Shoplifting and inventory loss levels remained relatively steady in 2022 for retail businesses.
Scoop: Shrink – the National Retail Federation (NRF) term for inventory losses from theft, operational errors, and systemic glitches – jumped to 1.6% in 2022 from 1.4% in the previous year, according to the NRF's annual survey. Translating to USD $112.1 billion in losses, this figure supersedes last year's USD $93.9 billion. The NRF estimates retail sales in 2022 at USD $4.9 trillion, compared to USD $4.6 trillion the year before.
Two-thirds of shrink in 2022 were attributable to theft, the NRF reported. External theft, including organized retail crime, accounted for an average of 36%, while employee theft accounted for 29%. Process errors, control failures, and other causes contributed 27%. The remaining losses were attributed to unidentified reasons and "other" factors.
Gauging the Actual Scope: Numbers on retail shrink and theft can be elusive, admits Trevor Wagener, director of the research center and chief economist at the Computer & Communications Industry Association. Despite the NRF being the sector's best source of data, Wagener points out that the calculations and conclusions are tied to caveats.
The NRF determines the extent of shrink by multiplying average retail shrink with annual retail sales. This formula takes into account inflation and pandemic recovery spending patterns, leading to an increase in shrink. However, related costs such as cleanup or repair after theft or vandalism aren't included in this calculation. Additionally, the NRF does not account for investments in heightened security or the anxiety associated with maintaining store safety.
In the first half of 2022, retailers like Target faced incidents of customer confrontation and property damage over Pride displays and have since closed nine stores due to safety concerns. The NRF survey highlighted an increase in reported shoplifter aggression and violence in comparison to the previous year. Shops and malls are particularly vulnerable to mass attacks.
Problems with Data Quality: Various challenges contribute to difficulties in accurately measuring retail shrink and theft. Definitional ambiguities, data collection limitations, technological gaps, external factors, economic and regulatory pressures, and survey limitations all offer reasons for the complexities involved.
Wagener emphasizes the importance of methodological carefulness, such as the risk of double-counting stolen goods and focusing exclusively on industry-level data to the detriment of retailer-specific variability.
Recommendations: To improve the accuracy of retail shrink and theft measurements, standardized metrics, public-private data sharing with law enforcement, and investing in AI-driven analytics with bias audits are suggested. These steps will allow stakeholders to better monitor losses and devise tailored anti-theft strategies.
- The government should consider the undeniable losses in the retail industry due to shrink, as the National Retail Federation (NRF) reported a 1.6% increase in 2022, amounting to a trillion dollars.
- Inflation and pandemic recovery spending patterns have contributed to the increase in shrink, as stated by Trevor Wagener, director of the research center at the Computer & Communications Industry Association.
- The pandemic has also led to an increase in reported shoplifter aggression and violence, as highlighted in the NRF survey, posing a significant challenge to retail businesses.
- To address these issues, the industry could invest in AI-driven analytics with bias audits, as recommended by Trevor Wagener, to devise tailored anti-theft strategies.
- Standardized metrics and public-private data sharing with law enforcement could also aid in better monitoring of losses, as suggested to improve the accuracy of retail shrink and theft measurements.
- The war on crime in the retail sector is far from over, with organized retail crime accounting for an average of 36% of yesterday's shrink, according to the NRF's report.
- The finance industry, too, should take note, as these losses could potentially affect the average citizen through increased prices in retail businesses.
- Regulatory pressures should be applied to combat this issue, ensuring a safer and more secure environment for both employees and customers in the retail industry.
