No retailer wants to admit it has a shrink problem, and Pleasanton, Calif.-based Safeway Inc. is no exception. When the company realized that one SKU (stock-keeping unit) cost the chain more than $6 million in one year, however, Safeway stepped up its loss-prevention and employee-education practices to wipe the slate clean.
While retailers proactively fight theft caused by internal and external sources, dollar losses are at all-time highs, according to the National Retail Security Survey. Worse, these losses are rising due to an increase in organized retail crime (ORC).
More than three-fourths of retailers (79%) said their company has been a victim of organized retail crime within the past year, according to the third annual Organized Retail Crime survey, from the National Retail Federation, Washington, D.C. And many chains are beginning to feel the fallout.
“A shoplifter tends to steal for their own personal consumption, while a member of an organized-crime ring is often after higher-ticket items,” Frank Muscato, organized retail crime national investigator, Walgreen Co., explained during the 2007 FMI Convention. The Food Marketing Institute, Washington, D.C., sponsored the event.
“Typically, these criminals seek to steal an average of $100 to $150 in merchandise a day,” he said during the session, “Organized Retail Crime— Predator to Prey.” “This merchandise is often sold to a third party, and these thieves use their cut to sustain a drug addiction.”
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Organized crime has also grown into a $37 billion problem for retailers. “We estimate that this is a $10 billion problem in the supermarket industry alone,” Kathleen Smith, VP loss prevention for Safeway, said during the session. “Supermarkets clearly still have a problem and no company is immune.”
This includes the 1,700-plus-store Safeway chain. In 2004, the company was unaware it had an organized-theft problem. After further investigation, the chain, which rang up almost $40.2 billion in sales in 2006, realized it was wrong.
Three years ago, a Safeway investigator began looking into the theft of baby formula (one of the hottest items targeted by ORC rings across supermarkets and drug chains) from some stores.
“We used to stock formula on the top shelf of fixtures,” she explained. “We made it too easy for them.”
It didn’t take long for Safeway to put a plan in place to identify the problem. First, the company began creating reports that compared shipped-merchandise data against product scanned at the point of sale. “These reports defined patterns of losses, as well as store-to-store comparisons,” she said.
Once a loss pattern was established, the chain began using its closed-circuit television (CCTV) systems to monitor the area of concern. This included analyzing entry points and specific aisles, as well as facial shots of suspects.
Not only did this strategy work, it revealed that groups of two or three thieves pulled off capers. One would act as a lookout while the others hid six to eight containers of formula in shoulder bags. Then the group left the store without paying for the merchandise.
Typically, thieves deliver merchandise to their “fence,” who redistributes product to consumers via flea markets, e-commerce sites or small, independent store operators.
Baby formula retails for approximately $12.99. While losing six to eight containers at a time may not seem significant, the ongoing theft took its toll on the chain. Analysis revealed that the incident cost the chain’s California-based stores $6 million over 12 months.
Formula was only one target, however. Further investigation revealed that thieves also targeted other expensive merchandise, including high-end disposable razors and refills, over-the-counter medications, teeth-whitening strips and diet pills. Thieves willing to take a chance would cull up to $841 of merchandise into a handheld basket. Those using large trash bags could steal an average of $6,500 of undetected merchandise.
Identifying the problem is only half the battle. “We began using the videos and reports to educate our associates,” Smith said. “This included our store management and associates, as well as store detectives, senior management and law enforcement. We felt they needed to see it to understand the problem.”
While the chain uses various loss-prevention solutions, including EAS (electronic article surveillance) tags, shelf blockers, and even locked merchandise behind glass fixtures, lowtech options further protect Safeway’s merchandise. “Until the industry moves into the RFID [radio frequency identification] arena, especially at an item level, we are using other ways to mark products,” she said.
Whether Safeway uses pre-printed ink stamps “or we hand-write markings with Sharpie markers, we are committed to identifying our high-targeted merchandise,” Smith explained. “It is important to mark and identify your product. If it is not marked, police will have no idea where it originated from when it is recovered.”
Safeway is also proactive in the fight against organized retail-crime rings from an industry perspective. For example, it is partnering with other retailers and has joined associations to further educate itself on the issues.
“We are also advocates of attending training seminars, conferences and meetings to further educate our team,” Smith said. “We also believe in hosting events, not only to be a participant, but to emerge as a leader in the [loss-prevention] area.”
Many executives, including Smith, are also working with associations such as FMI to establish legislation that revolves around retail theft. “The key right now is for FMI and other retail organizations to work on a state-by-state basis to establish retail theft as a separate crime,” said Smith, who is also chairperson of FMI’s loss-prevention committee.
“Prior to joining Safeway as an investigator in 1981, I was a senior deputy for the Los Angeles County Sheriff’s Department,” Smith noted.
“By working for Safeway, however, I learned the loss-prevention business from a manager’s perspective,” she said. “It is this experience—not what is taught in the academy—that helps to identify a crime.”