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INDUSTRY NEWS
Global Shrinkage Drops to 2007 Levels
According to recently released results from the 4th Annual Global Retail Theft Barometer (GRTB) for the twelve-month period ending June 2010, total global shrinkage cost respondent retailers $1.07 billion, or an average of 1.36 percent of retail sales. The results are 5.6 percent lower than last year’s 1.44 percent, and match the level reached when the report went “global” in 2007.
All four geographic data subsets covered by the survey recorded reductions over last year as shown in the chart below.
Europe and North America are the largest components. A five-year look back indicates that the sharp increase in shrinkage in 2009, no doubt caused by the global recession, may have been an anomaly. This year’s drop places the region averages at 2006 to 2008 levels.
This is the third consecutive year that Latin America has recorded the highest shrinkage as a percentage of sales. However, the trend for Latin America matches those of Europe and North America, which is relatively stable aside from the 2009 spike.
The Asia-Pacific five-year trend differs in that the general direction of shrinkage is downward, again, excluding the spike in 2009.
The countries with the highest rates of shrink as a percentage of sales were India (2.72%), Morocco (1.64%) and Brazil (1.64%). The lowest rates of shrinkage were found in Taiwan (0.87%), Hong Kong SAR (0.91%), and Austria (0.97%). Twenty-two countries posted shrinkage rates that exceeded the global total, and twenty countries posted lower rates.
The top ten countries in terms of the highest dollar loss are the U.S. ($39.3 billion), Japan ($9.3 billion), United Kingdom ($6.6 billion), Germany ($6.1 billion), France ($5.8 billion), Italy ($3.9 billion), Canada ($3.5 billion), Russia ($3.3 billion), Spain ($3.3 billion), and Mexico ($2.8 billion). Those ten countries reported losses of $83.9 billion, or 78 percent of the global total.
Region 2009 2010 % Change North America 1.60% 1.49% -6.9% Europe 1.33% 1.27% -4.5% Asia-Pacific 1.24% 1.16% -6.5% Latin America 1.67% 1.60% -4.2% Global Total 1.44% 1.36% -5.6%
by Robert L. DiLonardo
DiLonardo is a well-known authority on the electronic article surveillance business, the cost justification of security products and services, and retail accounting. He is the principal of Retail Consulting Partners, LLC (www.retailconsultingllc.com), a firm that provides strategic and tactical guidance in retail security equipment procurement. DiLonardo can be reached at 727-709-6961 or by email at rdilonar@tampabay.rr.com.
Scope of the Project
Funded by a grant by Checkpoint Systems, the GRTB is the most comprehensive study of its kind. The data is gathered from a survey prepared by the Nottingham, England-based Centre for Retail Research, under the guidance of its director, Dr. Joshua Bamfield, a well-known expert in retail crime issues. This year the survey was sent to 4,900 of the world’s largest retailers, and usable responses were received from 1,103 companies with combined retail sales of $873.8 billion representing a cross section of vertical markets in 42 countries, including Russia reporting for the first time. There are currently two countries, Morocco and South Africa, representing the Middle East/Africa. Plans call for an expansion in this area of future growth.
In addition to reporting on the magnitude and trends of shrinkage, the survey attempts to gather useful information about a wide array of important topics, including: ■ Causes of shrinkage, with a percentage breakdown by type and magnitude, ■ List of most-stolen merchandise by vertical market, ■ Methods used to combat shrinkage, with a breakdown by type, and information about future implementation, ■ Retail loss prevention and security spending, with a percentage breakdown by type and a calculation of total spending as a percentage of sales, and ■ The global cost of retail crime.
Causes of Shrinkage
Globally, customer theft, including shoplifting and organized retail crime (ORC), was thought to cause the greatest shrinkage in most countries—42.4 percent of total shrinkage, compared with 42.5 percent in 2009. Dishonest employees were estimated to be responsible for 35.3 percent of total shrinkage, compared with 35.5 percent in 2009. Internal error and administrative failure, such as pricing, process, or accounting mistakes, accounted for 16.9 percent of total shrinkage, compared with 16.4 percent in 2009.
As in the previous years there is an interesting divergence of opinion among respondent groups over the sources of shrinkage. North American and Latin American retailers regarded dishonest employees as the biggest problem (47.3 and 43.1 percent respectively). Shoplifters and ORC accounted for 35.0 and 32.2 percent respectively. North American retailers have focused vigorously on ORC issues over the past few years.
European and Asian retailers, on the other hand, identified customer theft as the largest shrinkage component (52.9 and 47.8 percent respectively). Dishonest employees accounted for an estimated 29.8 and 23.3 percent respectively.
Most Stolen Merchandise
The study asked retailers for specific information about the average shrinkage rate of “high-risk” product lines in grocery and food, apparel/clothing and fashion, and health and beauty (first year). Many of the most-stolen product lines are expensive, major national brands and retailers reported that between 10 and 30 percent of the most stolen lines are new to the market in the last two years. This was particularly true of apparel and clothing and health and beauty.
For food and grocery items the highest shrinkage was reported in fresh meat (2.86%), which was more than double the global shrinkage rate of 1.22 percent for supermarkets/hypermarkets/large grocery stores. Other high loss categories were alcohol, cheese, candy, and infant formula. Infant formula is a source used to dilute illegal drugs, so its inclusion is no surprise.
The highest shrinkage losses in the apparel/clothing and fashion categories were seen in accessories (3.84%), children’s wear (2.97%), and in fashion/tailored clothing (2.81%). Last year, these three categories were the highest risk in every region, but in 2010 this is only true for North America and Europe.
Health and beauty product lines are sold by many different types of stores. The highest losses were found in shaving products (3.57%), perfume/fragrances (2.73%) and lipsticks, glosses, and lip liners (2.60%).
The study also includes a table listing the top seven stolen merchandise categories in ten of the most prominent business categories or vertical markets. The results indicate that high-risk merchandise knows no geographical boundaries as meat, apparel/accessories, jewelry, health and beauty, entertainment electronics, and infant formula are targets the world over.
Relationship between LP Budgets and Shrinkage
GRTB researchers used ten years of Western European statistics to test whether changes in one or more of the components in loss prevention spending were related to changes in shrinkage. The idea was to use regression analysis to see if there is a relationship between increased
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