Management Weekly News Update June 3, 2023 – June 9, 2023

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Jun 8

Not Just Shoplifting: Here's Why Companies Say Retail Theft is Such a Big Deal

Fonrouge, Gabrielle
CNBC.com

Posted 05/31/2023

Key words and Definitions

Retail theft – the loss of goods due to shoplifting, organized retail crime, and internal employee theft.

Organized retail theft – the practice of two or more people as part of a criminal organization obtaining items from retailers via theft or fraud.

Retail shrink – the difference between actual inventory and the inventory shown on a firm's balance sheet.

Summary: Key Points of the Article

U.S. retailers have been sounding the alarm about increased retail theft and the ensuing impact on profits. Shrink, as it is often dubbed, can force retailers to close stores due to lower returns and also increase employee turnover due to safety concerns. Retail shrink encompasses inventory loss from multiple factors, but it is simply the difference between the inventory a firm carries on the books and the firm's actual inventory.

Shrink includes losses from employee theft, shoplifting, damage, and organized retail theft. Parsing out the exact reason for shrink is difficult to do. However, a study conducted by the National Retail Federation indicates that shrink cost retailers $94.5 billion in 2021. The study estimates that 37% of shrink losses can be attributed to retail theft, 28.5% to employee theft, 25.7% to process and control failures, and the remainder due to unknown factors.

Organized retail theft is increasing with the rise in online shopping. Online marketplaces make it much easier to "fence" stolen merchandise and Covid accelerated the trend. Coupled with the fact that the people stealing the goods get almost no punishment if caught and it becomes an easy way for criminals to make money. The problem is so significant that in 2023 Walmart, Target, Home Depot, T.J. Maxx, Foot Locker, and other recognizable retailers all mentioned shrink contributed to lower profits in their most recent fiscal year.

News Topic

#18 Controlling

Exercise 1 Multiple Choice Questions

Which of these is a source of retail shrink?
a. Shoplifting
b. Product damage
c. Organized retail theft
d. all of these
Answer: Retail shrink can come from several sources including shoplifting, product damage, and organized retail theft.
________is the process of monitoring, comparing, and correcting work performance.
a. Planning
b. Controlling
c. Organizing
d. none of these
Answer: Controlling is the process of monitoring, comparing, and correcting work performance. Planning is the practice of setting goals, identifying strategies to achieve those goals, and then developing the steps to accomplish the goal or objective. Organizing involves arranging and structuring work activities to achieve organizational goals.
Shrink losses are not substantial enough to matter to most retailers.
True
False
Answer: Several large retailers cited shrink as one of the reasons profits were lower in the 2022 fiscal year.

Exercise 2 Critical Thinking Questions

What can managers and retailers do to reduce shrink?
Answer: Tagging products, installing surveillance, hiring security guards, and conducting background checks on employees can all help reduce shrink. Conducting frequent inventory and changing store layouts can also reduce shrink.
What factors contribute to the recent rise in organized retail theft?
Answer: The increase in online buying makes it much easier to sell stolen goods. Also, the legal system rarely prosecutes for petty theft so there is no deterrent. Thieves can shoplift products and sell to someone who markets the product online for a fraction of the cost.
How can inventory control reduce shrink?
Answer: Continuously monitoring inventory allows you to identify the stolen merchandise and then focus efforts on reducing theft of these specific items. This practice may be most effective in deterring employee theft which is estimated to account for about 28.5% of all shrink losses.