The national media has suddenly discovered what we have been saying here since COVID hit: figures show that shoplifting is going way up. This video blames the cost of living, but the truth, I think, is the terrible state of law enforcement, which is what the retailers here are saying.

Here are some statistic from Victoria’s Crime Statistics Agency  who have just released their latest report.

Shoplifting offences had increased in the 12 months to September by 7308, or 27.9 per cent, to 26,229 – the highest on record.

I found some figures for some other states here. 

Western Australia recorded 7733 shoplifting offences from July to September this year, according to police data – up from 5421 in the same three-month period last year, and 5077 in 2019.

NSW reported 27,015 shoplifting offences in the 12 months to September, up 36.1 per cent from the 19,851 recorded last year and higher than the 26,883 recorded in 2019, according to the Bureau of Crime Statistics and Research.

Queensland reported 3153 shoplifting offences in March this year and has averaged 3035 per month up to November, higher than any other month recorded in publicly available data stretching back to January 2001.

South Australia reported 17,572 shoplifting offences in the 12 months to October, up by 4138 or 31 per cent on the year before.

How are you affected? As I explained here several times, the calculation to determine your shrinkage is relatively quick and easy to do. I suggest that you do it to see how you are affected. It is in your POS System, assuming you have done a stocktake.

I recommend calculating shrinkage for each department separately and then adding them together. This also allows you to identify problem areas.

(Shrinkage) = (Initial stock) + (Purchases) - (Sales) * (1-Margin) - (Closing stock)

If you lack stocktake data or want to do a quick calculation, use this simplified formula, which, based on my experience, gives reasonable figures and estimates. What we do is assume that your stock levels are relatively static, so we make

(Initial stock) = (Closing stock)

So, the formula becomes

(Shrinkage) = (Purchases) - (Sales) * (1-Margin)

As a quick rule of thumb, the shoplifting figure is a third of that figure; the rest will be divided up into other forms of shrinkage.

Many people want it as a percentage figure of sales, which is what most industry and legal bodies use, so use this formula if you want to share.

(Shrinkage %) = (Shrinkage)/ ((1-Margin) * (Sales))

Try this for your store. Knowing your shrinkage numbers is the first step to curbing shoplifting losses, as it will give you an idea of the extent of the problem. If should take you less then 30 minutes.

Conclusion

Determining the extent of your shrinkage losses is the critical first step. By calculating your overall shrinkage and estimating the shoplifting portion, you gain insight into this growing problem. Understanding your shrinkage empowers you to protect your retail business proactively. You accurately assessed your shoplifting epidemic, which positions you to combat it better.

From the results coming through from my clients' stocktakes, it is clear that shoplifting and retail shrinkage, in general, are significant problems facing retailers in 2023. Figures for retail shrinkage in 2022 were already high, with many blaming the impacts of COVID-19. However, emerging figures for 2023 seem to indicate the problem is worsening. Understanding the causes of retail shrinkage and implementing prevention strategies has never been more critical for retailers looking to protect their bottom line.

Major Causes of Retail Shrinkage

Many factors contribute to retail shrinkage, and awareness of these significant causes can help retailers target their prevention efforts.

Shoplifting

Shoplifting, or the theft of merchandise from a store by customers. It is the fastest-growing category. As a punt, it probably is about 35% of your total retail shrinkage. Shoplifters tend to move when the shop is busy. Often, they work alone and look for techniques to avoid detection. Once they find a method that works, they will target that method.

Some ways retailers can deter shoplifting include:

• High-quality customer service - Attentive employees who greet and assist customers can deter potential shoplifters. I believe that much shoplifting can be stopped by having grandmum stand in front of the shop and greet everyone as they come into the shop.

• Clear lines of sight - You must always give your staff good stock visibility of your stock. 

• Electronic anti-theft measures - Security gates, tagging merchandise, CCTV cameras, mirrors, etc. Even if they are not activated, their mere presence helps.

• Signage - Signs warning of video surveillance and prosecution of shoplifters. The best signs have images of eyes, which I discussed here.

  

• Secured high-risk items - Keeping expensive or frequently targeted items locked away. Your stocktake figures should be able to identify these items.

Employee Theft

Employee theft accounts are now estimated at about 30% of retail shrinkage. This can include stealing merchandise, giving unauthorized discounts, under-ringing sales, or outright theft of cash.

Retailers can reduce employee theft by:

• Background checks - Thoroughly screening job candidates for any red flags.

• Employee training - Comprehensive training on policies, expectations, and consequences.

• Accountable culture - Emphasizing integrity and deterring temptation.

• Transparent systems - Restricting access monitoring transactions. If employees cannot get into these systems, they do not know how they work.

• Hiring - Investing in hiring quality staff and training them thoroughly in policies, loss prevention, and inventory management.

• Frequent auditing - If possible, have every employee responsible for a till.

Return Fraud

Those without a good return fraud will get decimated by this fraud. Here, customers returned stolen merchandise and used fraudulent or stolen receipts. Retailers can prevent return fraud with the following:

• Receipt requirements - Mandating checks of all receipts used for returns.

• Camera -   Use your camera to match customers to receipts.

• ID tracking - Recording customer IDs with each return transaction has a significant impact.

Administrative Errors

Human and paperwork errors account are now estimated at about 15-20% of retail shrinkage. Preventing administrative errors involves:

• Employee  - Ensuring staff enter the correct figures into the computer.

• Goods received - These are matched to the suppliers' invoices.

Vendor Fraud

At around 5% of losses, vendor fraud happens when vendors deliberately short-ship or overcharge retailers. Prevention includes:

• Checking stock receiving - Invoices should be checked to ensure the quantity matches the invoice. Similarly, that credit for goods going back matches your vendors' figures.

• Checking prices - Do the invoice price details match what you were told? I have seen invoices with a much higher charge figure than quoted figures.

Damaged/Expired Goods

Damaged merchandise and expired perishable items comprise around 5% of retail shrinkage. This can be minimised through:

• Employee training - Handling goods properly, ensuring stock in the front window, if in the sun, is rotated.

• Inventory management - First in, first out stock rotation, monitoring expiry dates.

Audits and Inventory Control

Doing these shows that you care; they also show problems much faster than stocktakes at the end of the year. Use, if possible, use the cyclic stocktaking system in your POS System.

Frequent cycle counts, inventory audits, monitoring stock discrepancies, and keeping inventory organized.

Dedicated Loss Prevention Expert

Getting a knowledgeable loss prevention specialist to check your systems out may pay.

Assessing Current Losses

• This tells you the extent of the problem by quantifying current shrinkage levels and identifying problem areas. Drawing problem planograms in the shop of the problem places helps a lot.

A picture is worth a thousand words.

This image could be a planogram of your shop with your problem areas marked.

Blue = Good

Yellow = Moderate to bad

Red = Very bad

blank = Zero

See how it visually shows the problem areas.

Detail on how to do it are available here.

Continuously Evaluating and Improving

• Regularly reviewing audit data fine-tuning strategies over time.

Conclusion

Retail shrinkage through shoplifting, employee theft, paperwork errors and more continues to be a significant drain for retailers. Implementing the right prevention strategies tailored to your business, training staff thoroughly, leveraging technology and continuously reviewing audit data can help protect your bottom line. With proper vigilance and loss prevention processes, retailers can reduce shrinkage and improve profitability.

In reviewing your stock shrinkage, first, consider the four major categories. In order from highest to lowest, they are:

Employee/internal theft
There are bad people everywhere. No one knows your control systems better than your staff, and some take advantage of you. Dishonest staff will sell goods without being recorded. If I bet with you that one of my clients this month would call us about a bad employee, I would probably win. 

Shoplifting
Some shoppers do steal. This is particularly true of small items.

Sales errors, administrative and paperwork errors
Unfortunately, errors do occur. People do enter the wrong figures as they get careless and make mistakes. With computers, one error in a system often remains for all time. A special discount wrongly entered can result in customers getting a bigger discount than they should.

Vendor fraud or error
Unfortunately, it happens. The supplier, either on purpose or in error, makes mistakes. It does not seem to matter whether they are big or small; it happens with all. Again once it gets into your system, there will be problems. This is getting worse as we move from manual to electronic systems problems; we lose the extra layer of security in manual entry. Today if a supplier makes an error, it can get imported into your system without review. 

 
Your first prevention strategy for stock shrinkage is to review locations.

This is very easy to do in our POS system, almost trivial once you have done a stocktake. 

Go to the stock-taking section.

Now, look at the variances. 

Now review the places in the shop that have high values. 

A helpful practise here is to go to the area:

Now run through the stocklifting categories above. If it is in an area where only staff can go, warning bells should sound. 

Now imagine that you are a shoplifter. The fact is most shoplifters plan so:

*How would you do it? 
*Why pick this area? 
*Why were these goods picked? 

One client of ours had a relative come to the shop and act out being a shoplifter. It proved quite a useful idea.

Now consider moving items from there; moving mirrors, cameras, and shoplifting signs should be considered. 

Often minimal changes at no cost can result in dramatic reductions in stock losses.

This COVID pandemic has proven to be a boom for shoplifters. The current big problem is that it's harder to identify shoplifters as they tend to wear a mask.

Once they have the mask, a CCTV camera often can no longer be used to identify people to the authorities. Nor can camera photos in front of the shop or Facebook posts shame people.

Note: A retailer can ask a person to remove your face mask to confirm their identity. Yet, the person does not have to do it.

Overseas reports are reporting that shoplifting as a result of COVID has skyrocketed. Although no figures have come forward for Australia now, as we tend to get these only after the stocktakes in the mid-year. It is almost certainly true now in Australia too.

Unfortunately, it does not take much to turn a slight increase in shoplifting into a crisis. Depending on your margins, a 1.4% stock shrinkage could amount to a 20% loss in profits.

Much of the problem now, I am sure, is because most shops are desperately keeping staff to a minimum to hold off cost pressures that are forcing prices up in an attempt to combat surging inflation and supply chain disruptions.

Consider a check of some of your shop to give you a feel of how you are affected. This is easy to do; follow the documentation on stocktaking in your point of sale software. Fortunately, we did increase the flexibility of the stocktaking procedures last year, so making it easier. What you do is divide some parts of your shop into several small areas. The size of the area is that one person can do in two hours. Keeping the locations to manageable size means it can be stopped and started as the shop trading conditions change.

This will give an exact figure in your discrepancy reports. These are invaluable for examining your shoplifting problem.

This will enable you to make informed business decisions.

Now you have done your stocktake.

It is a simple calculation for you or your accountant to do to determine your stock shrinkage. 

(stock shrinkage)= (opening stock) - (closing stock)+(purchases) -(Total sales at cost price) 

Generally what we do now calculate it as a percentage of sales, so it becomes = (stock shrinkage)/(Total sales) x 100% 

Although often people use, shrinkage by stock value which we do in two steps.

(Average stock holding) =((opening stock) - (closing stock))/2 

(shrinkage by stock value)= (stock shrinkage)/(Average stock holding) x 100% 

So now you know your stock shrinkage, so you have an idea of how big a problem you do have. 

As a punt, I would say that it will be about 1.4%, but it does vary a lot.

One client of ours reported that it was less than 0.1%, which is the best figure I have ever seen. I have also seen a shop which a receiver told me it was 6%, which is no wonder a receiver was there. 

I do suggest that you do these calculations because if you do not know it, what can you do to fix it? Some significant reasons would be.

1) Customer theft - The five-finger discount

2) Damage - We had one furniture shop that was recording huge numbers of damaged goods somewhere between receiving and customer delivery.

Goods that suffer a significant damage problem should be moved to a safer place. I know a shop that after calculating their damage rate stopped handling glass products.

3) Supplier fraud - Which is all too often, although many suppliers claim they are accidents, I am not so sure. The result though is that a supplier bills you for goods shipped, but for some reason, you did not get.

4) Staff theft - I have seen retailers in tears when they discovered what a valued staff member has done. In my experience, this is zero or 100% of the problem. If you have some virtual products, e.g. lotto or telco this can be a measure here. As a rule, experts say that it accounts for half of all retail shrinkage which means that its the most important item. 

5) Administrative errors - are pricing mistakes and sloppy bookkeeping.

For the others as a first guesstimate, most people assume that each of the above factors is equal.

In the retail world, shrinkage is a part of life but, does not mean you have to give away so much. 

Depending on your margins, a 1.4% stock shrinkage could amount to a 20% loss in profits. 

The following are a selection of points from the newest US study on loss prevention; you can read the full list here. [Link removed]

The average shrink rate is now 1.33%, which is slightly up on previous years.

41% of retailers surveyed reported increases in overall inventory shrink.

36.5% of shrink is external, due to shoplifting and ORC, outpacing shrink caused by employee theft, vendor fraud and administrative errors. 

44% of shoplifters interviewed said that if an employee paid attention to them while they were committing theft, it would deter them. 

Here is one that was quoted to me not on this list one in 34 retail employees have been in the USA charged with shop theft. 

 Woolworths is now following Coles’ lead in installing large security cameras and screens on the top of self-serve checkouts.

This is being done worldwide. Here is a picture of Tesco, a large chain in the UK doing it too.

The public does not like it, but there is no choice. Shoplifting is now such a big problem. The figures quoted for Australia range from about 1.3% to 3% of retail sales depending on who you talk too. Among my clients, I have seen numbers when we calculate it between less than 1% to over 4%. The 4% guys did not last very long. 

If you want to know how to calculate your figures, I have written here a step by step approach.  Using this approach in less than an hour, you should be able to get a pretty good feel of what size of a problem you have. If you cannot use current figures, use last financial year and do not be too concerned if some values are a guess. In my experience as long as you are reasonably sure, it should be good enough to give you a decent feel. Trust me, doing nothing and being ignorant of the figure is not better.

I would also recommend that you seriously consider following Coles and Woolworth's lead in putting up such large security screens.