Study: Shrink costs U.S. retailers $42 billion; employee theft tops shoplifting
Thorofare, N.J. —Shrink—including shoplifting, employee or supplier fraud and administrative errors—cost the global retail industry more than $128 billion last year, with $42 billion lost in the United States alone, according to the latest Global Retail Theft Barometer study. This represents 1.29% of retail sales, on average.
In other top line U.S. findings, employee theft outranked shoplifting as the biggest source of shrink, and fashion and mobile phone accessories, power tools, wines and make-up products ranked among the most stolen merchandise in the United States.
The study, underwritten by Checkpoint Systems, was carried out in 2014 by The Smart Cube and Ernie Deyle, a retail loss prevention analyst. It was conducted in 24 countries among 222 retailers representing $744 billion in sales in 2013.
While shoplifting is the biggest cause of all retail shrink in 16 of the 24 countries surveyed, in the United States, employee theft ranked first at 42.9%, with shoplifting next at 37.4%.
Per-household retail crime across the 24 countries surveyed ranged from $74 to $541. The annual cost of shrink to U.S. shoppers, as passed on from retailers, averaged $403 per household.
According to the study, shrink is down slightly in most countries. The lowest shrink rates were recorded in Norway (.83% of retail sales), followed by Japan. The United States came in at 1.48% of retail sales, down slightly from 1.50%. The highest rates were recorded in Mexico (1.70% and China (1.53%).
The overall reduction in shrink was attributed to an increased focus on loss prevention methods and a slightly improved economic outlook, particularly in North America. In addition, there was increased loss prevention spending in countries with the best shrink improvements.
Even as the U.S. shrink rate lowered slightly, the cost of retail crime (supplier fraud, employee theft, shoplifting, loss prevention spend) as a percentage of revenue, rose 27% , to 1.74% last year. That increase is primarily attributed to a surge in shoplifting and dishonest employee theft incidences in the country, along with lower loss prevention spending by U.S. retailers.
In other survey findings:
•In the United States, discounters (2.78% ), drug stores (2.16%) and grocery retailers (1.38%) had the highest shrink rates because of the widespread prevalence of organized retail crime and lower loss prevention spending for some of them, according to the study. Almost all types of retail stores in the United States were affected by dishonest employee theft and shoplifting.
• Shoplifters and dishonest employees in the United States primarily targeted products that were easy to conceal and resell in the market, including fashion and mobile phone accessories. Other frequently pilfered products include power tools, wines and make-up products.
•The use of source tagging RF labels prior to arriving at retailers has increased globally and continues to build momentum according to survey respondents, while 50% of U.S. retailers plan to increase or maintain the number of source tagged SKUs.
“We are pleased to support this global statistical research for the thirteenth year,” said Per Levin, president and chief sales officer shrink management & merchandise visibility solutions, Checkpoint Systems. “Our hope is that retailers can learn more about the causes of shrink and work with their suppliers and solutions partners to create joint programs to reduce shrink and associated costs.”
Click here to obtain a copy of the latest Global Retail Theft Barometer report and see a video overview of the study.
Delhaize bails on Bottom Dollar
ALDI is accelerating its growth and dramatically increasing its presence in the Northeast with the acquisition of 66 Bottom Dollar Food stores from Delhaize Group.
Delhaize said it reached an agreement to sell its 66 Bottom Dollar stores in the greater Philadelphia and Pittsburgh markets for $15 million and associated lease liabilities. Delhaize said it would take an asset impairment charge of $180 million in conjunction with the sale.
The stores will remain open as Bottom Dollar Food stores until year-end, at which time they will close and the Bottom Dollar banner will be retired, according to Delhaize.
"The divestiture of Bottom Dollar Food further simplifies our business, increases debt capacity and creates shareholder value. Today's announcement is consistent with our strategy, announced in March, of investing in and focusing on our core markets,” said Delhaize president and CEO Frans Muller.
Delhaize currently operates 3,386 stores and last year generated revenue of roughly $27.8 billion.
The acquisition by ALDI is part of an accelerating growth strategy for the discount grocer. The company, which currently operates 1,300 stores, plans to open 650 new stores across the country, including expanding to Southern California, bringing its total number of US stores to nearly 2,000 by the end of 2018.
Whole Foods healthier than thought
The nation’s leading natural and organic grocer proved its doubters wrong with a better than expected fourth quarter earnings report, a rosy outlook for the coming year and dedication to a long-term growth strategy.
Same store sales increased 3.1% in the company’s fourth quarter ended September 28 and the company disclosed its first quarter is off to a strong start with same store sales up 4.6% through November 2 thanks to balance of traffic and ticket growth. Total company sales increased 9% during the fourth quarter to a record $3.3 billion while profits increased 5.8% to $128 million from $121 million. Earnings per share increased 9.4% to 35 cents from 32 cents, three cents better than analysts expected.
Helping to drive fourth quarter sales growth was the opening of a record 13 new stores and expansion into seven new markets. The contribution of the new stores would have been even greater, but nine of the openings came within the final month of the quarter.
For the year, the company opened 38 new stores to end with 401 stores and reaffirmed that the U.S. can ultimately support 1,200 stores. Moving toward that goal in the first quarter, Whole Foods has opened three new stores so far and plans six more out of a total 2015 fiscal year plan which calls for 38 to 42 new stores. The addition of new stores and plans for a low to mid single digit same store sales increase are expected to result in full year sales growth of 9%.
"The last few months have been an incredibly exciting and rewarding time for our company as we opened a record number of new stores and launched several strategic initiatives, expanding choices for our customers and reinforcing our values as America's healthiest grocery store,” said John Mackey, Whole Foods co-found and co-CEO. “Collectively, our efforts have led to extremely high team member morale, heightened brand visibility and positive sales momentum.”
Mackey’s counterpart, Walter Robb, weighed in on Whole Foods differentiation philosophy and value proposition as the key drivers of the company’s favorable long term prospects.
“Natural and organic products are increasingly available, yet no one offers the shopping experience we offer. We hold the idea of 'food' to a higher standard, banning more than 75 ingredients commonly found in other stores, and we believe our unparalleled quality standards are a large part of why we maintain a broad base of loyal customers and attract new customers aspiring to a natural and organic lifestyle," Robb said. "As we accelerate our growth, we are evolving and differentiating our shopping experience faster than ever before. Our leadership in retail innovation is one of our many competitive advantages, and it is exciting to see our new stores from Palm Desert, California to Toronto, Canada perform so well."
As Whole Food pursues its growth agenda, the company also said it was shifting its conversation with the investment community. The company said it would focus on a broader directional point of view and metrics it believes are key to the long-term health of the company and no longer provide regular quarterly updates to its annual targets.