Global retail shrinkage to hit $115bn

More than half of retail shrinkage takes place at the P-o-S (picture courtesy of Bosch)

Global retail shrinkage is forecast to reach almost $115bn by the end of 2009, according to a new report from Datamonitor.

In its study, Using Business Intelligence and CCTV to Reduce Shrink in Retail (Strategic Focus), Datamonitor reports shrinkage from theft, crime and waste already amounts to over $100bn worldwide and is having a hugely damaging impact on retailers’ profit margins.

Over half of those losses are attributed to point-of-sale (POS) shrink, when loss is incurred through cashier error, theft and fraudulent pos transactions, said Datamonitor.

The research company is predicting retailers will invest in data mining used in conjunction with CCTV to combat shrink and improve the bottom line, as retail sales growth in the current economic climate is expected to be small or even non existent.

“Retailers have long focused their attention on customer merchandise theft. Efforts and big budgets have been spent on expensive closed circuit television (CCTV), digital recording, electronic security tagging, and alarms to prevent and monitor customer theft,” says Christine Bardwell, retail technology analyst at Datamonitor and the report’s author.

“But attentions are shifting. Over half of shrink can be attributed to internal loss, and general employee- and cashier-caused shrink, whether intentional or not, is a now a massive concern in most retail organisations.”

According to Datamonitor, the three biggest causes of loss at POS are cash theft, fraud and process error. ‘Sweethearting’, a form of theft involving collusion between an employee and customer, (usually a friend or family member), falls under all three categories, because it can involve cash theft and/or fraud and is very difficult to distinguish from process error. Retailers agree that process error and sweethearting combined, form the biggest part of loss incurred at the POS.

Datamonitor reports there are two technologies at the forefront of the fight against the major causes of shrink at the POS: data mining is used to identify patterns that identify cash theft, fraud, and process errors, and CCTV.

A data mining application is relatively inexpensive, according to researchers. It quickly highlights weaknesses and fraud in the system and has a huge deterrent effect: when stealing employees are caught, it will discourage others. It is also useful for picking up external crime scams such as organised refund fraud and credit card fraud, as data mining will quickly establish if a card has been cloned and is refunded at stores all over country.

The report claims data mining and CCTV have uses that extend beyond loss prevention, however. Retailers can also benefit by using them for marketing and merchandising. Data mining can assist in providing data for overall performance and, more specifically, basket analysis and customer loyalty. Video analytics can aid marketing and merchandising and staff training could benefit from CCTV footage.

Bardwell concludes: “Retailers need to be efficient in dealing with shrink. Loss prevention (LP) will be a high priority in the coming years because of the hard business climate so there will be growing pressure on retailers to invest. Using technology to uncover internal fraud quickly will enable them to discipline or retrain the staff responsible without further damage to the bottom line.”