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Retail Theft and Inventory Shrinkage

Inventory shrinkage, a combination of employee theft, shoplifting, vendor fraud and administrative error, cost United States retailers over $31 billion a year according to the latest National Retail Security Survey report on retail theft, which analyzed theft incidents from 118 of the largest U.S. retail chains.

According to University of Florida criminologist Richard C. Hollinger, Ph.D., who directs the National Retail Security Survey, retailers lost 1.7 percent of their total annual sales to inventory shrinkage last year. The surveyed portion of the retail economy transacts over $1.845 trillion dollars annually, making the loss worth over $31.3 billion. Total inventory shrinkage was down slightly from $32.3 billion in 2000.

While total inventory shrinkage was down slightly last year, to 1.7 percent from 1.75 percent two years ago, both employee theft and shoplifting are on the rise. Inventory shrinkage remains the single largest category of larceny in the United States, more than motor vehicle theft, bank robbery and household burglary combined.

Retail Theft: What's the Harm?

Hollinger warns that it isn't just retailers who should be concerned about retail theft. Retail theft impacts everyone. Ultimately it's consumers that are hurt the most in the form of higher prices.

"An average family of four will spend more than $440 this year in higher prices because of inventory theft," Hollinger said. "Thieves also generally target hot selling items, which means those must-have toys on your child's holiday wish list are less likely to be available on the store shelves."

Where Inventory Shrinkage Happens

Source of Inventory Shrinkage % of Loss* $ Lost
Employee Theft 48.5% $15.1 billion
Shoplifting 31.7% $9.7 billion
Administrative Error 15.3% $4.8 billion
Vendor Fraud 5.4% $1.7 billion
Total Inventory Shrinkage $31.3 billion

*total not equal to 100% due to rounding

Source: National Retail Security Survey, November 2002
(based on 2001 retail sales and inventory shrinkage)

Employee Theft at Record Levels

The study, conducted by the University of Florida with a funding grant from ADT Security Services, Inc., a unit of Tyco Fire and Security Services, discovered that retail security managers attributed more than 48.5 percent of their losses to employee theft, up from 46 percent the prior year. Internal theft by employees cost retailers a record $15 billion.

Shoplifting Also on the Rise

Shoplifting was also on the rise last year with 31.7 percent of retail losses resulting from shoplifting, compared to 30.6 percent two years ago. Shoplifting was responsible for nearly $10 billion in losses last year. Employee theft and shoplifting combined continue to account for the largest source of property crime committed annually in the United States.

Other Areas of Inventory Shrinkage

The remainder of the annual retail losses not due to employee theft and shoplifting are caused by paperwork errors and theft by vendors. Both administrative errors and vendor fraud have declined from two years ago.

Stopping Retail Theft

"The holiday shopping season is really a make or break season for many retailers. It is also an extremely busy time, which leaves stores more vulnerable to theft," said Mike Snyder, president of ADT Security Services. "Many retailers are using security technologies such as anti-shoplifting, digital video and point-of-sale systems to help their staff zero in on theft problems."

Among the newest security technologies being used by retailers this year to control losses due to theft:

  • Point-of-sale data mining software solutions that detect potential theft problems at the cash register and alert appropriate personnel in real-time. These data mining packages can be tied to digital video recorders to provide crisp, clear images of who sold what to whom with a click of a button and can delivered to any location around the world.

  • Source tagging programs where tiny anti-theft labels about the size of a paper clip are placed inside an actual product or product package, effectively hiding it from view.

  • Self-alarming anti-theft tags that broadcast an audible alarm throughout the store when a shoplifter attempts to improperly remove it from merchandise.

"Stores that utilize security technologies generally have lower overall inventory shrinkage than those retailers who do not," Snyder said. "Technology also allows employees to focus more time on assisting customers and less on patrolling the aisles."

Technology alone will not eliminate retail theft. Retailers who want to reduce losses should also strive to provide good customer service and promote high job satisfaction levels among its retail sales associates.

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