The final report of the 2010 National Retail Security Survey (NRSS) recently has been released in its nineteenth edition and has been posted on the web. This column is an executive summary of the major findings of this report.
This year, despite the fact that we are still mired in sluggish economic times, we can proudly report that 140 retail corporations sent in questionnaires. Not all surveys were fully completed, which caused some missing data problems. However, this response level includes 40 more firms than participated last year. This study would not be in its nineteenth year of reporting retail loss prevention statistics if it were not for the many loss prevention executives, directors, and managers who believe in the importance of this research effort and support it annually. For this we are quite appreciative.
While the data are reported anonymously, we can assure the reader that the 140 corporations that have responded to our survey represent the vast majority of the top 100 major retailers in the country. We believe that a good deal of this 40-company increase over last year's response is due in part to the decision to convert the questionnaire from paper-and-pencil survey to an online format.
If you are a regular reader of our report, you already know that there are always more similarities in the NRSS findings from year to year than differences. This is to be expected in a stable, mature industry that does not fluctuate dramatically in its loss prevention practices and asset protection procedures. However, there are some notable differences in this survey from the previous year's results.
Overall Shrink Rate. This year the overall inventory shrinkage rate of 1.49 percent was somewhat higher than reported in last year's survey. Despite this slight increase, the reader should note that over the past few years, inventory shrinkage continues to remain at the very lowest levels observed in the nearly two-decade history of this survey. We believe that this is remarkably good news and demonstrates clear and consistent progress in the war on reducing retail losses in spite of the present economic slump and the threat of organized retail crime (ORC).
The news is not all good, however. Although the shrinkage percentages are at significantly lower levels than observed during the very early years of the survey, the dollar value that this loss represents continues to remain at record levels due largely to an increase in U.S. gross retail sales. In other words, this huge $35-billion dollar loss is largely the result of moderate growth in the retail economy, not significant increases in inventory shrinkage percentages.
High-Shrink Segments. Supermarket/grocery stores, off-price/outlet stores, furniture, specialty accessories, men's and women's apparel, and discount stores all reported significantly higher than average shrinkage levels. This is largely due to the especially high desirability of merchandise sold in these particular chains, which makes theft much more attractive to organized retail gangs, amateur shoplifters, and employees.
Low-Shrink Categories. Alternatively, the lowest shrinkage stores—auto parts, tires, and accessories; women's apparel; drug store/pharmacy; books, magazines, and music; department stores; sporting goods and recreational products; home center, hardware, lumber, and garden; household furnishings and housewares; entertainment/media/games/music; shoes; children's apparel; convenience store/truck stop; office supplies and stationary; men's apparel; jewelry and watches; and electronics, computers, and appliances—generally have the most sophisticated security systems and additionally require customers to pay for merchandise before they are allowed to physically acquire their purchases.
Store Location. Stores that are typically located in strip centers reported a below average shrink rate at 1.39 percent, while stand-alone stores and those located in enclosed malls reported slightly above average shrink rates (1.50 and 1.52 percent respectively).
Shrink Source. Stability was seen once again in the respondent's assessment where they attributed the source of their retail inventory losses. In fact, both employee theft (45 percent) and shoplifting (31 percent) remained at virtually the same proportions as reported in last year's survey. Employee theft was the highest in places like household furnishings/housewares, shoes, and office supplies stores. Shoplifting was the highest in off-price/outlet stores; accessories; children's apparel; books, magazines, and music; men's and women's apparel; jewelry and watches; and women's apparel stores where the number of sales associates available to deter this crime is often the lowest.
LP Budgets. Fortunately, this year we finally can report a slight increase in LP budgets as a percent of total sales. Specifically, we found that 0.46 percent of retail sales were earmarked to fight the battle against loss, with most of this money going to fixed payroll expenses. With limited LP budgets and even less money for high-tech countermeasures, more of the day-to-day responsibility for loss prevention is being shifted to overworked store managers, untrained sales associates, and inexperienced LP personnel.
Diversity. Unfortunately, the diversity of LP personnel this year appears to be decreasing, most notably among women and African-Americans. However, diversity among Latinos and Asian-Pacific managers is increasing. The percentages of women, racial, and ethnic minorities are still well below national averages across the entire retail LP industry.
Prevention Tactics. Efforts are still being committed to pre-employment screening of applicants. During the coming year, the "hottest" screening countermeasure is expected to be criminal-history checks, followed by honesty testing, and computer-assisted interviews.
Employee loss prevention awareness is also receiving increased attention using the latest media and technology. Use of training videos as a loss prevention awareness strategy is expected to be the "hottest" awareness program this year.
Asset control measures remain the integral part of all loss prevention programs.
POS exception reporting, along with refund controls, are the hottest two new techniques planned for increased use in the coming year. As was the case last year, the newest technique against loss in this category of countermeasures is the implementation of sophisticated computerized exception-reporting software systems, many linked to high-speed broadband IP monitored CCTV cameras.
Among the various LP technologies available, the switch to digital CCTV cameras and recorders is all but complete. The "hottest" new LP technology is remote IP CCTV video and POS exception-based closed-circuit TV interfaced systems.
Internal Theft. When we looked at the most likely causes of inventory shrinkage, both sales associate turnover and heavy reliance on a part-time workforce are again the two most obvious correlates. As in past years' research, the NRSS examined the formal response to those detected for internal dishonesty and external crime. Apprehension and termination are the most common responses to employee theft. While prosecutions are threatened in most every firm, this year actual criminal prosecutions nearly doubled. More rapid detection of dishonest employees seems to be keeping the reported dollar loss totals down from last year.
And as for shoplifting, apprehensions and civil recovery are the most common responses reported.
Gift Cards. This year, we tried again to collect baseline data on gift card losses with marginal success. Missing and incomplete information continues to be a serious problem in studying this phenomenon. Although the dollar losses were higher than in 2009, we will have to wait for future years to get more stable comparison numbers before we can suggest any trends.
Burglary and Robbery. Lest we forget, burglary and robbery are still major and very dangerous sources of financial loss in the retail store. Burglary cases result in more average dollar loss to retailers each year and outnumber burglary cases (3.56 burglaries versus 0.52 robberies per $100 million in sales).
Financial Losses. Every year retailers incur staggering monetary losses as a result of employee theft, shoplifting, administrative error, vendor fraud, and cash, check, and credit card charge-backs. These statistics show that last year was no exception, with a $35.28 billion of lost profits forfeited to inventory shrinkage alone. The two largest problems continue to remain employee theft ($15.9 billion) and shoplifting ($10.94 billion).
The financial losses inflicted on the retail industry remain even more significant in their size and scope. One only can speculate how much more profitable this industry could be if these many sources of inventory shrinkage and other forms of financial loss could be significantly reduced.
Given the declining percentages of annual retail sales being dedicated by senior management to fighting this war on retail crime, the professionals in loss prevention and asset protection have been assigned a daunting task as they continually try to "leverage technology" and deal with reduced staffing. Clearly this report demonstrates conclusively that those companies that commit more resources to pre-employment screening, staff awareness programs, asset controls, and finally, loss prevention systems will be those that have the best chance to win the growing war against retail crime.