Workers steal 33 per cent of all lost goods at retail stores: study

Retailers who want to reduce their shrink rate might want to take inventory of their staff.

A whopping one third of all lost merchandise disappears because of employees who steal, according to a study by the Retail Council of Canada and PricewaterhouseCoopers (appropriately released around the spookiest day of the year, Halloween). That figure is up from 19 per cent in 2008.

“A dishonest employee with inside knowledge of retail operations and systems has the ability to do more harm than typical shoplifters,” Paul Beaumont, director of PWC’s Canadian Retail Consulting Services practice, said in a press release.

Indeed, external theft is on the decline, accounting for 43 per cent of all retail shrink compared to 2008’s 65 per cent. Paperwork errors are another biggie, at 20 per cent.

Shrink, which is an industry term for loss of inventory caused by everything from inventory mistakes to damaged products, costs Canadian retailers about $4 billion each year. That’s an average $10.8 million per shopping day.

“To put retail shrink in perspective, total dollars lost to shrink is almost the same amount as the total investment made each year by the entire Canadian retail industry in their IT departments,” noted Beaumont.

Given the shifts in the sources of shrinkage, many retailers are changing their approach to theft. The study shows more than 65 per cent of retailers always using recording systems, mirrors, and tip lines – a sharp increase from 2008, when only 39 per cent said they employ these tools.

On the other hand, alarms on merchandise are plummeting in popularity. Today, only 35 per cent of retailers say they frequently use the technology compared to almost three-quarters in 2008. This decrease may be explained by anecdotal reports that putting alarms on products can affect sales.

As for sticky-fingered employees, RCC’s vice-president of operations said retailers have room to improve.

“While retailers have done a good job implementing many important loss prevention measures, the need for strict internal policies and procedures as well as performing pre-employment screening and criminal background checks before hiring new staff are important actions that mitigate risks and will help reduce losses in the future,” noted Stephen O'Keefe.

The study revealed a marked decrease in the number of companies that request new hires to pass police checks.

What should a retailer do if one of their employees is caught in the act?

PwC’s Beaumont said a heavy-handed approach may be the most effective. “Retailers that respond with a severe punishment for an employee send a clear message throughout their organizations that there is zero tolerance for dishonest behaviour.”

That may be why some 88 per cent of retailers say they charge employees who steal merchandise criminally.

Alcohol, clothing, cosmetics and fragrances are the most targeted categories, according to the study.