said as they grow their company, they become a bigger target for thieves. Another 49% said gross margin shortfalls are directly attributable to shrink and 45% said organized crime rings have taken loss prevention to a level beyond what they’re used to coping with.


Customers Grow as Problem

In 2008, 80% of retailers rated employee theft of merchandise in stores as a top three cause of shrink. This figure dropped substantially to 68% in 2009. Concurrently, the percentage of retailers rating customer theft as a top three problem grew from 52% to 62% in the same time period. It is worth noting that employee theft of cash also grew substantially, from 32% to 45%, between 2008 and 2009. Interestingly, organized crime’s rating as a top three shrink problem stayed virtually flat, rising from 30% to 31% during the year.


When asked what sources of shrink have risen as a result of the economic downturn, 28% of retailers cited individual customer theft of merchandise, the most popular response. Organized gangs stealing merchandise came in a close second with 25% of retailers saying it has increased. Other responses included employee theft of cash (19%) and employee theft of merchandise (16%).


Money Inhibits Loss Prevention Action

Financial issues are taking a clear toll on retailer efforts to fight loss prevention, according to the study. Eighty-six percent of retailers said expense is an organizational inhibitor to reducing shrink, and 53% said they can’t prove the ROI of shrink reduction. Another 41% lack staff, and 36% have perpetual inventory systems that are so inaccurate it’s hard to tell what they are losing.


Lexis-Nexis Indicates Consumer-Facing Fraud is $100B Problem

According to the 2009 LexisNexis True Cost of Fraud study, consumer-facing fraud (fraud which does not include insider or employee fraud) costs retailers $100 billion a year. This dwarfs the $11 billion financial institutions lose and $4.8 billion consumers lose to consumer-facing fraud each year.

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