U.S. retailers stand to lose an average of 1.3% of sales through shrink, translating to $54 billion per year. Employee inventory theft is the largest area of retail loss today, accounting for 37% of total shrink. In addition, the advent of omnichannel retailing means increased opportunities for fraud.
These were among the findings revealed by The Volumatic Kount U.S. Retail Fraud Survey 2013, commissioned by Retail Knowledge, a UK-based retail fraud and loss prevention consultant. The report provides a detailed look into loss prevention efforts at 100 leading retailers.
Shrink rates varied by retail segment, from a high of 1.8% of sales for small-format specialty retailers, down to 0.9% for large-format specialty, hospitality and leisure retailers.
Across the board, theft of inventory (37%), followed by theft of cash (20%), were the largest internal, employee-related areas of retail loss. The second biggest factor of store loss was administrative or bookkeeping errors, at 23%. Shoplifting came in at fourth place, at 13%.
Other key findings from the study included:
- Credit cards, used universally by retailers online, accounted for 83% of all online fraud;
- Stolen credit cards accounted for 45% of all online loss;
- Online retailers pointed to poor analytics and monitoring (41%) and ineffective fraud detection capabilities (35%) as reasons for credit card fraud;
- Returns fraud, executed by both customer and employees, attributed to approximately 30% of all shrink;
- Retailers suffering the highest number of fraudulent returns included large-format specialty (0.6% of sales) and small-format specialty (0.5% of sales); and
- Mobile sales channels are overlooked in fraud prevention strategies, despite 34% of retailers now offering a mobile sales option available to their customers.
Omnichannel Retailing Means Omnichannel Loss
The study indicated that loss prevention is no longer the domain of the loss prevention department only. “As fraudsters utilize multiple channels to commit their crimes, loss prevention has become an inter-departmental concern,” said Paul Bessant, Managing Director of Retail Knowledge, in an interview with Retail TouchPoints. “Increasingly, other departments such as finance, operations, IT and HR have significant involvement in the design and implementation of loss prevention decisions. This cross-functional approach to preventing loss is becoming essential to fighting fraud effectively.”
While some retailers deploy specialists to manage loss in various channels, “there must be someone with overall business responsibility for monitoring and managing the ‘big picture’ of what is happening in all channels,” Bessant stated. Unless there is a single point-person responsible for the total loss prevention strategy, “the fraudster is always going to be one step ahead of the retailers.”
The survey provides empirical, independent data needed to create a compelling business case for broader loss prevention strategies, said Bessant. This data is crucial when seeking significant, often capital investments for a project.
In addition, survey data “helps the loss prevention community benchmark themselves against their peers and identify opportunities to engage with their businesses and each other,” said James Harris, Commercial Director of Volumatic, co-sponsor of the study. This approach can help retailers “win back some of the multi-billion dollar hole in profits that is being created through shrinkage.”
Study results also showed that “even the largest retailers may not be prepared for online, especially mobile fraud,” noted Don Bush, VP of Marketing for Kount, also a co-sponsor. “We hope the study helps merchants identify where their security strategy needs some work to ultimately decrease preventable losses.”
For more information about the study, click here.