In the UK, shrinkage levels are finally falling, but how have retailers tackled theft and does it mean the battle against retail crime is finally being won?

 

There is some good news at last in the battle against retail crime. After three years of shrinkage rising in UK retail, it’s falling.

The not so good news is that this isn’t down to falling levels of criminality, or a greater focus on the impact of retail crime from the police. But what it does show is that measures being taken by retailers to stop criminals in their tracks appear to be working.

The revelation - in the 2010 Global Theft Barometer, published by the Centre for Retail Research (CERR) on behalf of Checkpoint Systems - should get a cautious welcome from retailers. Total shrinkage in the UK came in at £4.4bn, or 1.29% of sales. It’s a huge amount of money - the highest of any country in Europe - but 5.8% down on the 2009 figure, when shrinkage represented 1.37% of sales. Yet attempts to steal were up by a third. So what’s going on?

It seems that in the face of the recession and the difficulty they have faced in growing top line sales, retailers have placed more weight on protecting the bottom line, of which loss prevention is a key element. It also leads to out of stocks, which means lost sales.

“In many ways a couple of years ago the issue was whether retailers could survive the recession, which led to last year’s spike in losses,” says professor Joshua Bamfield of the CERR, who authored the research. “But as we’ve come back from that, crime has moved up the agenda and everyone is much more anxious about it, and in a desperate economic situation one of the few sources of profit most easily available is reducing shrinkage.”

This has made investing in loss protection seem like good economic sense, both in terms of training staff to be more adept at spotting thieves and by spending more on systems - whether CCTV, electronic article surveillance or data mining. Retailers in the UK spent £970m on security, representing 0.29% of sales.

House of Fraser head of loss prevention Jerry Carter backs up the report’s findings. He says the company has just completed its autumn stocktake, focusing on the company’s highest risk stores, and achieved the best result ever.

Technology has played its part in House of Fraser’s success. The company has been using 3D tags on high-risk products that don’t just activate an alarm if they are taken out of the store, but also within the store if the tag is tampered with.

But Carter says that no matter how good technological advances are, the role of people in stores and head office is what has been fundamental to the company’s success in managing its shrink. “It’s down to hard work from everybody. We engage all the staff, get them involved, and where we have problem stores, spend a lot of time with management and staff. You’ve got to cover the fitting rooms, make sure the guards are alert and make sure the back doors are secure.”

Internal communications

Clothing retailers like House of Fraser suffer worst from shrinkage, although all categories - with the exception of toys and health and beauty - have experienced lower levels of shrinkage this year. Footwear and discount retailers have the lowest rates of shrinkage, probably owing to the way products are merchandised in the case of footwear, and the low value of items sold in discount stores.

Staff training has become a vitally important part of the mix of retailers’ investment in the light of the high proportion of the total that internal theft represents. According to the report 36.8% of the total UK shrinkage is accounted for by internal theft, the highest level of any country in Europe, although Bamfield cautions not to read too much into this figure, which he attributes at least in part to UK retailers being better at spotting when staff theft is taking place. However, with only 4% of thieves apprehended in Europe being staff and 96% being shoplifters, there is clearly more work to do.

“A lot of effort has gone into staff training,” says Checkpoint Systems sales and marketing director Russell Holland, who adds that at a time when staff know their businesses are under pressure and may not have had a bonus or a pay rise, they might be more inclined to report colleagues who they suspect are stealing from their employer. While most staff are honest, systematic theft on a sustained basis by those determined to steal from their employer can mount up to huge losses.

However, protecting individual articles has also become more important as the value of items stolen has steadily fallen. A third of UK retailers still said shoplifting incidents had increased, and retailers are now protecting everything from power tools to fragrances to meat and cheese, which have proved attractive to those who have turned to petty crime during the recession rather than career criminals.

“You get more amateur thieves who aren’t trying to make a living out of it but just trying to reduce the cost of living,” says Bamfield.

Organised crime

However, Carter says that professional villains still represent the lions’ share of crime in House of Fraser’s stores, and there continues to be a much greater problem at stores within the M25 than elsewhere in the country.

“The majority that cost us money are those who are organised in some way, shape or form, and who have ways of getting rid of it,” he says.

Another regular concern is the growing use of violence by retail criminals, even when it is lower value items that are being stolen. “Everybody is reporting an increase in violent attacks,” says Holland. Yet the response of the police is often described as disappointing. “Our retail partners would like a lot more support,” he adds. “Cases even of violent theft don’t get a prosecution. The police feel that they have higher priorities.”

While suppliers represent a smaller proportion of stock loss in the UK than elsewhere in Europe, protecting stock at source helps to cut out all the different opportunities for it to be lost. Increasingly brand owners and retailers are working together to protect products and RFID technology has potential if it is linked into both the electronic point of sale system and the supply chain.

The growth of technology in many aspects of retail businesses has played a role in the longer-term decline of stock loss levels. “It’s at much lower levels as a percentage of sales now than in 2000, 2001 or 2002,” says Bamfield, which he attributes to the elimination of many of the errors that used to comprise a large element of retailers’ overall losses. Nevertheless, errors still account for 17% of losses.

Whatever the reasons, a decline in the level of loss from retailers has to be a good thing, even if shrink figures still remain higher than their 2008 level. However, there is no certainty it will continue and Bamfield’s view is that it might fluctuate like the economy. A genuine commitment to reducing shrink remains key, says Carter. “I’ve always had great support from management in House of Fraser, because the branded goods we sell mean we will always be targeted.

“But in some companies it’s a bit like a rollercoaster. They have a bad result and throw money at it, but they tend to react to a particular situation. It has to be all or nothing, and technology is useless unless you really look at how it works and engage staff to work with it.”

And the thieves continue to try to outwit retailers. Carter says the more organised criminal gangs are still favouring the use of bags lined with foil that, if made the right way, disable store alarms that detect tagged product going out the door. House of Fraser is having to deploy special barriers to counter the problem.

Thieves will always find ever more imaginative ways to get round the barriers retailers place in their path. Investing to keep up with them will be vital if this year’s gains against shrink are to be maintained.

Tackling The Problem

Retailers’ investment in tackling retail crime has been key to their success in getting shrink levels heading in the right direction. By far the most widespread technique employed is staff training to spot and deter theft, implemented by 92% of European retailers surveyed. 23% had employed more in-store security personnel, while 22% had increased pre-screening on employees.

But a third said they had increased spending on hardware and software that prevents crime. A quarter had upped spending on electronic article surveillance tags. CCTV also remained a common way of dealing with the problem, with 22% of European retailers surveyed saying they had invested in it.

Retail crime ranking: Where the UK sits within Europe

Looked at against its European peers the UK sits right in mid-table, with shrink representing 1.29% of sales, exactly the same proportion as the European average. If Russia, which has the highest shrinkage rates anywhere in Europe by some margin, is taken out of the average, the UK’s shrink rate is slightly above the average of its European rivals.

In general, and perhaps unsurprisingly, eastern Europe dominates the table for the highest rates of shrink, with the Baltic States, Czech Republic, Hungary, Slovakia and Poland all having high shrink levels. Turkey comes second behind Russia, but Western Europe has its problems with Belgium and France well above average, and Ireland too, perhaps reflecting the magnitude of its economic problems relative to the UK.

The list of countries where shrink levels are lowest also contains few surprises. Austria is the only European market surveyed where shrink represented less than 1% of sales, but Switzerland, and Germany also benefit from noticeably low shrink levels.

On a global level, perhaps the starkest comparisons are in the Asia Pacific region. While Taiwan is lowest, and China - especially Hong Kong - has very low shrink levels, India has some of the highest in the world at 2.72% of sales. Even so, that’s a decent fall from last year, when it was running at 3.2%.