Crime chronicles in retail: Statistical insights reveal an underlying issue
Rewritten Article:
The mystery surrounding retail theft persists, as it's challenging to pinpoint its true extent and whether it's worsening. Retail businesses, along with certain retail chains, continue to emphasize the issue, with the National Retail Federation recently convening on Capitol Hill for what they called "Fight Retail Crime Day."
Many point to high-profile instances of smash-and-grab store robberies or the arrests of organized thieves as evidence of the problem. While reporters, analysts, and other business groups rely on the NRF and Retail Industry Leaders Association for statistics, some question if the retail industry is exaggerating the issue.
"Though theft likely increased, companies may also be drawing attention away from declining profits, as they've implemented more promotions and struggled with weaker inventory management in recent quarters," observed William Blair analysts, led by Dylan Carden, in an Oct. 25 client note.
Tangled terminology and imprecise numbering make it difficult to assess how retail crime impacts the industry. Each year, the NRF releases its "Retail Security Survey," touted as "The state of national retail security and organized retail crime." The research, a survey of various retailers, delves into inventory loss, known as "shrink."
The problem begins there. Shrink encompasses losses due to a variety of reasons, including operational or process mistakes, systemic errors, and theft. The NRF's annual retail security survey reported that retail's shrink rate climbed to 1.6% of sales in 2022 from 1.4% in 2021.
However, the term "shrink" is often used interchangeably with "theft," though over a third of shrink results from administrative reasons unrelated to theft. Even the NRF itself has been inconsistent, reporting its full shrink number, in dollar terms, as a problem of "retail crime" in its press releases, even though retail crime is a subset of that total shrink number.
Earlier this month, this error surfaced in New York, where Gov. Kathy Hochul vetoed a bipartisan bill that would have established an organized retail crime task force. In a published statement, the New York Retail Council criticized the move, noting that "Stores that invest in New York communities lose $4.4 billion to retail theft," a statistic drawn from a Capital One Shopping report on retail theft, which conflates the NRF's total shrink number with retail theft and then extrapolates those numbers by state.
If we examine the NRF's data according to Capital One's report, the amount related to all types of retail theft in New York would be $2.86 billion, significantly less than the original statistic. Amanda Powers, the New York Retail Council's spokesperson, declined to comment on this possibility, citing a lack of additional relevant statistics.
Despite improvements in shrink levels remaining fairly steady since 2015, retailers are preoccupied with theft because about two-thirds of shrink is suspected to have been stolen, either by employees or external thieves, according to the NRF's surveys. While the NRF and the Retail Industry Leaders Association prioritize one type of theft—organized retail crime (ORC)—there is debate around its precise definition and impact.
ORC is defined by the NRF as "theft/fraud activity conducted with the intent to convert illegally obtained merchandise, cash, cargo, or cash equivalent into financial gain (no personal use), typically through their online or offline sales." This definition is neither legal nor precise, contributing to inconsistent reporting from store workers, loss prevention staff, police, and other experts.
In addition, the scale of ORC is unclear. In its 2020 report, the NRF stated that ORC costs retailers an average of $719,548 per $1 billion in sales, which would amount to 0.07% of sales. More recently, the NRF has stopped releasing financial costs specific to ORC.
This inconsistency has led some analysts to question the industry's portrayal of the problem. While S&P Global Ratings labeled retail theft as one of "the top risks to the sector," analysts there also suggested that some retail companies may be exaggerating the problem's extent.
Perhaps surprisingly, even the NRF recognizes this issue, stating that the reported dollar value of ORC probably underestimates the problem. However, not all retailers investigate ORC, some because they're not vulnerable to it, while others may be unaware of its extent.
In an uncertain climate, one thing is clear: we need reliable, standardized data to accurately address this issue. Unfortunately, the data we have is often outdated, inadequate, misinterpreted, or a combination of all three, leading to misuse in press coverage and elsewhere.
Initially, the industry has relied on surveys of a relatively small number of large retail chains for its reports on theft. The NRF's Retail Security Survey and RILA's 2021 statistics on stolen goods depend on non-representative samples, casting doubt on their conclusions. RILA's 2021 report on retail crime estimated that as much as $68.9 billion worth of products were stolen from retailers in 2019. However, five retailers represent too small a sample to draw broad conclusions.
The NRF's annual shrink report includes data from more than five retailers, but it too depends on a small pool of respondents representing a tiny fraction of its membership, which includes about 16,000 retailers. Situations like these may distort perceptions of the theft problem, with non-responding retailers perhaps experiencing theft to a lesser or greater extent.
Amid this confusion, some question the usefulness of data like RILA's finding that $68.9 billion of goods was stolen from retailers each year, now circulating widely in press releases, media reports, and white papers on retail crime, despite referring to all theft, not just ORC. Even government agencies like the U.S. Immigration and Customs Enforcement Agency and the Department of Homeland Security cite this figure in their anti-ORC efforts.
In summary, while the retail theft problem is on the rise, accurate representations of its size and impact can vary significantly based on the region and data sources. To develop effective policies to address retail theft, we need reliable, standardized data that reflects the actual scale of the issue.
- The ongoing debate about retail theft is complex due to its elusive scale and worsening nature, as highlighted by retail businesses and various retail chains.
- High-profile incidents of smash-and-grab store robberies and arrests of organized thieves serve as evidence of the escalating retail crime issue.
- Some question the retail industry's portrayal of the issue, suggesting that companies may divert attention from declining profits by emphasizing the problem.
- The term 'shrink' often gets used interchangeably with 'theft', but over a third of shrink results from administrative reasons unrelated to theft.
- The NRF's annual retail security survey showed a rise in the shrink rate from 1.4% in 2021 to 1.6% in 2022, but studies suggest this may be due to errors or operational issues rather than actual theft.
- Misinterpretations and inconsistencies in data collection make it difficult to assess the impact of retail crime accurately on the industry.
- The NRF's reports and press releases often conflate the total shrink number, which includes losses from various reasons, with retail theft.
- Earlier this month, a controversy arose over a vetoed bill in New York, as its original statistic on the amount lost to retail theft conflated the NRF's total shrink number with retail theft.
- If we examine the NRF's data according to Capital One's report, the amount related to all types of retail theft in New York would be significantly less than the original statistic.
- Retailers focus on theft because about two-thirds of shrink is suspected to be due to stolen goods, either by employees or external thieves.
- The NRF and retail Industry Leaders Association prioritize organized retail crime (ORC), but there is debate around its precise definition and impact.
- ORC is a subset of the total shrink number, but the NRF stops releasing financial costs specific to ORC, leading some analysts to question its portrayal of the problem.
- Inconsistencies in defining and reporting ORC have led to misuse of data in press coverage, media reports, and white papers on retail crime.
- To develop effective policies to address retail theft, we need reliable, standardized data from broader and more representative sources that accurately reflect the actual scale of the issue.
