Canadian Retailer - Holiday 2016 - 25

If we were speaking about almost anything
else, we'd add up numbers from every source.
Instead, when speaking about loss, retailers
are like dieters who leave late night snacks off
their calorie counts and puzzle over inexplicable
weight gain.
Loss isn't weight gain, of course, but the principle's the same: If you don't account for it, you
can't count it.
The big number

When retailers measure loss, they're often looking at shrink: the difference between the book
value of inventory that they presume to have and
the inventory determined by a physical count. It
includes inventory lost through error, like miscounting stock and value lost through theft and
fraud.
Looking only at shrink,
however, will not give a
retailer their total loss.
It`s hard to measure, and
Canadian figures are even
harder to find. But a look at U.S. data helps illustrate the problem that Canadian retailers need to
increasingly be aware of.
In 2015, U.S. retailers lost 1.38 per cent of sales,
a frothy number that translates into $45.2-billion
(USD). Source: National Retail Federation convention (NRF) 2016.
But the data used to arrive at the 1.38 shrink
was drawn only from bricks-and-mortar stores.
Online sales were left out of the calculations-a
startling fact, considering that U.S. e-commerce
sales totaled $342-billion in 2015, an increase of
nearly 15 per cent compared to 2014 figures.
As much as retailers may want to treat a 1.38
per cent shrink rate as authoritative, the figure
only tells part of the story.
The whole story is much uglier. And shrinkage
is much bigger.

have a clear idea what shrink amounts to in a retailer's online operations.
This stems from criminal patterns unique to the
online environment. In a bricks-and-mortar store,
most loss comes from employee theft and shoplifting. With online shopping, neither of these two
points of loss are possible, with the exception of
employee theft, and with increasingly automated
distribution, measuring loss is difficult.
"How do you study something and quantify it
when it doesn't really match the causes and problems that are related to shrinkage?" he asks.
Not only is online theft not well-understood, it's
not well studied. Shrinkage is difficult to ascertain
to begin with, since most loss does not have a clear
audit trail-that is, product goes missing but it's
difficult in many cases to determine exactly how

"How do you study something and quantify it when
it doesn't really match the causes and problems that
are related to shrinkage?"

The bigger picture

How much larger might shrink be if retailers included loss incurred through their online stores?
Nobody really knows.
Dr. Richard Hollinger of the University of Florida is in a position to know. Hollinger is the man
who calculated the shrink number for the NRF.
Despite his long career studying shrinkage in the
U.S.-he's a pioneer in the field-Hollinger doesn't

www.retailcouncil.org/cdnretailer

- DR. RICHARD HOLLINGER
University of Florida

merchandise is stolen from a business.
"I don't know how one would even start to study
it, largely because it's so difficult to get your
hands around," says Hollinger.
This isn't to say online retailing is impervious
to study. It just doesn't happen very often.
One company that has tried to measure online
loss is LexisNexis, a risk
management company
that conducts an annual
survey of online fraud.
U.S. shrink rate for 2015
The company's most recent survey pegged online shrink at 2.45 per
cent of sales. This numCost, in U.S. dollars, of
ber accounts for all costs
shrink in 2015
associated with theft and
fraud, including costs associated with product
replacement, payment processing logistics and
investigations, and costs incurred through fraudulent chargebacks-when a customer fraudulently
claims they did not receive a package that arrived,
and receives a refund for their purchase. The survey sought opinions from more than 1,000 retail
executives in charge of managing risk and fraud.
LexisNexis distinguishes theft from fraud.
This is because most online loss occurs through

1.38%

45.2B

THE LOSS PREVENTION ISSUE | CANADIAN RETAILER

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http://www.retailcouncil.org/cdnretailer

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