THE GLOBAL RETAIL THEFT BAROMETER
The Global Retail Theft Barometer
Contents
Foreword
Executive Summary
Part IThe Global Report
Part IINorth America
Part IIIEurope
Part IVAsia-Pacific
Appendix Survey Methods
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.
Mr. George. W Off
CEO and Chairman of the Board
Checkpoint Systems, Inc.
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
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.
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%.
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.
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.
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.
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).
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.
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.
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.
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
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.
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.
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
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.
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.
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
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
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
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
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.
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
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.
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
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
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
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
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.
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
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.
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%).