PwC: Canadian retailers losing more than $10 million a day to shrink

Respondents to PwC’s 2012 Canadian Retail Security Survey reported shrink rates between 0.4 per cent and 2.19 per cent of net sales in 2011. The average was 1.04 per cent. According to PwC, shrink is defined as inventory losses due to theft (employee, customer or organized crime), inventory counting errors, accounting errors, fraud and damaged product loss. Thirty-four retailers participated in the PwC survey, representing approximately 24 per cent of 2011 retail new sales as estimated by PwC and the RCC.

“To put retail shrink in perspective, total dollars lost to shrink is almost the same amount as the total investment made each year by the entire Canadian retail industry in their IT departments and more than what retailers invested in their finance departments,” said Paul Beaumont, Director of PwC’s Canadian Retail Consulting Services practice. in a statement. “Unlike IT and finance spending however, shrink provides no benefits to retailers and requires significant time and expense to identify, manage and prevent.”

Security measures to prevent shrink, such as CCTV, observation mirrors and tip hotlines have increased since PwC’s last survey is 2008. Now, 65 per cent of respondents report that they use such tools compared to 39 per cent in 2008. Alarm rates on merchandise, however, have dropped in the same time frame from 72 per cent to 35 per cent. “Retailers are using more sophisticated and concealed tools to keep shrink low while at the same time trying to provide customers with a better experience interacting with their merchandise,” said Stephen O’Keefe, vice-president of operations for the Retail Council of Canada.

According to the report, theft by an internal source has increased to more than 33 per cent, up from the 19 per cent reported in 2008. Conversely, theft from an external party has dropped from 65 per cent to 43 per cent.

Eighty-eight per cent of respondents said they charge the employee responsible for theft criminally and 94 per cent dismiss the employee with cause. Three out of five retailers perform pre-employment screenings before hiring new staff and 29 per cent request a police background check — half as many that said they did so in 2008.