RETAIL: When TV crews descended on a New York branch of Kmart on the day the US discounter announced hundreds of store closures and job cuts, they found one enthusiast.
"I love Kmart," the teenage boy told the cameras. Unfortunately for the retailer, their enthusiastic customer was a shoplifter.
He, and millions of others like him, cost US retailers about $25.2 billion (€29 billion) a year.
Retailers such as Kmart appear to be losing a long-fought battle against these losses, or "shrinkage" as the industry refers to it. The National Retail Security Survey shows US retailers lost 1.75 per cent of their annual sales in 2000, up from 1.69 per cent a year before.
More significantly, the survey of 116 of the largest US-based retail chains shows that employee theft - in the warehouse or in stores - accounted for 46 per cent of those losses, compared with 31 per cent for shoplifting, reversing a trend from 10 years ago.
As a percentage of sales, shrinkage may be a blip in a $3,500 billion a year industry but its impact on the bottom line of a low-margin industry is significant, especially at a time when several retailers are struggling to chase profits in a slow economy.
Prof Richard Hollinger, a criminologist and author of the survey, said employee theft had emerged as a key problem for retailers trying to cut shrinkage.
"There has been a big shift towards internal theft. Some measures [to prevent it] are in place, otherwise it would be much higher, but it is a real problem," he said. "Employees know the security measures and they run the stores so they know how to beat the system."
Retailers have tried various approaches to solve the problem. Wal-Mart, the world's largest discounter, has been a market leader in offering its employees incentives not to steal. And in a bid to slow shrinkage, Staples, the office products supplier, has designed new store formats while Banana Republic and Old Navy, the clothing retailers, are toughening up their return policies.
At all of Wal-Mart's 2,700 US stores, employees are involved in a stakeholder incentive programme, which gives bonuses to managers and associates to stop the flow of stolen goods. The amount depends on the size of the store and the level of the shrinkage. Wal-Mart will not disclose details but its bonuses for reducing shoplifting can run into several hundred dollars.
Wal-Mart has found, meanwhile, that theft by outsiders is becoming more sophisticated than simple cases of shoppers slipping products into their pockets. Among recent cases, shoplifters used their own bar-coding machines to mark down the price of baby formula, which they intended subsequently to sell to the black market overseas.
"Sometimes \ distract and grab or they smash locked glass cases. Sometimes they steal from Wal-Mart on returns," Mr Williams says. In the case of returns, people steal a product then return it to get cash for something they never paid for.
Other retailers are looking at tightening their return policy. Gap-subsidiary Banana Republic began piloting a tougher policy at its San Francisco and New York stores this year. Changes include insisting that customers have a receipt if they want to return merchandise. Previously, merchandise had only to be unwashed, unworn or defective to qualify for a return, which allowed shoplifters to steal clothes then quickly convert them into cash.
At Old Navy stores, also operated by Gap, an item can be exchanged only for another size and colour or a store credit if the customer does not have an original sales receipt.
Staples has concentrated on securing the store, rather than individual items in it.
"One of the ways we do this is to have more greeters at the door. The friendly sounding greeter acts as a security guard and can also look into shoppers' bags," says a Staples spokesman.
The older store formats had aisles at the front and very high shelves, with cash registers near the entrance. Now, lower shelves help security cameras to spot shoplifters more easily.
Retailers' individual efforts may be complemented by an industry-wide attempt to improve security tagging. After years of retailers using competing technologies, a single industry standard security tag is being designed. This would not only simplify life for retailers and suppliers but also reduce the cost of protecting their inventory.
The new technology would have its own internet link and be able to track products electronically not only as they leave the store but also as they are being transported by the supplier to the store, when many retailers can lose up to 20 per cent of goods through misplacement or theft.
Crucial to success will be the ability to miniaturise the technology to produce tags that can be used on small, low-value products as well as larger items such as clothing. The Auto ID Centre at Massachusetts Institute of Technology (MIT), with funding from companies including Johnson & Johnson and Procter & Gamble, is researching microchips that would be built into the packaging of products such as razors and shampoo and alert wireless sensors that goods have arrived. It would also help track products at loading docks and on store shelves.
The Consumer Products Association (CPA), which set out goals to develop the technology, hopes it will reduce shrinkage by better tracking of inventory inside and outside stores.
"If someone steals 2,000 items it can be difficult for a retailer to prove they actually own them but the new technology will have a security component. Every pen, every shampoo, will have these chips," says CPA director Mr Victor Wasilov.
MIT hopes that these will be introduced into some stores in the US as early as 2004.
