Theft, fraud and crime are issues that face all retailers in every country. Some retailers in certain countries may be fortunate: their crime losses are lower than elsewhere. Retailers in the countryside tend to suffer from lower crime than those in densely populated cities. Be that as it may, to combat or prevent crime, even the most fortunate retailer has to spend money on procedures, training, security staff and equipment if the business is to keep crime losses low. The overall impact of crime upon retail businesses is massive.
For most retailers, it is fairly clear what the most stolen items are; nevertheless, retailers are normally only able to identify a small proportion of their losses through crime. They may not even be completely certain whether the majority of their losses are caused by ‘customers’ (shoplifters) or by their own staff.
Therefore, there are two ‘problems of crime’ for retailers. The first problem is, of course, the cost of crime. Simply to replace a stolen item costing €100, the retail business may have to sell additional goods with a value of up to €1,500. For some retailers, crime costs are equivalent to one-half or more of the surplus they make from their retail outlets. Because the actual net profit made by stores is only a small percentage of turnover, shrinkage costs of say 1 per cent to 2 per cent can have a major impact upon business performance.
The second problem is ignorance. If retailers do not really know where and how their losses occur or how they compare with similar retailers elsewhere, then it is impossible for them to take effective action.
The costs of retail crime
Our own research shows that in Europe, crime cost retailers €32, 867 million (US$43,403 million) in 2006. This was equivalent to a ‘crime tax’ on households of €178 every year.
These figures are drawn from the European Retail Theft Barometer, a survey of retailers in 24 European countries that we carry out every year and is now the largest survey of its kind in the world. The combined population of these countries is 461 million, which is obviously a lot smaller than India’s one million-plus, but the potential crime costs to be suffered by the expanding and dynamic Indian retail sector is immense.
Indian businesses have to face the possibility that part of the gains of progress may be taken from them by criminals.
The average overall rate of shrinkage (as a percentage of retail sales) in Europe was 1.24 per cent in 2006, a small fall from the previous year’s 1.25 per cent. Shrinkage, or stock loss, is calculated from the difference between expected receipts (based on deliveries to stores) and actual receipts, and is critical to close control of retail losses. However, shrinkage itself is affected by waste, accounting errors and poor price control as well as crime, which also need to be scrutinised regularly in order to keep losses under control.
Shrinkage in Western Europe has been falling since 2002, when it was as high as 1.77 per cent. In the former Soviet states of Central Europe, however, shrinkage now seems to be rising, as indicated by Table 1. Average shrinkage in Western Europe was 1.23 per cent in 2006, compared with the Central European figure of 1.35 per cent.
There are great differences between countries, which may reflect accountancy differences as well as actual differences in crime levels. The lowest shrinkage rates were: Switzerland (0.92 per cent), Austria (0.96 per cent), and Germany (1.07 per cent), which was similar to the pattern shown in the 2001 Report. The highest shrinkage rates were: the Czech Republic (1.42 per cent), Slovakia (1.40 per cent), and Hungary (1.38 per cent). The United Kingdom, which had suffered the highest rate of shrinkage in 2002, had made the greatest overall reduction in shrinkage by 2006 – to 1.33 per cent.
Sources of crime and shrinkage
In every country in Europe, customer crime is seen to be the main problem, accounting for 48.8 per cent of total overall shrinkage losses. Staff crime is seen to be a growing problem and the main retailers in every country are concentrating hard on how to combat employee theft. Losses caused by dishonest staff are now thought to be 30.7 per cent of shrinkage – an increase on 2001, when the Theft Barometer started. In the United States, staff crime is seen as the single-most important crime problem that retailers face. Many food retailers and mass merchandisers in Europe agree with their American counterparts that more is stolen by staff than by dishonest customers.
Policies and procedures, accounting systems, accuracy and better staff training are all ways in which retailers can reduce the share of losses caused by ‘internal error’. As well as focusing much more upon crime losses, Europe’s retailers have committed resources to making their internal processes more effective. Internal error can never be completely eliminated, but it should be possible to reduce it by 20 per cent or more in even the best-run organisations, thereby cutting losses and showing the most intractable problems that remain.
What goods are stolen
People will steal anything if they can, but the most likely goods to be stolen are small, expensive and sought-after branded items. These items are valuable in themselves, but are also most easily resold to other people. Table 2 demonstrates the most stolen items in Europe’s retailers. In the fashion industry, the main labels such as Armani, accessories, handbags, leather goods and perfumes are the most likely candidates for theft, but any type of clothing or footwear can be stolen.
Many individuals may steal for their own use. Others steal to resell to others or are part of organised gangs. In the latter case they may steal to order by style, size and colour, and there can be supply networks of semi-professional criminals trying to find out what ‘clients’ want and meeting these needs. While the occasional shoplifter may steal items costing €20 to €60 mainly for his or her own use, frequent offenders may steal up to €1,500 per day.
A major concern of retailers now is fraudulent refunds, involving refunds given against goods that were originally stolen, thus creating two sources of loss. For the criminal who steals a dress costing €90, the refund value is €90 instead of the €30 that the dress might fetch when resold in the neighbourhood as stolen property.
Security and the costs of crime
Retailers have spent large sums of security to combat crime, and total security spending in 2006 was €7,989 million. They have spent large sums on CCTV and have invested in electronic article surveillance (EAS). There is a current focus on the use of source tagging, where suppliers apply EAS tags when the goods are produced. An estimated 44 per cent of retailers (according to the Theft Barometer) are now using source tagging. As many of the companies applying source tagging are themselves Indian, introducing this among Indian retailers may not be so difficult.
Staff dishonesty is another focus area, and retailers are using staff training and a range of technologies including CCTV and detection software to combat this.
Protecting against crime
To fight retail crime, businesses need to set adequate budgets and to implement policies, procedures, plans, security equipment and security staffing. For crime, retailers need to work closely with each other: few criminals exclusively target only one store, so ‘my criminals’ are likely to be ‘your criminals’ as well. And they need to work closely with the police and the criminal justice system to ensure that crime against retailers is seen as a serious national concern rather than a lesser problem mainly caused by retailers ‘tempting’ customers.
The long-term importance of Indian retailing in the world economy has led us to include India this year in the Theft Barometer. The survey now becomes the Global Retail Theft Barometer and will include India, Australia, Japan, the United States, Hong Kong and Singapore as well as Europe. This survey, with all company data treated in strict confidence, will allow Indian retailers to benchmark themselves against the best not just in their own country, but also in other major countries in the world economy.
The major changes affecting Indian retailers over the next five years will have many effects, one of which is likely to be a sharp increase in the level of crime. As India becomes more successful and attractive commercially, this is seen as an opportunity for criminals elsewhere. The Centre for Retail Research has more than 20 years’ experience of retail anti-crime policies. It has partnerships with other companies giving it a deep understanding of retail crime issues. The Centre is in a unique position to assess the current and potential crime problems facing retailers in India and to provide support for them in combating crime.
No one knows whether the crime problems in India are primarily customer-based or staff-based, or indeed what the pattern will be like in five years’ time. Accurate information is critical. Retailers have to be alert to the fact that there are a large number of potential sources of loss. The war against crime and loss is a war of constant attrition where the enemy is constantly probing to find weaknesses: the retailer needs to get right many small things rather than implement one or two major policies.