Explainer: The Myths and Realities of Retail Crime

A few months ago, someone walked into a suburban New Jersey department store, cut all of the security wires from a rack of Canada Goose coats, scooped them up and walked out the door right past a couple security guards.

“There was nothing we could do but watch,” a store supervisor told BoF.

Examples like this play into an ongoing debate: are retailers in the middle of a shoplifting crisis? Or is crime — even when it’s as dramatic as a thief boldly walking off with a rack of $1,000 coats — an ordinary cost of doing business?

Conversations around shoplifting started drawing more attention around this time last year. Viral videos of “smash and grab” and flash mob-style robberies at stores like Nordstrom, Lululemon and Burberry depicted dozens of people storming into businesses, shattering glass merchandise cases and raking full shelves of clothes, shoes and jewellery into bags. Organisations such as the National Retail Federation and the Retail, Wholesale and Department Store Union as well as big box retailers like Best Buy and the pharmacy chain Walgreens sounded the alarm on what they described as unprecedented levels of organised retail crime.

In a survey released last year, the NRF reported retail shrinkage — inventory losses caused by factors such as theft, fraud, damages or administrative errors — totalled $94.5 billion in 2021. The same survey found businesses are seeing a nearly 30 percent increase in organised crime, or the theft of items usually valued at $500 or more with the intent to redistribute.

The “everything’s fine” crowd has numbers it can cite too: shrinkage as a percentage of sales has remained largely unchanged for a decade at 1.5 percent. By that metric, the viral videos and news reports are putting a new spotlight on an old, and not particularly urgent problem.

Earlier this month, Walgreens’ chief financial officer James Kehoe told investors during an earnings call that the company may have “cried too much last year” about organised retail crime. At that time, Walgreens announced plans to close some stores in San Francisco — citing crime that was “46 times our chain average” — and hire additional security personnel in others.

Today, the retailer’s current shrink rate (or shrinkage as a percent of sales), he said, is roughly 2.5 percent, an improvement from about 3.5 percent in the prior year — but perhaps not worth the millions of dollars the pharmacy chain spent on security efforts.

Numbers alone don’t tell the whole story. Whatever the financial impact, customers and workers are worried about crime, but security personnel and locking products behind plexiglass are blunt solutions to a delicate problem. Pressuring employees to become crime spotters hurts morale during a labour shortage, and can take away from the customer experience.

Not to mention, an overemphasis on security measures can give shoppers the impression that everyone they pass in the aisle is part of an organised crime ring, that stores are dangerous or that they themselves shouldn’t be in the store.

Even if companies’ efforts result in a significant decrease in retail crime over the next few months, conversations around shoplifting could continue to ring louder. For one, videos of flash mob robberies make for plenty of social media fodder, and, if the forecasted recession takes hold, retail executives could start sounding the alarm on even a 1.5 percent shrink rate, said Jane Hali, chief executive at Jane Hali & Associates, a retail research investment firm.

“When times get tough, all these little costs start to matter more,” she said. “When business is good, no one’s worried about 1 or so percent.”

More Than a Numbers Game

Shrinkage can have a significant impact on employee morale and productivity — an issue that is especially challenging for retailers in the current labour market where many workers are willing to put up with a lot less than they did five years ago.

Being a victim of a violent theft incident is enough to push many people to walk away from a job, but inventory losses from shoplifting and fraud can hurt employees in a number of other ways. For commission-based workers, stolen merchandise means in-demand items may not be available for sale when shoppers come in, effectively dragging down their own wages. Being duped by a credit scheme, having a rack of coats stolen, or accepting a knock-off handbag as a return can lead to stress and frustration for retail workers and could even affect their department’s budget for expenses like marketing, Hali said.

At major retail chains, stores are often grouped together by region with each area overseen by its own managers. These groups run like individual businesses, budgeting for their own expenses like advertising and utilities. They also have to come up with their own plans for shrinkage, which can vary based on a store’s location and what it sells.

It’s been 20 years since Hali made the switch from working for retailers to advising investor clients at her research firm. But she still has vivid memories from her days as a merchandising manager at Macy’s worrying about how theft would affect her department’s performance.

“My shrink was always high because I was based in a major city… the person overseeing the Midwest [for instance] would always have really low shrinkage,” she said. “For me, it meant I would always have this big financial loss that impacted my costs as a buyer.”

In many cases, these instances may put nary a dent in a national retailer’s overall revenue all the while creating a whole matrix of challenges for a store manager, including tedious tasks like rummaging through receipts and feeling compelled to exercise extra diligence to spot crime and “making sure I don’t let someone get one over on me,” the New Jersey area store supervisor said.

“The store posts shortages and then we have to explain why something doesn’t add up,” she said. “They can come up and say, for instance, you took back a Moncler coat that was fake.”

A Work in Progress

Hiring security guards and working with local law enforcement remain the default methods to deter thieves. Some retailers are installing new technologies like cameras with licence plate recognition and deploying RFID tags, which can be affixed to merchandise and make it easier to track inventory, said David Johnston, VP of asset protection and retail operations at The NRF.

Unlike petty theft for “personal consumption,” said Johnston, groups that carry out shoplifting rings know how to game the system and outsmart many of the solutions retailers put in place.

The plexiglass enclosures that are cropping up at pharmacies, convenience stores and big box chains, he said, represent a last ditch effort by desperate retailers who are aware that this solution may help solve one problem while creating setbacks for employees and customers.

“Retailers don’t like or want the plexiglass,” he said.

Since many retailers believe the uptick in organised retail crime is being bolstered by online shopping and marketplaces like Amazon and eBay where thieves could readily offload stolen wares, the NRF is also pushing for the passage of legislation such as The INFORM Consumers Act, which requires online marketplaces to verify high-volume third-party sellers by authenticating the seller’s government ID, tax ID and other information.

“Many think that shoplifting is just a property crime and only impacts the profitability of a million-or-billion-dollar business,” Johnston said. “But trying to hire and retain workers in high theft environments is a major challenge.”