Retail industry records slight fall in inventory shrinkage

For the second time in succession, inventory shrinkage has fallen slightly in the German retail industry, according to the results of a survey conducted jointly by the trade associations Bundesarbeitsgemeinschaft der Mittel- und Großbetriebe des Einzelhandels (BAG) e. V., Berlin, and EuroHandelsInstitut (EHI) e.V., Cologne.

Evidently, investment in security measures — on which retailers spend more than DM 1.5 billion per year — and organisational improvements are having an effect. Despite this, an average inventory shrinkage of one percent of gross sales still significantly impacts retailers' profits. From February 23 to 27, 2002 EuroShop will, in one of its four segments, EuroCIS, be presenting not just communications and information technology but also the entire field of security technology, from electronic tags, video surveillance and access controls to money handling and transport.

While the number of prosecuted store thefts decreased by 5.6 percent to 562,835 last year, no one in the retail trade really believes this reflects a fall in criminal potential. The decrease is more likely down to the fact that preventive and deterrent measures such as electronic tagging, video surveillance and use of store detectives have been intensified and optimised in recent years, limiting the opportunities for shoplifting. Without these efforts, the losses in the retail trade would have been much higher.

Nonetheless, the retail trade as a whole faces revenue losses of DM 8 billion per year. Dishonest customers account for an estimated DM 3.5 to 4 billion. This means that, statistically, every German household steals merchandise worth DM100 from retail stores every year or, related to the food sector, that one in two hundred shopping trolleys passes the checkout desk without being paid for. In addition, the damage to the economy through lost VAT revenues amounts to a not insignificant DM 300 to 400 million.

The survey included data from 73 companies with a total of almost 2,800 outlets and estimated total sales of DM 53 billion. Most of the companies covered by the survey were large-scale retail outlets.

40 percent of the businesses surveyed said that their inventory shrinkage had decreased in the last three years, while only around one in six said it had increased. More than two thirds said that inventory losses had fallen from 1999 to 2000. This slight improvement is discernible across all segments of the retail industry. At many companies, there were special factors at play in the year 2000 whose effects cannot be explicitly quantified. They include theft prevention measures as well as organisational changes, both of which will have had an effect on the inventory count. Examples include increased use of article surveillance devices, employee training courses, camera/video surveillance, optimisation of store detective deployment, improvements to internal controls as well as organisational changes such as the introduction of scanning and inventory management systems or the integration of new business units.

Compared with 1999, the results have improved on average by ten percent. However this gratifying trend must not be allowed to disguise the fact that in some segments inventory losses are still higher than corporate profit.

Valued at sales prices, the average rate of inventory shrinkage in the year 2000 can be put at around one percent of gross sales. Evidently, the reason for the improvement across all retail segments is increased and improved preventive action. Almost all companies are planning to step up their efforts again this year. Broken down by segment, the figures are as follows:

 In the food trade, the losses incurred by the supermarkets, hypermarkets and self-service stores that dominated the survey amounted to just under 0.9 percent of sales in 2000. Overall, inventory shrinkage improved from an average 0.9 to 0.8 percent.  The eleven department store companies included in the survey had average shrink rates of 1.1 percent of sales. While four companies saw their figures deteriorate, seven recorded improved inventory results, the latter including the chain department stores.

A clear improvement also took place in the textile trade, where the unweighted average inventory shrinkage rate of all surveyed firms dropped for the first time from 1.14 percent to just over 1 percent. In many companies, these findings are explained by the introduction or increased use of electronic article surveillance systems.