Perishables Growth Causing Rise in Shrink, Survey Says

MICHAEL GARRY

SCOTTSDALE, Ariz. — Overall shrink loss reported in a major industry survey rose 19% in 2005-2006 to 2.76% of sales, largely as a result of a greater emphasis on perishable sales and the stricter accounting procedures required by Sarbanes-Oxley regulations.

The 2006 Retail Shrink Survey, conducted by the National Retail Research Group here (www.retailcontrol.com), is being released this month. It is based on data provided during the first four months of 2006 by 108 supermarket companies representing 26,820 stores, mostly in the U.S. The report has been issued annually except for one year since 1990.

“Perishables are up [29%] in sales contribution over the last two years,” said Larry Miller, president of NRRG. Along with the sales growth, shrink related to perishables increased 16.5% from the previous survey, driving up the overall shrink number. Perishables contributed far more to shrink than nonperishables (64.4% vs. 35.6%), the study found.

Miller was longtime president of Trax Retail Systems until its acquisition by March Networks, Ottawa, last July. March Networks, Microsoft and the National Grocers Association are sponsors of the 2006 Retail Shrink Survey.

Federal Sarbanes-Oxley regulations, which call for stricter accounting of profit and loss, are forcing food retailers to “report shrink more diligently,” Miller said. For example, companies are no longer allowing gross margin to absorb shrink figures, contributing to an estimated 9% increase in published shrink loss.

Self-checkout is another contributor to shrink, according to the survey. Total store shrink increased by an average of 3% since the installation of self-checkout, said 73% of respondents to the survey. “Self-checkout presents shrink problems when retailers don't follow best practices,” Miller said.

The key best practice for self-checkout, noted Miller, is to assign a dedicated attendant to the self-checkout areas. Yet “at least 50%” of self-checkouts are not attended at least part of the time, he added. “Shrink goes up when an attendant is not dedicated and visible.”

According to the survey, 52% of self-checkout shrink is attributed to “sliding,” whereby customers pretend to scan items and, if caught, say they made a mistake. (See chart, this page.)

The report also addresses the growth in organized retail theft, which is shoplifting by trained groups of criminals. “Since 9/11, ORT has increased,” Miller said. “It's not as big as amateur shoplifting or employee theft, but it's growing faster over the last three to four years.”

The largest cause of perishable shrink, according to the survey, is “improper handling/space allocation/overproduction throwaways/rotation.” These range from 22% of shrink for deli and floral to 32% for bakery. “Since they are all caused by employees, these issues are all controllable, Miller said.

Cashier theft and errors represent a major contributor to produce shrink (21%) and meat shrink (20%). Shoplifting is a significant cause of meat (23%), seafood (20%) and deli (22%) shrink.

Overall, the survey reported that 56% of shrink was caused by employee theft (24% by general employees and 32% by cashiers) and 21% by shoplifting. Back door receiving was responsible for another 10% of shrink.

While employee theft is at the core of supermarket shrink, Miller sees employees more as a solution than as a cause of shrink. “Rather than blame employees, retailers need to engage them,” he said, recommending an ongoing training program that incorporates technology.

Self-Checkout: Sources of Shrink

52%
Sliding goods past the scanner

11%
Refunds

10%
Cashier fraud

10%
Collusion between cashier and customer

9%
Coupon fraud

8%
Lack of cashier accountability

Source: National Retail Research Group