Organized retail crime poses a significant challenge to retailers’ bottom lines. But those high-profile events, which lead newscasts and garner explosive views on social media, comprise one piece of a very large puzzle that loss prevention experts are working to solve.
The broader issue of shrink, defined as inventory losses caused by many reasons, including theft, operational or process mistakes, and systemic errors, is what keeps retailers up at night. Yet despite its true definition, the word “shrink” is most often used to describe “theft”, especially for media, and to varying degrees, researchers and John Q. Public.
The problem with this usage is that it’s often overlooked that shrink comprises all merchandise that disappears from stores without being paid for, through theft, damage, and inventory tracking mistakes. Using shrink interchangeably with theft reinforces the narrative that organized retail crime is the main issue that plagues retailers. The fact is that retail crime comprises considerably more than the high-profile smash-and-grab large-scale shopping events.
Despite the confusion around the overall definition of shrink, it is a considerable issue that costs retailers a lot of money. Retail’s shrink rate rose to 1.6% of sales in 2022 from 1.4% in 2021, according to the NRF’s annual retail security survey. In cold hard cash, shrink accounted for $112.1 billion in losses, up from $93.9 billion in 2021, a number recently updated by the NRF to reflect the April 2023 U.S. Census Bureau’s revisions to retail sales.
WHAT IS RETAIL SHRINK?
Many different events can factor into a retailer’s overall shrink number, including:
· External theft: These acts are committed by someone not employed by the retailer. It could be a fraudulent product return, customers paying with counterfeit cash, stolen credit or gift cards, and fraudulent checks, as well as people shoplifting or breaking in, with either ORC syndicates or smaller-scale criminals responsible.
· Internal theft: This refers to employees stealing either goods or money from the store. They can pilfer small quantities of items or cash, grant bogus refunds to friends, embezzle large amounts of money, or misuse money, like petty cash, for personal gain.
· Process and control failures: Retailers must know what they have on hand, from their stores and warehouses to items in transit. Many internal systems depend on humans, and people can record incorrect unit measurements, miscount items, mislabel stock, and make typos. Despite most being honest mistakes, losses add up.
· Vendor fraud: This often-overlooked issue combines external and internal theft where a supplier targets, intimidates, and either convinces or coerces an employee to overlook bills of lading, overbill a client, or falsify invoices.
· Unknown, unidentified, or unexpected issues: These could include broken products, missing shipments, or supply chain disruptions, but expired products do make up a bulk of this shrink. (Think of how many out-of-date pharmaceuticals, cosmetics, and food and beverages you have on hand at home!)
WHAT DO RETAIL SHRINK NUMBERS REALLY MEAN?
Since there are many different kinds of losses in the business of retail, it’s important to remember that retail crime is only a portion of the overall shrink number each year. And while it can be easy to equate the two, this could lead to incorrect premises and skewed research.
Yet theft—both internal and external—comprises a large percentage of retailers’ annual losses. It accounts for nearly two-thirds (65%) of retailers’ shrink, according to the NRF’s 2023 National Retail Survey. Respondents attributed their overall shrink to different sources of loss:
· External theft, including ORC-related events, accounted for an average of 36% of total loss
· Internal (employee) theft reported in at 29% of shrink loss
· Process, control failures and errors came in at 27%
· Unknown (6%) and other (1%) rounded out the total shrink loss percentages
DON’T DISCOUNT ORC, IT’S A CHALLENGE FOR RETAILERS
ORC, thefts where thieves steal considerable amounts of product to sell later on the black market either online or at flea markets, is a real phenomenon, Trevor Wagener, the chief economist at the Computer & Communications Industry Association told The New York Times. According to his research on retail data, his insights revealed that organized groups were likely responsible for about 5% of stolen merchandise between 2016 to 2020.
While the NRF recently retracted an incorrect statistic attributing nearly half of all inventory losses in 2021 to organized retail crime, the fact remains that sophisticated syndicates are responsible for billions in annual losses.
Many retailers and trade groups, including the Washington Retail Association and Council on Criminal Justice, however, say that shoplifting is widely underreported and crime statistics do not accurately reflect the scope of the problem. One reason retailers don’t report these incidents? They’re afraid of losing their insurance, according to Mark Johnson of the Washington Retail Association.
ORC: CONSIDER THESE RECENT NUMBERS
The 2023 Mid-Year Organized Retail Report, published by D&D Daily and retail crime intelligence platform Auror, revealed that more needs to be done because:
- ORC cases increased 18% over the same period in 2022
- The dollar amount increased 131%
- The top 15 cases alone totaled $180 million, including an $86 million theft in Los Angeles, $3.5 million in a Kent, Washington pawn shop scheme, and $2.6 million in luxury watches in Staten Island, New York
Furthermore, the Retailer Industry Leaders Association issued a fact sheet in late 2023 to challenge perceptions about ORC. The organization’s article reiterates the challenges business leaders, law enforcement, and statewide prosecutors face, noting “retailers would not be locking up product, spending billions on theft deterrent technology, deploying more surveillance cameras and security guards, closing stores in high-crime areas and partnering with state attorneys general, Homeland Security and local prosecutors to address theft if it wasn’t a significant, industry wide problem.”
Recent ORC arrests, compiled each month by Loss Prevention Magazine, prove the point:
· Three suspects, allegedly responsible for stealing $650,000 in merchandise from 25 smoke shops, liquor stores, and high-end retail stores over a two-month period, were charged in Northern California
· A Washington man was charged with stealing $50,000 in goods from Target stores over a two-month period
· A San Diego woman was arrested for heading up a beauty product shoplifting ring and making nearly $8 million from stolen goods since 2012
· Combatting ORC also happens in the supply chain, as Kentucky State Police shut down an ORC ring responsible for stealing nearly $10 million in freight
“Everything points to a continuing increase in retail crime,” Cory Lowe, a senior research scientist at the Loss Prevention Research Council told Investors Business Daily.
LVT’S PARKING LOT CAMERAS CAN HELP RETAILERS FIGHT ORC
Using enterprise video surveillance cameras, like LiveView Technologies remote surveillance system, is one effective way to prevent ORC. Deploying LVT Units, backed by the LVT Platform and AI-powered analytics capabilities, is a proven proactive security strategy.
Our customers trust LVT to deter would-be criminals, defend their sites against bad actors, and help law enforcement investigate and prosecute crimes. Ready to learn more? Contact our team today for a demo.