Retail Security Statistics 2009 Examined

By John Honovich, Published on Nov 03, 2009

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

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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.
 
Use of Video Surveillance and Security Systems
 
Retailers used a wide variety of security systems. Video surveillance was the second most commonly used system next to burglar alarms (with 90.5% using digital video recording and 92.4% reporting the use of burglar alarms).
 
However, in terms of what retailers were looking to add (considered 'hot'), video surveillance dominated with remote video, live CCTV, digital recording and POS/CCTV integration taking 4 of the top 5 spots (the other went to using POS data mining).
 
Only about 25% of retailers reported POS / CCTV integration currently. Given the almost universal use of POS and CCTV, this is notably but not surprisingly low. Integration between these two systems has always been difficult because of the numerous incompatible DVR and POS systems. However, this is certainly an opportunity for those that can address this deficiency.
 
This growth looks to be at the expense of guards (9.5% plan to reduce usage) and article tags.
 
Loss Statistics Useful in Building ROI Models
 
The report cites a number of interesting trends and relationships in shrink:
  • Average length of employee before a dishonest worker is caught is 10 months. Given the size of the internal theft problem, earlier detection could be a major value generator.
  • Most consistent indicator of shrink is rate of annual employee turnover (greater turnover, greater shrink - average turnover 76.7% sales associates, 31.9% management turnover).
  • Averaged admitted dollar loss for employee theft reported at $2,672 USD. If systems can catch or deter 1 or 2 employee thefts per site per year, the system may pay for itself (depending on the size of the store, total cameras deployed). Also compare to average shoplifting cost, which is significantly lower.
  • The average shoplifting cost is reported at $549.90 USD. 
  • Civil demand (or civil recovery) is increasing as a means for retailers to gain monetary restitution from shoplifters. This is an alternative to criminal prosecution. To the extent that civil demand's use and success increases, this will improve the value of using search tools. The historical limitation is that even if video or POS search found shoplifting, the likelihood of recovery was very low.
  • About 25% of shoplifting is attributed to organized retail theft. The average loss per ORC is $5,000 though the report does not indicate whether this is per event or overall per ring.

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