Retail Security Statistics 2009 Examined

How can retail security losses be used to justify the use of video surveillance and security systems?

Within the security industry, retail may be the most rigorously quantified market. Unlike many security applications that defend against very high value but rare instances (think government and terrorism), retail security deals with constant security threats that can be measured. This helps in calculating ROI for the use of technology systems such as video surveillance.

In October 2009, the annual National Retail Security (for the US market) was released. The headline was that shrink was up (from 1.44% to 1.51% between 2007 and 2008).

A main theme from the report is that while video surveillance is considered a 'hot' tool for retailers, it is one element in a larger system that requires other processes and technologies.

Comparing results of this report over the last 18 years, shrink appears to be reducing. In the early 1990s, shrink was close to 2% but now is down to approximately 1.5% of sales.

2008 shrink was up from 2007 (1.51 vs. 1.44). However, given the fluctuations and the variances in who answers the survey, it may be difficult to draw a definitive conclusion (for instance in 2007, the survey received 134 respondents but only 106 in 2008).

In overall dollar terms, the $36.3 Billion annual loss to retailers from shrink is an estimation based on multiplying the shrink rate of 1.51% times the $2.4 Trillion in annual sales for the US retail sector.

Shrink Variance by Segment

The level of shrink varied significantly by segment of retailer. While the apparel retailers had significantly above average shrink, home improvement and furniture stores reported very low shrink. Companies should keep this variation in mind as they target or build solutions for various retail segments.

Breakdown of Shrink

Shrink comes from different sources. This survey breaks it down into 5 categories. Only 2 of these categories represent opportunities for the use of physical security technologies - employee theft and shoplifting. The other categories including vendor fraud and administrative would have little to no impact from the use of physical security technologies.

Excluding categories that physical security technologies cannot impact, the 'addressable' shrink is closer to 1.2% (as 20% of total shrink is reported to come from administrative and vendor fraud issues).

Employee theft and shoplifting remain the big two drivers of shrink with 42.7% of shrink coming from employee theft and 35.6% from shoplifting.

The higher percentage of employee theft is especially important to security system providers that focus on the more visible but less costly issues of shoplifting.

For those interested in the breakdown of shrink categories by retail segment, review the report. One limitation to keep in mind is that certain categories have only 1 or 2 retailers reporting which increases the probability of inaccurate numbers.

Loss Prevention Budgets Falling

According to the report, LP budgets are only .34% of retailer's 2007 annual sales. Compare this to early in the decade when budgets were over .5% of annual sales. Of that budget, 30% was used for capital equipment such as security systems.

Loss Prevention Strategies

While security systems are components of loss prevention strategies, the report noted 3 equally or more important tactics:

• Pre-Employment integrity screening such as criminal conviction and past employment history check was classified as the first step.
• Loss prevention awareness programs were very common with over 90% of retailers using anonymous telephone hotlines and bulletin board notices
• Access control policies: The most common include refund controls and POS exception based reporting. Important for video surveillance professionals, over 90% of retailers reported using POS exception based reporting.