Shrinkage – a combination of customer and staff theft – is costing the retail industry a staggering £5.03bn, the results of Retail Knowledge’s latest annual UK survey have revealed.
Launched this month at the Retail Fraud Show, the UK Retail Fraud Survey sponsored by Kount has reported that shrink levels have increased by over 22.2 per cent in 2014, rising from 0.9 per cent of sales last year to 1.1 per cent this year. Other figures show that the major area of online loss remains, overwhelmingly, from the fraudulent use of credit cards (43 per cent), followed again by third party fraud payment (15 per cent).
The biggest area of store loss remains shoplifting at 39 per cent, which has increased from last year’s figure by 9 per cent. Theft or fraud by employees closely follows this with 33 per cent, which has also seen an increase by 6 per cent since last year.
Interestingly, American retailers generally put losses owing to staff ahead of losses owing to external shrink, as identified last year in the US Retail Fraud Survey 2013. The US Retail Fraud survey is out in a few weeks and will be interesting to compare and contrast their results.
Paul Bessant from Retail Knowledge commented on the recent figures from the survey: “As economic conditions have continued to be tough for retailers and consumers alike it is perhaps not surprising that crime has increased yet again. Retailers are under continuous pressure to protect their business from loss but under ever tighter fiscal constraints, whilst simultaneously the poor economic situation has perhaps lead to many good people making bad decisions, which ordinarily they would not do.”
Findings show that most retailers still treat store and online loss prevention separately. Typically, the head of loss prevention focuses on stores, while online shrinkage is managed separately. However, employees, customers and fraudsters do not make this distinction. With the growth of multi-channel retailing, where transactions cross organisational boundaries, the study shows the wider use of a cross-functional, holistic approach to loss prevention.
Furthermore, retailers expect online sales to increase from 12 per cent currently to 31 per cent of total business over the next three years. As this happens, there will be an adoption of an increasingly joined up philosophy to all loss prevention, store and online. The results of the survey have shown that retailers increasingly recognise the need to invest in online prevention, with an increase from 0.3 per cent of sales in 2012 and 0.4 per cent in 2013, to 0.43 per cent this year.
Other key findings of the survey include:
• The shrinkage rates vary by retail sector from department stores at 2.4 per cent of sales to home shopping retailers at 0.6 per cent of sales.
• The biggest area of store loss in the UK remains shoplifting, followed by theft or fraud from employees.
• The biggest area of online loss remains, overwhelmingly, from the fraudulent use of credit cards (43 per cent), followed again by third party fraud payment (15 per cent).
• Reflecting on recent online fraud events, 33 per cent of retailers identify fraud detection capabilities as their biggest concern.
• Store fraud prevention spend has fallen from 0.7 per cent of sales in 2012 and 0.6 per cent in 2013 to 0.5 per cent in 2014. Meanwhile online fraud prevention spend has increased from 0.3 per cent of sales in 2012 and 0.4 per cent in 2013, to 0.43 per cent this year. This reflects the growing importance of online trading to retailers.
• Return fraud is up 125 per cent, costing retailers an average of 0.9 per cent of sales this year compared with an average of 0.4 per cent last year.
Published annually by Retail Knowledge Ltd and sponsored by payment experts Kount, the 2014 Retail Fraud Survey is the most extensive report into the systems, processes and strategies of 100 of the top retailers in the UK.
The study represents retailers with annual sales totalling £137 billion; 30 per cent of the total UK retail sector and encompasses retail performance of 42,700 stores and covers everything from shrink levels and online and offline business threats to anticipated equipment and systems updates.
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