Shrinkage causes $123b loss to global retailers

Shrinkage accounted for 1.23 per cent of total retail sales in 2014-15 compared to 0.94 per cent in the previous year.

The retail sector in the Middle East should adopt effective strategies and solutions to curtail 'shrinkage' to improve profitability as it caused up to $123.39 billion in loss to global retailers in 2014-15, experts say.

Referring to the latest Global Retail Theft Barometer Study conducted by Checkpoint Systems, the industry experts claimed that shrinkage, defined as losses from shoplifting, employee or supplier fraud and administrative errors, accounted for 1.23 per cent of total retail sales in 2014-15 compared to 0.94 per cent in the previous year.

Jayant Ghosh, business development manager, Checkpoint Middle East and Africa; and Ben Chua, Checkpoint product director for Asia Pacific, said shrinkage increased globally as retailers spent less on prevention and there was in increase in the type of products being targeted.

"In the US, we saw that apparel stores suffered the highest rates of shrink [2.28 per cent] followed by pharmacies/drugstores [2.25 per cent] and non-grocery retailers [1.9 per cent]," Chua recently told Khaleej Times on the sidelines of an event in Dubai.

"When sorted by retail verticals, the most stolen items included footwear [apparel and fashion accessories]; batteries [home improvement]; mobile device accessories [electronics]; and razor blades [health and beauty]," he added.

Ghosh said shrinkage should be a watch area for the retail industry in order to prevent losses in businesses. Referring to the study, he said 39 per cent of shrinkage is attributed to employee theft, followed by shoplifting (38 per cent) and admin errors/non-crime losses (16 per cent).

"Our report, which covered North America, Europe and Asia, has set the benchmark in identifying and managing trends in the retail space and critically, how to mitigate these risks. In the US, we saw that shoppers end up paying the price for such theft. The cost of mysteriously-vanishing merchandise comes to $615 annually per US household," he said.

"Our experience is that in the retail sector, the Middle East mirrors much of the rest of the world. The rapid retail expansion of markets such as Dubai means that retailers need to be able to mitigate these risks as much as possible so they can focus on expanding their business," he added.

He said this is fundamentally about profit protection for SMEs and enterprises.

"By installing a proper solution, the direct impact on a business even in its first year can be huge. For a larger business, a saving of 30 per cent to 40 per cent on their losses could mean the difference in when they are able to open their next store," Ghosh said.

To a question, Ghosh said there is an ongoing expansion of the retail sector in the Middle East. "It is important for retailers to adopt strategies to reduce losses in order to improve profitability. We hope retailers across the Middle East willbetter understand all the complexities of the shrink problem as well as the most cost-effective ways of addressing it," he concluded.

- muzaffarrizvi@khaleejtimes.com