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 | 25