Whoever coined the phrase that crime doesn’t pay obviously never looked at the statistics on retail theft, which is costing the industry billions of euros annually.
Elsevier Food International, Vol. 7 Number 4, November 2004
Len Lewis

In the US, overall shrink seems to be as pervasive as ever with retailers losing as much as US$46 billion annually to employee theft and shoplifting.

There is some indication that intensified loss prevention efforts have enabled retailers to get a better control over shrinkage related to employee and customer theft. This is underscored by a recent study published by the Centre for Retail Research in Nottingham, UK, which reports that retail shrink declined in most European countries last year, with supermarkets and hypermarkets achieving some of the biggest drops.
While similar data is not available for the US, overall shrink seems to be as pervasive as ever, with retailers losing as much as US$46 billion annually to employee theft and shoplifting. This figure is tied to several factors including tough economic times, the failure of the justice system and the failure of many companies to look at theft as anything more than another balance sheet expense that is carried forward year to year.

Conservatively speaking
A study published by the University of Florida conservatively estimates total yearly retail shrink in the US at US$33 billion. About 32 per cent is from shoplifting, with 24 per cent from employee theft at the registers and 24 per cent from employee theft on the selling floor and at the back door. Another 15 per cent of shrink is also attributable to administrative errors while five per cent is the result of vendor fraud.
Moreover, the magnitude of employee theft is usually far greater than it is from external factors. The average loss per employee theft incident is US$1,341 while the average loss from shoplifting is only US$207. Only 2.43 per cent of retail thefts result in a recovery. In other words, for every US dollar recovered another US$40.08 is lost to retail theft.
Furthermore, theft has broader implications. Stores suffer as a result of lost profits, employees lose their jobs as a result of cutbacks in staff or layoffs and consumers are penalised by higher retail prices.
Basically, a certain amount of theft has simply become a fact of life in retailing where about 20 to 30 per cent of applicants seems to be inclined toward some form of theft, according to Dave Arnold, vice president, development and professional compliance, Pierson Reid London House, a Chicago-based employee assessment and development company. “There is some variation based on the economic climate. But for the most part, given the right lack of internal controls, these are the people who have a proclivity to steal.”

Bottom-line impact
The supermarket industry has the lowest margins in retailing. If anything leaves the back or front door without having been paid for, it has a significant impact on the bottom line.
This issue of employee theft in food retailing was the focus of a 2003 security and loss prevention study published by the Food Marketing Institute, which surveyed 50 companies operating nearly 14,000 stores with about 1.4 million employees.
About 30,000 incidents of employee theft were reported in 2002 among companies responding, an average of 634 per company. Approximately 42 per cent of employee theft took place at the checkout, with sales areas accounting for 25 percent and the customer service counter 11 percent. Backroom theft was responsible for an additional nine per cent. Nearly a quarter of the incidents involved cash with another 22.6 percent attributable to stolen merchandise.
On the customer side, 227,869 shoplifters were apprehended among all companies surveyed.
The most frequently shoplifted items included health and beauty care products, meat, and razor blades. Moreover, an average of 5.8 million bad cheques were responsible for a loss of US$316 million. The average value of each bad cheque came to US$73.60 with the average  loss per store at US$9,364.

Technology lags
Despite pervasive theft among employees and shoppers, relatively few companies employed technology solutions to prevent or reduce it. Across all companies surveyed only 30 percent of the stores had electronic article surveillance (EAS) equipment.
About 16 per cent of stores used digital video surveillance but 73 per cent of stores had electronic DSD receiving systems. About onequarter of companies surveyed used security guards.
The vast majority of retailers use some kind of reference check on new staff. However, this only prevents some negligence in hiring since previous employers rarely give out candid information on individuals. “This means that a lot of people with the potential for theft are not screened out by reference checks. Moreover, if employees are young, records on past offences may be sealed. We’ve developed integrity and honesty testing to predict whether an individual will take money or merchandise and even whether they’ll show up for work on time and be productive,” said Arnold.
The news on retail shrink is not all bad. Looking at the Centre for Retail Research theft barometer, shrinkage in supermarkets and hypermarkets declined 5.2 per cent last year, outpaced only by shoe and leather stores and hardware/do-it-yourself/furniture outlets.
However, in the UK alone, it is still running about €15 billion annually. The cost of prevention and investigation add another €1.8 billion to the cost. Average shrink throughout Western Europe declined to 1.37 per cent of sales from 1.45 per cent a year earlier. However, this still amounted to €75 per person. The barometer’s figures differ slightly from other sources in that retailers said that 48 per cent of shrinkage is the result of customer theft with employees responsible for 28 per cent and suppliers seven per cent.

Zero tolerance
This level of theft makes it imperative for companies to identify prospective employees that pose a potential risk and to institute zero tolerance policies under which offenders are immediately terminated, according to Arnold.
The question is whether companies are willing to prosecute as part of this zero tolerance policy. “More are willing to do so but not the vast majority. You have to balance your interests. It takes time to go through the legal process and sometimes it’s better to just truncate the relationship. Being a lawyer, I am familiar with litigation. You can be in the right.
But ask yourself whether you want to spend $500,000 proving someone owes you US$25,000.”
While it is logical to assume that only a small percentage of those who steal are apprehended and an even smaller percentage of losses are recovered, employers should resist the temptation to correct the situation by going too far and assuming all employees are stealing from them. “If employees pick up on the fact that they’re not trusted, it becomes a selffulfilling prophecy,” said Dr Richard Hollinger, author and professor of sociology at the University of Florida, whose recent work has centred on employee theft. “Lack of trust breeds a culture of dishonesty and if everyone is assumed to be a thief, then they might as well steal,” he said.
Rather, Hollinger urges companies to develop consistent loss prevention policies to prevent a knee-jerk reaction to minimal problems as well as under reacting to critical issues. “Employees sniff out inconsistencies like a shark smelling blood in the water.” This is especially true when they believe the company they work for really does not care about their wellbeing and would not hesitate to fire them for minor indiscretions, said Hollinger.
Perceptions are also altering employees’ view of corporations at a time when senior executives are in the headlines accused of pillaging their own companies. “Employees take their cues from senior management. You’ve heard of trickle down economics. This is the trickle down theory of honesty, integrity and ethics,” he said.