A Shift in Crime or Flawed Perceptions?
The danger in guessing shrink contribution
I read this year’s National Retail Security Survey and it was nice to see such a large shift in human behavior. According to the recent survey, employee theft’s contribution to shrink substantially fell to 34%. That’s a decrease of over eleven percentage points since 2010 and a decrease of five from 2012.
And probably, most likely, quite…flawed.
Now don’t get me wrong, it’s not just that I have to update my sales deck that I am suspicious. Although I was immediately skeptical of the figure, I conducted some quick “back of the envelope math” to see if it made sense. I also relied on several other sources and over twenty five years of experience in coming to the conclusion that loss prevention professionals are making a big mistake if they use these opinions as reason to shift their focus away from internal theft issues.
Here’s why —
I’m a criminologist, not a mathematician and I don’t have access to all of the raw data in the study, but I am a fan of Occam’s Razor . . . The simplest is usually the best . . . And the simple math makes me cynical.
The hundred respondents reported 834 employee apprehensions at an average admission of $1,546.83. They also reported 3,455 shoplifter apprehensions at an average of $318 per case. So “captured” loss recovery looks like this:
Employee Theft: 834 X $1,546 = $1,289,364.00
Shoplifter Theft: 3,455 X $318 = $1,098.690.00
These numbers demonstrate that employee theft apprehension dollars were 17% higher than shoplifter apprehension dollars and that employee theft dollars represented 53% of the total of both.
Now these figures don’t tell me the total actual amount of theft committed by each type, we only know what was captured in the 100-company sample that reported. We do know that there were four times as many shoplifters apprehended than employees and that an average employee stole five times more than the average shoplifter. Based on these numbers our “best guess” would be that employee theft causes at least 17% more loss than shoplifter theft… not 4% less as the survey responses contend.
It’s important to also note that the estimated losses in 2014 of 44 billion dollars are almost identical to the 44.2 billion lost in 2012. The large shift in “contribution” requires we believe that employees did a big turn around and stole less, but that shoplifters increased their stealing to make up almost the exact difference. Unfortunately the cases and actual numbers don’t suggest that at all.
It’s probably safer to assume that if “you like your doctor you can keep your doctor”.
But…but…but… there are many more shoplifters we don’t catch!
Very true, but if that applies to shoplifters then it applies to employees, so it doesn’t matter how many zeros we add to one side of the equation because we will add in equal proportion to the other side…unless one argues that we catch a greater percentage of the dishonest employees than we do dishonest customers, but that’s a “guess” not supported by the study.
ORC is a big problem!
Yes it is. And it’s been a big problem for several years; in fact, at LPI we believe it to be big enough that we offer our BlueTracs ORC solution to help improve investigations and resolution with smart technology.
Sales pitch aside (although you really should contact us for a demonstration of BlueTracs), with the support of law enforcement, technology, and investigative teams, we’ve started to turn the tide on ORC. Many large groups have been captured and their operations dismantled, so although it continues to pose a threat, our greater focus on the issue may make it appear “bigger,” but we don’t really know if we are measuring “increased” activity or increased awareness.
We’ve Been Here Before
The danger in “guessing” at contribution, especially when its not supported by facts, is the potential results from that change in focus. Internal theft has been and will probably continue to be the largest contributor of merchandise loss. You may recall what happened back in 2007 when we all jumped aboard the ORC train. As resources switched over to combat the problem, we lost some of our internal efforts and the following year … average reported shrink jumped from 1.44% to 1.51%. Fewer dishonest employee apprehensions always result in higher losses. The math is right up top—you need 5 shoplifters to offset a single dishonest employee.
You Stand Where You Sit
Humans are notoriously bad “self-reporters.” In loss prevention we know it, it’s why we don’t put a lot of faith in “self-audits.” Shoplifting is also a “louder” event in terms of associate and management reporting. When things go missing there aren’t many employees screaming that another employee “did it.” So it can seem that shoplifting is the “bigger” issue. It does in fact happen more often…but it doesn’t cost as much. So in terms of contribution, we have to remember to separate the “number of events” from the “cost of events.”
Balance and History
History proves time and again, that we get our biggest reductions by controlling the internal losses, be it theft or error. I believe sixty to seventy percent of that 44 billion lost can be reduced through better training, better policy and procedure, and more internal dishonesty reduction. An effective loss prevention program is about proper balance.
I have considered that my issue with the report may be driven by my “control-freak” nature. If the majority of our problem is external then we are limited in the things we can do to reduce the issue. An external problem also limits the help our store associates can provide. That doesn’t sit well with me. I think we can do something about our losses, well something more than just catch shoplifters and practice great customer service. I think we can reduce errors, improve compliance, increase communication of suspicious employee activity…and I believe the results of such will be substantially lower shrink.
But hey, I’m open to a counter argument. Do you think shoplifting is the biggest cause of shrink? Do you believe that although we had the same dollar losses there was a dramatic shift in the contributors?
Authored by: Ray Esposito