Retail Theft at Record Levels, Supply Chains Adversely Affected

Shoplifting is at record levels ($115 billion from July 2008-June 2009) and this is causing supply chain problems, not only for the retailers, but also for consumer goods manufacturers.   

The Centre for Retail Research (CRR) published its annual Global Retail Theft Barometer report on November 10th. CRR interviewed 1,069 large retailers with total revenue of $822 billion. A summary of the report is available at here

Here are some of the key points:

  • The study monitored the costs of shrinkage and crime in the global retail industry between July 2008 and June 2009, and found that the rise in shrink occurred in all regions surveyed, with the greatest increase in North America (+8.1%), Middle East-Africa (+7.5%) and Europe (+4.7%).
  • Employee theft is perceived as the biggest contributor to shrink in North America, responsible for 44% of all losses. The average employee in North America stole nearly $1,900 per incident.
  • In 2009, some of the highest average shrinkage rates were found in apparel/clothing and fashion/accessories (1.84% of revenues) and in cosmetics/perfume/beauty supply/pharmacy (1.77% of revenues). In apparel/clothing and fashion, the highest shrinkage losses were seen in accessories (3.85% of revenues) and in fashion/tailored clothing (3.64% of revenues).  For food items/groceries, the highest shrinkage was reported in fresh meat with 3.38% of revenues.

So, why does this matter to supply chain groups?

As I’ve written about in the past (see “Should Logistics Personnel Work in Retail Stores?”), there is a growing trend in the retail industry towards having supply chain personnel work in stores, responsible for front-of-store replenishment. This means that supply chain organizations are increasingly becoming responsible for policing employees not only in warehouses, where that job is easier, but also in stores, where the task becomes more difficult.

But theft also creates problems for consumer goods manufacturers. Long term forecasting, replenishment, and the sales and operations planning process (particularly surrounding promotion planning and new product introductions) are all more accurate if consumer goods manufacturers use the most granular downstream data available. This means having access to store inventory, POS, and even syndicated and store loyalty data.  In short, when it comes to running an effective supply chain, using “sell-through” data (what customers are actually buying from stores) is far better than using “sell-into” data (what manufacturers are shipping to retail distribution centers).   

Take the forecasting problem. Apparel companies, which experience the highest shrinkage rates according to the CRR survey, benefit from POS data for sales forecast purposes, even if their supply chains are too long to benefit from more effective replenishment (most apparel supply chains begin in China/Asia and have lead times of up to six months). At the end of a selling season an apparel company might see a sales balance of zero for a particular SKU sold through a particular retail chain.  But this does not tell the company whether that SKU sold out early at full price or whether it had been marked down. Similarly, POS data can help a clothing company improve its forecasts by geography and type of customer. 

But that data needs to be both clean and accurate. Theft that occurs at retail outlets contributes to inaccurate perpetual inventories at the stores. 

But even if theft levels were reduced substantially, it would not solve the other big contributor to inaccurate sell-through data: poor scanning discipline at the cash register. The other day, for example, canned soup was on sale, so I bought ten cans, but three different varieties. All the cans were priced the same. At checkout, the clerk took one can and scanned it ten times (I hope she scanned it ten times and not eleven or twelve). This saved time, but the resulting sell-through data was inaccurate. Very few retail food chains have POS discipline (7-Eleven Japan is among the few exceptions I’ve come across). This discipline is much more common among apparel retailers because they are not dealing with volume checkout issues.

So, what can an upstream manufacturer do about this? From a technology standpoint, there are Demand Signal Repository applications from vendors such as Retail Solutions and TrueDemand that use advanced predictive analytics to predict when in-store perpetual inventory and sell-through data is wrong.

Comments

  1. This piece ties nicely back to your earlier blog entry on retail out-of-stock. I have gone on the record early and often regarding the limited advantage of RFID over bar codes. I think that for the most part the much cheaper bar code is adequate, however in the case of retail store inventory control, sales tracking and theft control, there are inherent advantages in using RFID where the cost is acceptable.

    The issue of theft is one area RFID has a good value, particularly in apparal. Many stores already use Sensormatic type tags for theft control and for them it could be a no-brainer since these tags can do RFID for stock management and theft control. For general retail merchants it becomes more of a cost trade-off issue due to low margin units and issues with tagging location. Embedding tags in packaging or price labels does not eliminate the possible of the thief removing the tag and walking out.

    In short, RFID tags could be a great theft deterrent, it is kind of hard for a novice to leave the store unnoticed. Professionals will of course figure out a way to mask the tag signal.

    The scanning disipline cans of soup problem is a bit more difficult, and will remain so until someone comes up with an RFID tag as cheap as printing a UPC code on the label.

    Steve Murray
    Supply Chain Visions

  2. There are two issues cited here. One is training which is on going every day in retail and the other is theft…again going on daily. I’d like to comment on the theft aspect.

    In a like study published by the University of Florida’s Dr. Richard Hollinger, apparel, specifically shoes, was the hardest hit shrinkage sector. But regardless of the technology of POS, RFID, Auto replenishment, and Sensormatic, the human element is the most difficult to manage.

    Retailers, including they supply chain, suffer enormous losses to employee theft and shoplifting. Walmart’s shrink last year was around 1% or $3B! The manner in which most retailers “guard” their merchandise is through Loss Prevention however that staffing is small and continues to decline in allocated payroll. Therefore that leaves everyone else to protect assets. When was the last time you saw an actual stop of someone based on a Sensormatic alarm? Employees are afraid to make those stops for many reasons but primarily because it is dangerous. There is some deterrent value but that is declining as well. Tags are not a deterrent to even the amature pros. Booster bags are too easy to make that shield the antenna. It truly is catch as catch can. RFID would help only is as much as a retailer could know exactly what was stolen and when. At least the information could serve a greater purpose in merchandise security.

    From the distribution side, service levels to stores is not necessarily impacted by shrink. Simply, they are out of stock too and stores can’t get the merchandise. Stores “always” blame the distribution centers for their out of stock condition when it’s more the issue of how goods are ordered. Don’t get me started on the buyer’s accountability on top of that.

    Bringing store operations and distribution together is a great idea but education, not policing, is the answer. That brings us back to the human aspect. Controls are managed by humans and not technology. The better approach, in my experience, is to bring the store people to the distribution centers for training and awareness. That exposure heals a lot of problems.

    The issues have not changed over time but the solutions to address them have. Their level of effectiveness is only as good as the people managing the process. Take some time to learn about Organized Retail Crime too. That will shock you.

    Pat Murphy
    President
    LPT Security Consulting