Photograph by Chris Fertnig—Getty Images

It's a costly problem undermining profit growth

By Phil Wahba
June 24, 2015

A shoplifter swiping a book at Barnes & Noble BKS or a Dollar General DG cashier stealing a pack of smokes might not be committing the crime of the century. But such transgressions across hundreds of thousands of stores in the U.S. add up to a $32 billion problem.

That’s about 70% of the inventory ‘shrinkage’ — a retail-industry term encompassing loss due to shoplifting, worker and vendor theft — retailers endured last year, according to a new study released on Wednesday by the National Retail Federation.

Shrinkage, along with administrative errors, cost U.S retailers about 1.4% of their 2014 sales, according to the report. That’s particularly painful at a time when retailers from Walmart WMT to Macy’s M are fighting for every dollar of sales growth they can get, and countless others are dealing with thinning profit margins.

According to a survey conducted last spring of senior loss-prevention executives at many retailers, shoplifting accounted for 38% of the shrinkage, followed by employee theft at 34.5%. A majority said shoplifting was a growing problem.

“A common misperception about shoplifting is that retailers can ‘afford’ the loss of a candy bar or a pair of jeans. But the truth is that the industry loses billions of dollars,” said NRF CEO Matthew Shay.

Walmart US CEO Greg Foran earlier this month told reporters that one area of opportunity for the discount chain to improve its gross margin would be to put a dent in shrink rates. Walmart loses about $300 million a year to shrinkage. If its shoplifting and employee-theft rates are in line with the industry average, then those crimes alone cost it $200 million a year.

Supermarkets and grocers lose the highest percentage of sales to shrink, seeing an average of 3.23% evaporate, or 2.5 times more than the industry average. Department stores face a less acute problem, losing 1.27% of sales.

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