Canadian retailers are losing about $4 billion a year to “shrinkage” — a loss of inventory caused by different sources such as theft, inventory counting errors, accounting errors, fraud or damaged products — which equates to an average loss of $10.8 million per shopping day, according to PwC's 2012 Canadian Retail Security Survey, completed in conjunction with the Retail Council of Canada (RCC).
However, theft by employees has risen to 33 per cent compared to 19 per cent in 2008, found the survey of 34 retailers, representing about one-quarter of 2011 retail new sales.
On the other hand, estimated theft by external parties including shoplifters and organized criminals has decreased to 43 per cent since the 2008 estimate of 65 per cent.
"Due to the nature of its business, the retail industry tends to be at greater risk to internal crimes such as employee theft," said Stephen O'Keefe, vice-president of operations at the Retail Council of Canada. "The focus for employers is to create a heightened sense of awareness and need for staff to be a part of the solution, which has resulted in more reporting of incidents than ever before."
Many retailers have decided to increase investments in managing internal theft, found the survey.
"A dishonest employee with inside knowledge of retail operations and systems has the ability to do more harm than typical shoplifters,” he said. “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."
Eighty-eight per cent of respondents charge the employee criminally and nearly all (94 per cent) dismiss the employee with cause.
"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,” said O’Keefe.
While three out of five retailers perform pre-employment screenings before hiring new staff, only 29 per cent request new employees to pass a police background check. This is one-half as many that said they did so in 2008, found the survey.
Although estimated shrink as a percentage of sales has remained contained since the last survey in 2008, there’s been an increase in the use of closed circuit TV/DVR recording systems, observation mirrors and 1-800 tip lines to control losses both in-store and in warehouse environments. And more than 65 per cent of respondents indicated they always use these tools, up from 39 per cent in 2008.
Conversely, only 35 per cent of retailers said they frequently use alarms on merchandise, a reduction from the 72 per cent result four years ago.
"Retailers are using more sophisticated and concealed tools to keep shrink low while at the same time trying to provide customers with a better experience interacting with their merchandise," said O’Keefe.
The top three items most likely to be stolen from retailers are alcohol, ladies apparel and cosmetics and fragrances. Each of these merchandise categories are high volume and high value making them more prone to criminal activity both from inside and outside the store, said PwC and the Retail Council.
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