Mystifying factors contributing to collective perplexity regarding the overlap of shrinkage and larceny

Mystifying factors contributing to collective perplexity regarding the overlap of shrinkage and larceny

In 2024, retailers are grappling with the complicated issue of retail crime, struggling to comprehend the extent of the problem despite years of attention from various sectors. The National Retail Federation (NRF) recently withdrew a widely-cited data point from their data on organized retail crime, leaving retailers and law enforcement in the dark.

The NRF announced that theft and shrink rates have remained relatively steady for several years. In 2022, a combined total of $112 billion in inventory was lost by retailers, with 63% of that loss occurring due to internal factors and the remaining 36% due to outside theft, such as shoplifting, burglaries, and robberies. Policymakers and law enforcement are under growing pressure to address the mounting complaints as alarming videos of violent, smash-and-grab incidents at stores circulate online, but the frequency, scale, and financial impact of these incidents are not well understood.

Some analysts suspect that companies may be emphasizing theft to explain underperformance, even at well-run companies where tight margins can make even minor amounts of shrink significant. "There is a bit of a bandwagon effect. Shrink has become a buzzword, so retailers are calling it out more than they used to," said Neil Saunders, Managing Director of GlobalData.

Here are seven that make the conversation around retail crime even more convoluted:

1. Reported Retail Crime Decreases in Many Areas:

Contrary to expectations, property theft has declined in many areas, including cities often marked as problematic for stores. Robbery incidents rose by 1.3% year-over-year nationally, but shoplifting reported to police has only increased since falling dramatically during the pandemic in 24 large American cities.

1. Self-Checkout is an Inventory Leak:

Losses from self-checkout outweigh organized retail crime in many stores. Research indicates that self-checkout in the U.S. causes between one-fifth and almost one-quarter of all unknown store losses. These losses can come from both honest mistakes and deliberate theft. Stores with fewer workers may be more vulnerable to these types of theft due to the lower staff presence.

1. Employees Steal More Than Customers:

Employee theft accounts for nearly a third of all shrink, and retailers find it just as concerning as other forms of theft. Even long-time employees have been caught stealing from stores, as technology like RFID sensors shed light on hidden theft.

1. Shrink Isn't the Biggest Margin Killer:

In recent quarters, executives have brought up shrink and theft more often in their discussions. However, other factors, such as inventory impairment, fulfillment costs, and clearance and promotional markdowns, have a greater impact on gross margin at most retailers, compared to shrink.

1. Hidden Costs Associated with Retail Theft:

Several costs related to retail theft, such as the expense of cleanup or repair after theft or vandalism and the costs associated with preventive measures like security personnel or technology, aren't typically accounted for in shrink or retail theft statistics.

1. The Threat of Violence:

The prevalence of guns in the U.S. creates a challenging environment for confronting thieves, as encounters could potentially result in violence. This complicates retailers' approaches to loss prevention.

1. Cargo Theft:

Cargo theft, a lesser-known aspect of retail crime, is on the rise. It involves criminal groups stealing goods at various stages of the supply chain. Discrepancies in inventory are often attributed to retail shrink or theft but may actually be due to cargo theft.

Overall, retail crime is a multifaceted issue that's difficult to tackle due to challenges in data collection, evolving tactics by criminals, and the complex nature of the crimes themselves. Retailers are looking for solutions to better protect their inventory, but addressing the issue requires collaboration between retailers, law enforcement, and policymakers.

1. Despite the resurgence in concern over retail crime, research indicates a decrease in property theft in many areas, even in cities previously known for high crime rates.
2. The National Retail Federation's update on organized retail crime has been withdrawn, leaving law enforcement and retailers uncertain about the extent of the problem.
3. Shoplifting remains a significant issue, but the overall decrease in other forms of retail crime continues to confound analysts.
4. Technology like AI and RFID sensors is shedding light on hidden theft, particularly by employees, who are responsible for nearly a third of all shrink.
5. The future of retail loss prevention could involve collaboration between retailers, law enforcement, and policymakers to address the issue comprehensively, including its hidden costs.
6. The frequency, scale, and financial impact of violent smash-and-grab incidents at stores are currently unclear, but they are causing mounting concerns among policymakers and law enforcement.
7. Shrink rates have remained relatively steady for several years, according to the National Retail Federation, but tight margins can make even minor amounts of shrink significant, leading some to question the validity of claims in underperforming companies.
8. The prevalence of guns in the U.S. creates a challenging environment for retailers regarding loss prevention, as encounters with thieves could potentially result in violence.
9. Cargo theft, a lesser-known aspect of retail crime, is on the rise, involving criminal groups who steal goods at various stages of the supply chain.
10. In the fashion industry, technology like AI might help predict and prevent theft by analyzing trends and identifying anomalies in inventory levels.
11. Policymakers and law enforcement must address the growing concerns about retail crime, as the frequency, scale, and financial impact of incidents are not well understood, and videos of violent thefts circulating online are causing alarm.
12. In response to the complex issue of retail crime, updates in policies, technology, and industry practices are expected to play a crucial role in strengthening loss prevention measures. The future could see its average rate decreasing as retailers, law enforcement, and policymakers work together to find solutions.

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