The Impact of Shoplifting on Retail and Inventory Availability

Shoplifting is a persistent issue that has a significant impact on the retail industry. In this blog post, we will explore the consequences of shoplifting on inventory availability and discuss the implications for retailers.

Quote: “Retailers are seeing unprecedented levels of theft coupled with rampant crime in their stores, and the situation is only becoming more dire. Far beyond the financial impact of these crimes, the violence, and concerns over safety continue to be the priority for all retailers, regardless of size or category”- David Johnston, NRF

Not surprisingly, retail segments such pharmacy, grocery, department stores and mass merchandise have average shrink rates of over 2%, while those in specialty apparel have average shrink rates of 1.9%. This further drops in luxury goods to below 1.5%.

The Cost of Shoplifting

Shoplifting not only affects the bottom line of retailers but also leads to an increase in prices for regular customers. According to a recent study by the National Retail Federation, retail businesses lose billions of dollars each year due to shoplifting. This loss directly affects the profitability of retail chains and their ability to provide competitive pricing. In FY 2022 retailers reported shrinkage that increased to 1.6%, up from 1.4% in FY 2021 and in line with shrink rates seen in 2020 and 2019. When taken as a percentage of total retail sales in 2022, that shrink represents $112.1 billion in losses, up from $93.9 billion in 2021. While retail shrink encompasses many types of loss, it is primarily driven by theft, including organized retail crime (ORC). Theft – both internal and external – accounts for nearly two-thirds (65%) of retailers’ shrink. However, for some sectors, theft can represent more than 70% of overall shrink¹.

CVS recently announced² that they will close 10% of their retail stores due to losses stemming from shoplifting and the escalation of violence threatening the safety of the staff.

Inventory Shrinkage

Shoplifting contributes to inventory shrinkage, which refers to the difference between the recorded inventory and the actual inventory on hand. This discrepancy can cause significant challenges for retailers in accurately tracking their stock and fulfilling customer demands. The constant threat of shoplifting forces retailers to engage in costly inventory management practices to mitigate the impact. The organized retail crime (ORC) continues to increase over 10% year-over-year.

The theft driven shrinkage leads to what is known as phantom inventory - systems consider inventory being in the stores which does not reflect reality. When items are out of stock, it further exacerbates the issue by poor customer experience and further loss in revenue.

Implications for Retailers

1. Financial Consequences

Shoplifting negatively affects retailers' financial health. The direct losses incurred due to stolen merchandise not only impact the profitability of each individual store but also the overall financial performance of an entire retail chain. As a result, executives and management need to be aware of the financial implications of shoplifting and develop strategies to combat this issue effectively. Not only does this impact cost but also top line as non-existing inventory cannot be sold to end customers.

2. Customer Experience

Shoplifting incidents can disrupt in-store experience for customers. Sweeping security measures and vigilant staff can create an uncomfortable environment, making regular shoppers feel scrutinized and unwelcome. This negative experience can deter customers from returning, causing a decline in sales and overall customer satisfaction. There have even been cases of upset people turning violent resulting in loss of life of staff. There is also a sizable impact in revenue and customer loyalty due to missing inventory that drives customers elsewhere looking for their desired brands and items. Finally, shopping experience can become cumbersome when daily staple like meat is protected by anti-theft devices or staff needs to deliver wanted items from store rooms or from locked cabinets.

3. Inventory Management Challenges

Inventory availability plays a crucial role in meeting customer demand. Shoplifting disturbs inventory accuracy and affects the ability of retailers to meet customer expectations promptly. This can result in a loss of sales, dissatisfied customers, and damaged reputation. Retailers must address these inventory management challenges effectively to minimize the impact on customer satisfaction and the bottom line. Obviously delivering more inventory to be stolen does not make sense but having inventory available for paying customer is critical. 

Strategies to Combat Shoplifting

1. Enhanced Security Measures

Investing in robust security measures, such as surveillance cameras, electronic article surveillance (EAS) systems, and trained security personnel, can act as a deterrent for potential shoplifters. Making these visible to customers can convey a sense of vigilance and discourage theft. Many retailers have moved frequently stolen and valuable items to back rooms or inserted anti-theft devices into them.

2. Employee Training and Awareness

Educating employees about the signs of shoplifting and providing training on how to handle such situations can greatly reduce losses. By empowering employees to identify and report suspicious activities, retail chains can strengthen their defense against shoplifting. Safety of the employees should always be the priority so educating them frequently with optimal approaches and operating procedures can balance the security and outcomes.

3. Collaboration and Information Sharing

Retail chains can collaborate with each other and local law enforcement agencies to share information and combat organized retail crime. By exchanging intelligence and identifying patterns, retailers can collectively work towards apprehending frequent shoplifters and preventing future incidents.

Conclusion

Shoplifting poses significant challenges for retailers, impacting inventory availability and overall financial performance. It is crucial to understand the consequences of shoplifting and implement effective strategies to mitigate its impact. By enhancing security measures, training employees, and fostering collaboration, retail chains can work towards reducing shoplifting incidents and ensuring a positive shopping experience for their customers.

In order to limit topline revenue impact, retailers should leverage artificial intelligence to predict shoplifting created stockouts. This will help retailers capture otherwise lost revenue and keep the top line growing. While these models help shoplifting caused stockouts, they also address the overall phantom inventory issue that has multitude of other root causes. Click here to read more about the Kloud9 approach to turning loss into a profit.