FOREWORD
A GLOBAL
PERSPECTIVE ON SHRINK
In 2000,
the Centre for Retail Research released the first European Retail Theft
Barometer, dedicated to measuring retail shrink in Europe. Now, seven years
later, Joshua Bamfield and his team, sponsored by Checkpoint Systems, Inc.,
have published the first Global Retail Theft Barometer: a comparative study of
retail crime in 32 different countries worldwide.
As a
company dedicated to facilitating interaction between different participants in
an inter-continental supply chain, Checkpoint has been at the forefront of
developing solutions that deliver benefits globally. Over the last decade we
have seen our business adapt to the new realities of global retail: technology
driven applications to protect and identify fast-moving consumer packaged goods
can be applied in one continent, tracked while shipped across another, and used
to deliver benefits for consumers in stores in yet another. The decision to
make this annual study global is a reflection of these new realities. We can no
longer think of our business within isolated markets: everything is connected.
Sponsoring
a global survey is an indication of Checkpoint’s commitment to furthering the
flow of information between the cardinal points of retail worldwide. The phenomenon
of shrink must be taken seriously in the context of a global economy. According
to the results revealed in this study, shrink cost the world’s retailers $98.6
billion, representing an annual ‘tax’ on honest consumers everywhere of $287.70
per household. This is a substantial figure with an immediate impact on the
margins of the global retail industry — an industry on which the world’s
economy, particularly in many developing or recently developed regions, depends
for growth and stability.
What can
we hope to learn from a comparative study of retail theft on a global level?
How do cultural, economic and social factors impact shrink through theft? How
do retailers in each region react to the phenomenon of shrink? Identifying
global trends in such a complex, multi-faceted environment is challenging, but
this study provides some fascinating indications. The phenomenon of shrink and
its impact on percentage of turnover is remarkably similar worldwide. Of
course, there are significant variations between specific countries, but
overall the differences are less than many would expect given the massive
amount of global retail and countries as culturally diverse as, for example,
Switzerland and Thailand.
There are
different reasons for this: among them is the fact that application of retail
security solutions has become endemic across different national and vertical
markets. The results show that in all countries there are retailers who have
managed to reduce shrink, and others where shrink has risen regardless of
regional location, which suggests that lower rates are the outcome of strategy,
policy and investment, not of factors related to the national environment.
This fact
is also supported by the results regarding investments that global retailers
are making in security spending, which are very similar in spite of country,
continent or region. The report proves that retailers worldwide are coming to
the same conclusion: investing in security technology is seen as a priority and
can provide a significant return on investment. For example, the study shows
that up to 46 percent of retailers worldwide expect to increase open
merchandising of products in the next two years. In order to avoid a rise in
shrink while using open merchandising to increase sales, retailers will be
presented with some interesting challenges to protect their products. One
solution retailers are employing to control shrink globally is the application
of EAS tags at source. According to the study, more than 65 percent of
retailers expect to use this method of protection within the next two years.
Other
data from this Barometer has been noted with interest. Internal theft continues
to be an alarming phenomenon and remains the area where least impact has been
made over the last few years - particularly in North America - and where more
research is needed. Shrink through theft or error along the supply chain is
also increasing worldwide, and has now reached up to 7 percent of the total.
This underlines the need for additional security efforts along the entire
retail distribution chain, which is becoming increasingly important for
successful business in a global market.
So, what
can we expect to see in the future? With the right approach from manufacturers,
retailers and solutions providers, technology can keep pace with the new risks
and opportunities that are arising in an increasingly global retail
environment.
I would
like to thank Professor Bamfield and all the retailers worldwide who
participated in this unique study. I hope you find the information contained in
this first global shrink barometer as interesting and enlightening as I have.
EXECUTIVE SUMMARY
The
Global Retail Theft Barometer reports on levels of retail shrinkage and
crime in 32 countries in North America, Europe and Asia-Pacific. Eight hundred
and twenty retail companies, operating 138,603 stores with sales of U.S. $948
billion, provided the data used in this study. The survey covered a period of
12 months to June 2007. The retailers taking part represented 16% of total
European retail sales turnover, 13% of North American retail sales, and 5% of
retail sales in Asia-Pacific. The sample response rate was 22.8%. The Global
Retail Theft Barometer is the largest survey of retail crime and loss in
the world.
The
Report is prepared by the Centre for Retail Research, Nottingham, England, and
is funded by an independent grant from Checkpoint Systems, Inc. as a
contribution to discussion within the sector.
GLOBAL REPORT
q Total global
shrinkage (stockloss from crime or waste expressed as a percentage of retail
sales) cost retailers in the 32 countries $98,630 million, equivalent to 1.36%
of retail sales. The countries with the highest shrinkage rates were India,
Thailand, and the U.S., while Austria, Switzerland and Iceland had the lowest
rates.
q One-half of the
32 countries suffered increased rates of shrinkage between 2006 and 2007,
although Asia-Pacific retailers reduced shrinkage by 4.6%. Globally, the
average shrinkage rate increased by 1.5%, an increase from 1.34% to 1.36%.
q The largest
source of shrinkage was customer theft (shoplifting), responsible for 42.0% of
shrinkage or $41,504 million. Disloyal employees cost 35.2% of shrinkage or
$34,671 million, internal error and administrative failure (e.g. pricing or
accounting mistakes) was 16.5% ($16,248 million), and supplier or vendor theft
and fraud was 6.3% of shrinkage ($6,207 million). Retailers in the U.S, Canada,
Australia, and Iceland reported that employee theft was higher than customer
theft.
q Retailers
apprehended almost 6 million store thieves in 2007, 87.5% of whom were customer
thieves and 743,499 were employee thieves. Most employee thieves were
apprehended by North American retailers, while the majority of customer thieves
(3,481,490) were apprehended by European retailers. The average amount stolen
or admitted by apprehended customer thieves was $270, while employee thieves
stole an average of $1,967, seven times more than customer thieves.
q 30.9% of internal
losses suffered by retailers occurred at the checkout or cashpoint, 36.5% in
the back office, stockroom, or delivery bay, and 32.6% on the sales floor. The
most common method of internal fraud was theft of merchandise, representing
41.1% of internal losses; cash, coupons, and vouchers, 26.5%; refund fraud and
false markdowns 15.3%; collusion, 10.2%; and large financial frauds, 6.9% of
internal fraud.
q Global loss
prevention costs were $25,590 million, 0.35% of retail sales. Revenue costs
were $17,303 million and capital costs $8,287 million. Security employees
accounted for 54.6% of loss prevention spending, while spending on security
equipment was 32.4% ($8,290 million).
q The global costs
of retail crime, based on the costs of thefts by customers, disloyal employees
and suppliers and vendors plus the costs of loss prevention were $108,093
million, equivalent to $283.61 per household.
q The most-stolen
items of retail merchandise within the 32 countries included branded and
expensive products: cosmetics and skincare, alcohol, womenswear/ladies’
apparel, perfume and fine fragrances, and designerwear. Other highly stolen
lines included razor blades, DVDs/CDs, video games and video consoles, small
electric items, and fashion accessories.
q Retailers
protected only 61% of their ten most-vulnerable product lines (including
spirits, perfumes and razor blades). Electronic article surveillance was the
single most-used protection method (used on 35.4% of lines) and safers and
locked boxes were used on 11.3% of products.
q Electronic
article surveillance source tagging (ST, applying tags during manufacture or
the logistics chain) was used by 39.8% of retailers, including 45.2% in North
America, 39.7% in Europe and 27.4% in Asia-Pacific. A further 25.5% of
retailers expected to introduce source tagging within the next two years,
implying that by the end of the decade 65.3% of retailers will use source
tagging. The average number of product lines that were source tagged was 268
(providing 16.4% of retail sales). In North America, source tagging had much
higher levels of penetration, responsible for 21.3% of sales.
There are some
commentators who view retail crime as a harmless or intriguing social
phenomenon or simply as a ‘cost of doing business’. This ignores the impact of
criminal gangs, international organized crime often linked to trafficking,
drug-related retail crime, fraud, extortion and growing levels of violence
against staff. It also ignores the cost of retail crime to the general public,
which in the 12 month period to June 2007 cost every household $283.61.
The
support provided for the Global Retail Theft Barometer from Checkpoint
Systems, Inc. is gratefully acknowledged.
In the Global Retail Theft Barometer values are given as U.S. ($) or euros
(€) and other currencies have been converted into these currencies based on the
rate of exchange on 1 July 2007. The US$:€ rate used is $1:€0.734305, so a cost
of $1million is equivalent to €0.734 million and €1million would be equivalent
to $1.362 million.
Part I of the Global Retail Theft Barometer provides
global comparisons for all the 32 countries surveyed, followed by regional
surveys of North America (Part II), Europe (Part III) and Asia-Pacific (Part
IV). Details of survey methods and the number of retailers surveyed in every
country can be found in the Appendix. So that each regional survey can be read
independently without having to read the whole Barometer, some
information about the study’s methods and findings is repeated.
NORTH AMERICA
Data
was provided by 196 U.S. and 32 Canadian retail corporations with combined
sales of U.S. $341 billion.
Retail Shrink and
Loss
q U.S. shrink as a
percentage of sales was 1.52% in the 12 months to June 2007 (an increase of
2.0% or $786 million at current prices compared with 2006) and cost a total of
$39.854 billion. All shrink figures are expressed against retail selling
prices.
q Shrink in Canada
at 1.49% was slightly lower than the U.S., but had increased by 4.2%. Canada’s
total cost of shrink was $3.63 billion.
q In North America,
the highest shrink rates were found in cosmetics/perfume/beauty supply/pharmacy
(1.89%), auto parts/hardware/building materials retail (1.83%) and
supermarkets/large grocery (1.63%). The
lowest rates were in liquor/wine/beer (0.61%), books/newspapers/stationery
(0.85%) and toys and games/hobbies and craft (0.92%).
The Causes of
Shrink
q Disloyal
employees were seen as the greatest source of loss: 46.0% of losses in the U.S.
and 43.5% in Canada. Next were shoplifters, 32.3% in the U.S. and 35.2% in
Canada, administrative error, 16.3% in the U.S. and 16.6% in Canada and vendor
theft and fraud estimated to be 5.4% in the U.S. and 4.7% in Canada.
q Employee theft
cost U.S. retailers $18.3 billion and in Canada $1.57 billion. Shoplifting
crime was estimated to be $12.87 billion in the U.S. and $1.28 billion in
Canada.
q North American
retailers apprehended 2.3 million store thieves in the period 2006-2007, 0.664
million of these being fraudulent employees, 28.6% of the total apprehended.
Loss Prevention Spending
q Loss prevention
spending in North America was $12.77 billion, equivalent to 29.3% of total
shrink. U.S. revenue spending on loss prevention (LP) was $8.1 billion and
capital LP was $3.67 billion; in Canada the figures were $0.7 billion and $0.27
billion respectively. U.S. spending by retailers on loss prevention represented
0.45% of retail sales and 0.40% in Canada. Capital spending was 0.14% of sales
in the U.S. and 0.11% in Canada. These figures exceed LP spending in most other
countries. Payroll costs accounted for 55.4% of total LP spending in North
America.
The Costs of
Retail Crime
q The 2007 costs of
retail crime were estimated to be $45.16 billion for the U.S. and $4.0 billion
for Canada, a total of $49.16 billion. This is an annual charge that has
ultimately to be paid by retailers and honest customers, equivalent to a tax of
$394.04 for every American family and $322.69 for every Canadian household.
This figures comprised total retail crime plus loss prevention costs. In
2007, these were: shoplifting $14.15 billion, employee theft $19.9 billion,
vendor fraud $2.3 billion and LP costs $12.77 billion.
Methods of
Internal Theft
q U.S. retailers
estimated that 24.6% of internal theft occurred at the checkout, 32.2% in the
stockroom/delivery bay and 43.2% on the sales floor. These figures were
reversed in Canada, where 44.5% of internal theft was thought to occur at the
checkout, 31.8% in the stockroom/delivery bay and only 23.7% on the sales
floor. The most significant method of internal theft in North America was
thought to be merchandise theft ($9.77 billion or 49.1% of the total), followed
by cash thefts (24.7% of the total) (including coupons and vouchers), refund
fraud/markdowns (13.1%), collusion (9.5%) and large financial fraud (3.7%).
Methods of
Protecting the Most-stolen Merchandise
q Almost two-thirds
(62.5%) of the 10 most vulnerable lines were individually protected, which
means that 37.5% of the most-stolen items were not protected. The most
heavily-protected items were DVDs (only 10.3% of which were unprotected),
razors and video games. The most significant security method used was
electronic article surveillance (EAS) protecting 38.0% of the most vulnerable
lines (8.8% of which was provided by tags applied at source), safers and locked
boxes (9.5%), empty carton and ticket systems (6.2%), locked cabinets and
shelves (5.4%) and chains, cables and loop alarms (3.4%).
EAS Source
Tagging and Open Merchandising.
q North American
retailers led the application of EAS source tagging, which was used by 45.2% of
retail corporations. The percentage of non-users that expected to introduce ST
in the next two years was 23.5%. Among North American ST users, 21.3% of their
sales came from ST items, compared to 15.9% in Europe and 6.1% in Asia-Pacific.
In the 12 month
period to June 2007, retail crime cost every household $394.04 in the United
States and $322.69 in Canada.
EUROPE
The
European data is based on information from 489 European retailers from 25
countries of West and Central Europe. They operated 43 276 stores with a
combined sales turnover of €371
453 million ($505 billion). The €:US$ rate used was €1=$1.3618. The Global
Retail Theft Barometer replaces what would have been the seventh European
Retail Theft Barometer.
Retail Shrinkage
and Loss
q Europe’s
shrinkage rose in 2007 to 1.26% of turnover (measured against retail selling
prices), an increase of 1.6% (costing €454 million) over last year’s average
rate of 1.24%. This reverses the four-year trend of regular decreases.
Shrinkage cost European retailers and consumers a total of €29 285 million.
q Countries with
the lowest shrinkage rates were: Austria (0.94%), Switzerland (0.96%) and
Iceland (1.00%). The highest shrinkage rates were the Baltic States (Latvia,
Lithuania and Estonia) (1.42%), the Czech Republic (1.41%), and Greece,
Slovakia and Hungary (all 1.36%).
The Causes of
Shrinkage
q European
retailers believed that their major source of theft was customers (including
organised retail gangs), who were responsible for 48.5% of shrinkage (€14 188
million) and a small number of disloyal employees that caused 28.6% of
shrinkage losses (€8 389 million). Other sources of loss were suppliers (6.9%
or €2 019 million) and pricing errors and administrative failures (16.0% or €4
689 million).
Security Spending
q Spending on
security and loss prevention in Europe reduced slightly by 0.3% to a total
of €7 821 million, but capital
spending on security equipment and technology increased to 32.6% of this total,
emphasising how ‘smart’ loss prevention is of growing importance. However,
security spending as percentage of retail sales was 23% lower in Europe than in
North America. Staffing costs accounted for 51.7% of security spending.
The Costs of
Retail Crime
q The 2007 costs of
retail crime in Europe were estimated to be €32 417 million in the 12 months to
June 2007, an increase of €417.5 million. This charge on retailers and honest
customers was equivalent to a tax of €168.51 upon every household in Europe.
Customer theft was €14 188 million, employee theft €8 389 million, supplier
fraud €2 019 million and security costs €7 821 million.
Methods of
Internal Theft
q In Europe,
retailers estimated that 34.2% of internal (employee) theft occurred at the
checkout, 41.7% in the stockroom/delivery bay, and 24.1% on the sales floor.
The most important method of internal theft in Europe was thought to be cash
thefts (32.6% of the total) (including coupons and vouchers), followed by
merchandise (24.5%), refund fraud/markdowns (18.3%), collusion (12.6%), and
large financial fraud (12.0%).
EAS Source
Tagging and Open Merchandising.
q EAS source
tagging was used by 39.7% of large European retailers. 29.6% of European
non-users expected to introduce ST in the next two years.
In the 12 month
period to June 2007, retail crime cost every household in Europe €168.51.
ASIA-PACIFIC
Data
was provided by 103 retailers from Australia, India, Japan, Singapore, and
Thailand with combined sales of US$65,418 million.
Retail
Shrinkage and Loss
q Shrinkage
in Australia, India, Japan, Singapore and Thailand was an average of 1.24% of
retail sales in the 12 months to June 2007 (a fall of 4.6%) and cost retailers
a total of $15,264 million. All shrinkage figures are expressed against retail
selling prices in this Report.
q Shrinkage
was highest in India (2.90%), followed by Thailand (1.65%), Australia (1.39%),
Singapore (1.25%), and lowest in Japan (1.04%). Although Singapore and
Australia’s shrinkage increased by 5.0% and 2.2% respectively, significant
reductions were seen in India (-9.4%), Thailand (-6.3%), and Japan (-4.6%).
q In
the five countries of Asia-Pacific, the highest shrinkage rates were found in
vehicle parts/hardware/building materials (1.80%), cosmetics/perfume/beauty
supply/pharmacy (1.70%), and apparel/clothing and fashion/accessories (1.69%).
The lowest rates were in footwear/shoes/sports & sporting goods (0.68%),
liquor, wine, beer (0.84%), and jewellery/watches (0.88%).
The Causes of
Shrinkage
q Customer
theft was seen as the greatest source of loss for the five Asia-Pacific
countries amounting to 52.6% of shrinkage ($8,031 million). Next were employee
thieves (21.9% or $3,335 million), administrative error (18.1% or $2,764
million), and supplier/vendor theft and fraud estimated to be 7.4% ($1,134
million). Australian retailers estimated that employee theft was their largest
source of shrinkage (45.8%).
q The
five countries surveyed apprehended 108,720 customer thieves and 10,929
employee thieves (employees were 9.1% of the thieves apprehended). More than
one-half of the thieves apprehended were caught in India.
Loss
Prevention Spending
q Loss
prevention (LP) spending in Asia-Pacific was $2,169 million, equivalent to
14.2% of total shrinkage. Revenue LP spending was $1,292 million (0.11% of
retail sales) and capital $877 million (0.07% of sales). Apart from Australia
(which spent 0.35% of sales on LP), Asia-Pacific expenditure on LP as a
percentage of retail sales was lower than the European average (0.34%) and the
North American average of 0.45% of sales. Payroll costs accounted for 48.9% of
total LP spending.
Methods of
Internal Theft
q Asia-Pacific
retailers believed that 33.1% of internal theft occurred at the checkout, 33.4%
in the stockroom/delivery bay, and 33.6% on the sales floor. The most important
method of internal theft in Asia-Pacific was thought to be merchandise theft
(50.0% of the total), followed by refund fraud/markdowns (18.6%), cash thefts
(16.5% of the total) (including coupons and vouchers), collusion (6.7%), and
large financial fraud (8.3%).
EAS Source
Tagging and Open Merchandising.
q EAS
source tagging was used by 27.4% of large retailers in the Asia-Pacific region
(including 40% in Australia). The percentage of non-using retailers in
Asia-Pacific who expect to introduce ST in the next two years was 19.9%.
In
the 12 month period to June 2007, retail crime cost every household in the five
countries of Asia-Pacific involved in the Barometer $182.34 in 2007.
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