Australian consumers and retailers alike are suffering from the cost of retail theft or ‘shrinkage’ according to the first edition of the Global Retail Theft Barometer, conducted by the Centre for Retail Research in Nottingham, UK and launched by Checkpoint Systems. The research finds that the total value of shrinkage in Australia was A$2256.71 million in 2007, representing the average shrinkage rate of 1.39 per cent of sales – a percentage change of +2.2 per cent when compared to 1.36 per cent in 2006.
While this cost directly impacts the retailer’s bottom line, if this cost was passed onto Australian consumers, this would add an additional annual ‘honest tax’ of around A$330.10 per household – a figure equivalent to the impact of an increased interest rate rise.
"The Global Retail Theft Barometer provides a good snapshot of what is actually happening in the retail sector for Australia. Dishonest employees and customers are affecting what other consumers pay for merchandise. The end result is potentially an additional spend that has the same damage as an interest rate rise to every household," says Mark Gentle, managing director, Checkpoint Systems, Australia and New Zealand.
The study reveals new facts about actual levels of retail shrinkage and crime in 32 countries around the world, including 25 countries in Western and Central Europe, as well as the US, Canada, Australia, India, Japan, Singapore and Thailand.
Australian retailers were one of the few countries that experienced more retail shrink from fraudulent employees than customers, with 36.6 per cent of shrink loss caused by customer theft and 40.2 per cent by employees at a cost of US$2185 million. Globally this cost of retail crime was US$108.1 billion.
The largest source of shrinkage was customer theft (shoplifting), responsible for 42 per cent of losses, or US$41.5 billion. Employee theft accounted for 35.2 per cent (US$34.6 billion), while 16.5 per cent (US$16.2 billion) of the global cost was caused by internal errors and administrative failures (e.g. pricing or accounting mistakes). Supplier or vendor theft and fraud are responsible for the remaining 6.3 per cent (US$6.2 billion). In the US, Canada and Australia, retailers reported that employee theft was higher than theft committed by customers.
Retailers have apprehended almost six million store thieves during this year, and 87.5 per cent of these thieves were customers. North American retailers apprehended the largest number of employee thieves, while the majority of customer thieves (3,481,490) were caught in Europe. In Australia, retailers apprehended 18,840 retail thieves and 74 per cent of them were customers.
“The results show that in all countries there are retailers who have managed to reduce shrink, while shrink has risen for others, regardless of regional location," explains Joshua Bamfield, director of the Centre for Retail Research. “This suggests that lower rates are the outcome of strategy, policy and investment, not of factors related to the national environment.”
“The phenomenon of shrink must be taken seriously in the context of a global economy,” notes George Off, CEO, Checkpoint Systems.
“Shrink cost has 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. Retailers worldwide are coming to the same conclusion: investing in shrink management solutions is seen as a priority and can provide a significant return on investment.”
North American retailers apprehended a larger total and proportion of employee thieves than retailers elsewhere. The number of retail thieves in North America was 2.3 million (28.6 per cent were fraudulent employees). Asia-Pacific retailers apprehended 110,000 thieves (9.1 per cent of which were dishonest employees) and European retailers apprehended 3.55 million thieves (only 1.9 per cent of which were dishonest employees).
In Australia, cost of retail crime due to customer theft, employee theft and supplier fraud were US$735 million, US$807 million and US$137 million respectively in the period of study.
The average cost of admitted or proven theft for shoplifters in North America was US$622. In Europe and Asia-Pacific, it was US$112 (A$131.80) and US$54 respectively. However, the average employee theft incident in Europe costs US$5145 (reflecting large financial frauds), compared with US$206 for employee thieves apprehended by Asia-Pacific retailers. During the survey period, theft and fraud by employees (internal fraud) cost US retailers US$18.33 billion and Canadian retailers US$1.6 billion.
Responses from Australian retailers indicated that 46.9 per cent of internal theft was believed to take place at the checkout or cash desk, 25.3 per cent on the sales floor, and 27.8 per cent in the back office, delivery bay or stockroom.
Global loss prevention costs were US$25.6 billion or 0.35 per cent of retail sales. Asia-Pacific retailers spent US$1.3 billion on revenue costs (payroll and services) and a significant percentage of their security budget went to capital costs (security equipment, IT and other long-term assets) of US$877 million. As a percentage of sales, revenue spending was 0.11 per cent of sales, with capital spending representing 0.07 per cent.
Among the five Asia-Pacific countries, the retailers in Australia spent proportionately most on security at 0.35 per cent of their retail sales (US$506 million). Out of their loss prevention budget, they spent US$333 million on revenue costs and $173 million on capital costs.
By the end of the decade, 69.3 per cent of large retailers in Europe, 68.7 per cent in North America and 47.3 per cent in Asia-Pacific are expected to source tag merchandise. This is a dramatic increase from the percentage of retailers in the survey who currently use source tagging technology – 45.2 per cent in North America, 39.7 per cent in Europe and 27.4 per cent in Asia-Pacific (including 40 per cent in Australia).
The average number of product lines that were source tagged was 396 in North America (accounting for 21.3 per cent of retail sales), 219 in Europe (15.9 per cent of retail sales) and 97 in Asia-Pacific (6.1 per cent of retail sales). In Australia, source tagged represented 19.3 per cent of retail sales.