Introduction
In financial accounting the term inventory shrinkage (sometimes truncated to
shrink) is the loss of products between point of manufacture or purchase from supplier and
point of sale. The term shrink relates to the difference in the amount of margin or profit a
retailer can obtain. If the amount of shrink is large, then profits go down which results in
increased costs to the consumer to meet the needs of the retailer.
Statistics
India's fledgling retail industry has topped the Global Retail Theft Barometer survey for
2009. The country topped the retail 'shrinkage' rate -- a term that bunches shoplifting,
employee theft and process failures -- in 41 countries surveyed across the world, for the
second year in a row.
Retailers in the country have the highest 'shrinkage rate' at 3.2 per cent of sales.
This amounts to a shrinkage loss of $2.6 billion, 'equivalent to $156.22 (about Rs 7,350)
honest tax per family,' according to the survey conducted by Britain's Centre for Retail
Research, with funding from Checkpoint Systems, a company supplying technology solutions
to the retail industry.
The study, based on a survey of over 1,000 retailers, monitored the shrinkage rate -- and the
cost of shrinkage -- in the global retail industry between July 2008 and June 2009.
India's shrinkage went up from 3.1 per cent of sales last year to 3.2 per cent of sales this year,
representing an increase of $82 million.
According to the theft patterns in India, shoplifting was the biggest cause of retail shrinkage
(45.2 per cent), while employee theft was the second-largest (23.3 per cent). Administrative
errors contributed to 22.6 per cent of the losses.
"This is in line with global trends, where shoplifting is the major source of shrinkage," said
Checkpoint's country manager Dharmesh Lamba
The most-stolen merchandise in India were small, expensive and 'mobile' items, such as
electronics, cosmetics, alcohol, food, clothing and jewellery. Lamba felt cuts in spending on
loss prevention had pushed up shrinkage rates.
"While most businesses have suffered as a result of the recession, few have been as hard-hit
as the retail industry. This year's study shows the adverse effect of cutting spending too
deeply in the area of loss prevention,"
The expenditure on security in India, at $158 million, represents 0.19 per cent of retail sales,
which is lower than the global average of 0.31 per cent.
The survey also found a rise in shrinkage in all regions surveyed, with North America
accounting for the greatest increase of 8.1 per cent, followed by West Asia-Africa (7.5 per
cent) and Europe (4.7 per cent).
The other countries showing high shrinkage are Morocco, at 1.79 per cent, and Mexico, at
1.75 per cent. The lowest rates of shrinkage were found in Australia (0.99 per cent), Hong
Kong (0.92 per cent) and Taiwan (0.89 per cent).
India's retail sector has been growing at about 30-40 per cent annually over the past decade,
according to research firm KPMG.
Though the growth rate projections now stand lowered, it is still seen as a sector with
immense potential.
Global companies are also keen to set up base in the country, but have been held back by the
restrictions on foreign direct investment aimed at protecting the large number of mom-and-
pop stores that dominate this sector.
Causes
There's no profile of a shoplifter. Culprits are young and old, male and female, rich and poor,
civilian and celebrity. Thirty-year-old actress Winona Ryder was charged with shoplifting
last year after a surveillance camera allegedly showed her raking $4,760 worth of clothing
and other merchandise from Saks Fifth Avenue in Beverly Hills, California (see "Light-
fingered Celebs; A History," below). The stereotype is that of an irresponsible teen who
snatches a few items on a dare and eventually outgrows her naughtiness. But experts say
more than half of adolescents who steal continue the behavior into adulthood.
Much of the appeal revolves around risk. When people shoplift and get away with it, "they
feel tremendous pleasure and tremendous relief," says Michael Nuccitelli, a psychologist in
Brewster, New York, who has worked with a number of shoplifters. "From a physiological
standpoint, the pleasure centers of the brain have been stimulated. Before the incident,
adrenaline starts rushing through the body and the heart rate increases. Those who shoplift
often get acclimated-even addicted-to the tension and release." And according to Dina
Cyphers, executive director of Theft Talk, a court-ordered counseling service in Portland,
Oregon, shoplifters who keep at it start upping the ante. "The thrill they get from taking the
costume jewelry or the lipstick may make them think, 'Hmm, can I take the purse now?"
Cyphers says. "They graduate to bigger and better things."
Some women who feel depressed or insecure actually try to jolt themselves out of it by
shoplifting, explains Eric Holander, director of the compulsive, impulsive, and anxiety
disorders program at Mount Sinai School of Medicine, in New York City. Often, Hollander
adds, women who shoplift are also struggling with eating disorders like bulimia. Such was
the case with Jennifer Lane. "Weight has always been an issue with me," she says. "I would
shoplift when I was trying to diet; I couldn’t have food, so I would try to fill myself up in
another way. It was my reward for keepng myself thin.”
Gregory Lombardo, M.D., a psychiatrist in New York Citv, believes char shoplifting - along
with eating disorders and substance abuse - is a "consumption disorder." But, he adds, there's
"a degree of anger with "shoplifting. It's getting back at someone; there's a sense of being
owed something."
That sense of entitlement can fuel a shoplifter's engine. "A shoplifting mother might say, 'I
have to run the household, I have to do the car pool. I need to do something for me, ‘” says
Caroline Kochman, deputy executive director of Shoplifters Alternative, the educational
division of Shoplifters Anonymous.
Kochman notes that many people shoplift on their birthday, "because they feel they're not
getting what they deserve and they want to give themselves a gift."
There are all kinds of excuses: For one woman, it's that her husband is inattentive. For
another, it's that there's too long a wait to get help from a salesclerk. Didn't this store
overcharge me? a woman might think. Anyway, a big chain like this isn't going to miss a
little white blouse. I spend a lot of money here. I should get something back.
Thoughts like these coursed through Felicia Robinson's mind when, in her first shoplifting
venture, she tried to relieve her local Wal-Mart of several videos. "It was Christmas and my
grandchildren wanted these movies, which were $20 a pop," says
Robinson, who lives in Oregon. "I said to myself, ' I give Wal-Mart money every month.
Surely I deserve some sort of bonus.'''
Bur Robinson didn't do this sort of thing very well. "I thought I was being slick. I put the
movies in my cart, and as I was walking down an aisle, I slipped them into my purse."
A security guard stopped her as she was making her way to the exit and asked for her
pocketbook. Robinson went to jail for two days, was given two years' probation, and paid a
$200 fine, a sum far greater than the price of the videotapes.
Robinson's clumsy, furtive behavior made her an easy mark for store detectives, who are
sensitive to body language. They tend to get suspicious when shoppers duck behind pillars or
clothes racks, or enter the store with large purses or bags. Security personnel train their sights
on cosmetic counters, as well as jewelry, glove, handbag, and small-electronics departments.
We know its easier to steal small things," says San Francisco - based security consultant
Chris McGoey. Of course, there are plenty of exceptions. He's watched women thin enough
to double as thermometers walk into a department store and walk out-or try to walk out -
looking as if they're ready to deliver twins.
What makes them change their ways?
If, as one cliche has it, shoplifting is just a cry for help, it’s a pretty muted cry. "Shoplifters
don't think they're going to be caught, which is why they shoplift," McGoey says flatly. In
fact, those who are arrested have probably shoplifted successfully many rimes before. As
Lane says: "I got to recognize the store security people. I knew their cars in the parking lots,
so I'd know what days not to go in."
For some, being caught, convicted, fined, and jailed isn't necessarily a permanent deterrent.
"You're at risk for repeating the offense unless you have a strong sense of guilt, remorse, and
sadness for what you've done," Cyphers says. "The humiliation people feel when they're
arrested is real, but it wears off"
So it was with Robinson, who, a few years after her shoplifting experience at Wal-Mart, tried
to take $47 worth of school supplies from a grocery store. "I put them in my purse, which I
had resting on the baby seat in the cart, and of course they stopped me as I was walking out
the door." This time, however, Robinson got 80 hours of community service, 18 months of
supervised probation, $350 in court costs, and obligatory counseling.
Theft counselors try to take away shoplifters' excuses. "We don't ever tell people not to
shoplift," Kochman says. "No one can make people stop - not retailers, not the courts. They
have to stop themselves. We tell them it's their choice, but before they make the choice, we
give them the facts and the myths."
One myth is that shoplifting doesn't hurt anyone, that the store can afford the loss. In fact,
many stores are hurt by the losses - and they often pass them on to the consumer in the form
of higher prices. According to estimates, theft from retail stores adds up to between $20
billion and $30 billion per year.
For Robinson, it was her daughter's shame that really got to her: "For a long time she
wouldn't go into any store with me. She was afraid I would steal and she'd either be
humiliated or charged as an accomplice."
Some shoplifters just don't possess enough willpower to stop. In some cases medication can
help, Hollander says. Other shoplifters have their own home remedies. Kochman tells of a
woman who turned to clipping store coupons: "She started to have the same compulsiveness
about the coupons that she'd had about shoplifting, but it was legal and she was happy."
Lane works to keep herself too busy to succumb to temptation. So far, she's still employed
and, like the coupon clipper, has found activities - craft projects and cleaning chores - to fill
the hours. "I'm doing something from the time I get up until the time I go to bed," she says.
"It's a daily struggle," Lane admits. But with the help of counseling, she hasn't shoplifted for
a year and a half:
"Now, I only go to stores where they know me and to stores with surveillance cameras in the
fitting rooms. That way I know I won't take anything. Because if I did, I would be in jail. The
threat needs to be there for me."
The percentage of loss of products between manufacture and point of sale is referred to as
shrinkage, or sometimes called shrink. The average shrink percentage in the retail industry is
about 2% of sales. While that may sound low, shrinkage cost U.S. retailers over $31 billion in
2001 according to the National Retail Security Survey on retail theft. Here are the four major
sources of inventory shrinkage in retail.
1. Employee Theft
According to the National Retail Security Survey, the number one source of shrinkage for a
retail business is internal theft. Some of the types of employee theft include discount abuse,
refund abuse and even credit card abuse. Unfortunately, this is one loss prevention area that
generally doesn't receive as much monitoring as customer theft.
2. Shoplifting
Coming in at a close second is shoplifting. Customer theft occurs through concealment,
altering or swapping price tags, or transfer from one container to another. While shoplifting
remains a smaller inventory loss source than employee theft, stealing by shoppers still costs
retailers about $10 billion annually.
3. Administrative Error
Administrative and paperwork errors make up approximately 15% of shrinkage. Simple
pricing mistakes due to markups or markdowns can cost retailers quite a bit.
4. Vendor Fraud
The smallest percentage of shrink is vendor fraud. Retailers report vendor fraud occurs most
when outside vendors to stock inventory within the store.
