Theft in the Retail Space

Inventory shrinkage is an important issue (perhaps the most important issue) facing the retail industry. Each year, Dr. Richard Hollinger at the University of Florida undertakes a National Retail Security Survey, or NRSS, that benchmarks retail shrinkage and operational information about how retailers are combating losses by surveying retailers in the first half of a given year and using data from the previous year.

While every retailer has protocols in place to prevent shoplifting (which accounts for 32.6% of inventory shrinkage according to preliminary reports released from the 2010 NRSS), many place less emphasis on protocols designed to stop employee theft even though it accounts for 43.7% of inventory shrinkage. This percentage, which has grown in recent years, represents $16.2 billion in shrinkage – up almost 2 billion from the 2009 NRSS.

What’s more, the 2009 NRSS (the most recent year for which these numbers are available) found that an average shoplifting incident can cost $438.11 in inventory loss, but the average employee theft incident costs $1,905.31—more than four times as much.

These are more than just cold and clinical words and numbers in a survey. On September 9, a Target employee admitted to stealing $6,000 in just 3 months. On the day that she was apprehended, the employee had $300 of Target’s money in her pocket. That’s almost as much as an average shoplifting event in just one day. This was an average worker in an average store that had access to the cash room.

Specialized employees can wreak even more havoc on a business – on September 13, a former Associated Wholesale Grocers employee pled guilty to federal fraud charges stemming from the over $100,000 she embezzled since 2004. The deception was only uncovered following an internal audit in early 2011.

Yet, even knowing all of this, the 2009 NRSS shows that only 87% of retailers use criminal conviction checks to screen employees – almost as many retailers think that conducting multiple interviews is as valid a method of trying to “predict integrity” in applicants. And the percent of retailers performing criminal conviction checks to predict integrity falls drastically to only 64.6% when considering non-managers (keep in mind that most estimates put the percent of companies performing background checks at over 90%).

And it gets worse. For all that basic criminal history checks are necessary, many records may be missed if you rely solely on a criminal history check for one simple reason: many retailers don’t report theft to the police. While the two cases mentioned above have been prosecuted, they are unique. A search of GIS’ National Retail Mutual Association (NRMA) Retail Theft Database, which gets information directly from retailers rather than from criminal history sources, shows that many big ticket thieves are not prosecuted–from an employee that stole $2,500 from a clothing store to an employee that stole $106,000 from a toy store. The information that is found in NRMA is also cleared for use in making hiring decisions – And cases like these make it truly important that a retail theft database is used.

Another great tool for retailers is the National Shrink Database or NSD. The NSD helps retailers across the nation benchmark their shrink experience and their “security measure utilization.” This can help retailers keep abreast of current trends both at a very local level (down to within a zip code, if you’d like) and at a national level.

Utilizing all of these tools can easily help reduce a retailer’s shrink – and as we all know, every little bit counts.