Retail Risk – New Report Highlights £7.9 Billion of Losses in 2023 from UK Warehouses, Distribution Centres and Stores
The European Alliance for Safe Retail (EARS) found that the cost of retail crime in the European Union increased by 13% in 2022, to €16.6 billion, the highest figure since the study began in 2015.
Like all most forms of business crime, this loss estimation is likely to be very conservative, and based solely on the generally low level of information made available.
What lies behind this growing problem for retailers – and, indeed, all end-to-end stakeholders from supply chain logistics service providers to shareholders and consumers – has now been the focus of a new report produced by independent research consultancy, Retail Economics, and Thruvision, a leading supplier of walk-through security technology deployed in more than 20 countries.
Using Retail Economics’ proprietary data, and modelling to quantify the value of retail theft, and its allocation across employees and customers, the report shares insights from 100 retailers to evaluate key trends and solutions. It analyses, quantifies, and forecasts the value of theft across retail businesses in the United Kingdom and explores structural changes that present greater opportunities for theft as well as strategic opportunities for the industry to minimise the issue.
In three parts, the report looks at:
- quantifying theft across customers and employees
- understanding the drivers of retail employee theft
- proactive solutions to tackle employee theft
Why these three factors are becoming so critical for the UK retail sector is explained by one simple figure. In 2023, retail businesses across the country forecast thefts will cost a staggering loss of £7.9 billion.
Whilst the rising level of shoplifting has been hitting the headlines in the UK this year, the study reveals that employees working in retail account for a substantial 40% of the value of theft and average losses from a dishonest employee can be four times higher versus shoplifter product thefts.
This creates another significant financial headache for retailers already facing a backdrop of rising operating costs and squeezed profitability, the report states.
Retail Economics and Thruvision also identified how losses are incurred along the retail supply chain. Their research shows the UK retailers are increasingly suffering thefts from warehouses, distribution centres, as well as stores as cost-of-living pressures mount and more complex operations alter the dynamics of crime.
Employees working in warehouses, distribution centres, and stores account for 40% or £3.2 billion in retail theft losses, and this includes the activities of organised crime groups.
“Beyond the financial impact, retailers also face downstream problems such as inventory inaccuracies and dissatisfied customers. Effective retailing relies on accurate inventory levels for effective supply chain management, replenishment, and demand forecasting. Shrinkage jolts operations, and leads to inaccurate data collection, incorrect records, lost sales, and stockouts.
“Consumers are not immune to this impact. Losses are likely passed indirectly on to customers through price increases, exerting further pressure on already high levels of inflation across retail,” the authors state.
Retail Economics and Thruvision add that, despite the vulnerability of the retail industry to employee theft, it remains commonly under-reported within mainstream media. Employees steal in different ways, either in isolation, small groups, or in organised gangs and theft rings. The consequences can be significant. Aside from the obvious profit loss, crime causes low morale among workforces and a ‘culture of suspicion’ in the workplace alongside inventory inaccuracies.
The report says modes of theft can be direct and indirect.
Direct crime examples include employees simply handing over merchandise to friends in stores, while indirect theft can include the relabelling of packages in warehouses to be delivered to ‘collection’ addresses. It adds: “Theft in warehouses and distribution centres is a particular hotspot for crime with many incidents going unreported amid perceptions that the police response is often inadequate.
“While the circumstances leading to theft can be many and contradictory, there appear to be two main factors: personal issues and environmental factors. Personal issues include greed, cognitive ability, and low perception of risk, while environmental factors include peer influence, group culture, and easy access to insecure assets.
“Employee theft is a continual battleground for loss prevention managers and, with greater sophistication and technology available to both sides – retailer and thief – the battle can become exceptionally challenging.”
Analysis shows that the combination of a cost-of-living crisis, the shift online over the past decade, and austerity policies reducing police budgets have cumulatively shifted motives, opportunities, and risk related to theft, all to the detriment of retailers. In addition, a growing trend of more organised crime leaves retailers increasingly exposed to widespread theft at scale, the report says
A survey of managers and directors responsible for loss prevention at large UK retailers shows a fifth or 20.9% have experienced issues of employee theft over the past year. Over a quarter of those surveyed (26.4%) believe the types of products being stolen in distribution centres have also changed, shifting towards smaller items and valuable electrical products which are both highly desirable and easy to resell.
Additionally, Retail Economics and Thruvision point to the shift towards stealing essential items, such as groceries and clothing, driven by the harsher economic backdrop resulting from higher inflation and interest rates. Two-thirds of the survey’s respondents believe the financial pressures created by the cost-of living crisis in the UK has driven an increase in thefts by employees at distribution centres over the past year.
The step-up in thefts is particularly impacting food retailers, with a third of 33.4% of businesses suffering, increasing losses from thefts.
“Structural shift in the labour market is also believed to be impacting crime. Half (50.9%) of retailers surveyed consider the reliance on temporary staff as being a key driver of theft. Retailers grappling current vacancies rely on a transient workforce. Although minimum wages have increased in recent years, there remains a perception of declining job satisfaction as the intensity of work changes and greater sickness in the labour force impacts full-time work,” the report says. “Temporary employment has become a solution for retailers grappling with labour shortages as well as those looking to reduce fixed overheads and pension commitments. This brings unique challenges around employee loyalty and commitment.
“Consequently, it also ripens the conditions for internal theft as temporary employees may view theft as a means of compensation or retaliation for their work conditions. Challenges around long-term training, support and development opportunities for temporary employees risk reducing job satisfaction and commitment.”
It continues: “The growing scale of retail operations and rising complexity in omnichannel supply chains is creating fertile ground for criminal activity. Around two-thirds (59.8%) of retailers believe that over the past decade the opportunity for crime in DCs has accelerated. Opportunities for crime are twice as likely to be prevalent among larger retailers with a turnover of £1 billion-plus than smaller players. This can firstly be attributed to the scale of goods handled and expansive distribution networks making crimes more possible, and, secondly, to employee attitudes towards larger companies.”
In considering the main reasons behind increasing thefts in DCs over the past decade, the report says issues are concentrated around automation, complexity of operations, and reliance on subcontractors. “These factors have become more acute since the pandemic. Online sales accelerated during lockdown are placing huge pressure on operations – including warehousing and picking – necessitating aggressive recruitment in a tight labour market. This has exposed weaknesses with major players admitting to compromised operations to cope with a shift in demand.”
While enhancing efficiency can reduce oversight with fewer workers ‘on the ground,’ this can also allow theft to easily go unnoticed. The report says that to compound matters, crime has become more organised in its nature, with 70% of those participating in the study stating they have seen an increase in organised crime in DCs over the past year. It continues: “This includes gangs being a driver of criminal activity involving large-scale coordinated thefts on retailers. This typically involves a criminal enterprise recruiting individuals to steal large quantities of merchandise for financial gain, rather than personal use.
“Criminals then turn to online or black markets to sell stolen goods at scale.”
Associated risks also involve heightened levels of violence or compromised safety.
The report goes on to say that over a third (35.9%) of retailers do not believe loss prevention measures are fit to deal with the level of theft at present, with over a quarter (27.7%) of loss prevention managers saying theft is not being taken seriously by their employer.
Investment in loss prevention is concentrated on inventory tracking and staff training, leaving gaps in the overall strategy for dealing with theft. Alarmingly, 55.5% of firms do not routinely attempt to prosecute employees that steal from DCs. This comes from the fact that more than half of retailers believe police do not take theft seriously enough, the report states.
It highlights: “Retailers can face frustrating legal hurdles and a perception of law enforcement apathy, leading them to prioritise internal disciplinary actions, but doing so reduces the deterrence of prosecution.” The report says that while internal disciplinary measures are necessary they should complement, and not replace, legal prosecution efforts. “It otherwise risks crimes going unrecorded, making it easier for businesses to unknowingly hire criminals, which has the potential to perpetuate theft across the industry.”
Discussing proactive solutions to tackle growing employee theft, research found that the dynamic nature of retail crime means there’s no ‘one size fits all’ solution. Loss prevention strategies need suite of policies to detect, deter, and prevent loss amid increasingly sophisticated crime. The report identifies three strategic pillars that retailers must consider to effectively minimise employee theft: deterrence, monitoring, and collaboration, forming a foundation of a comprehensive strategy to address the evolving nature of theft.
Retailers that remain proactive, it says, will not only reduce the impact of theft, but also foster a safer and more secure retail environment for employees. This, in turn, will make the industry more attractive to talent and improve the pool of labour available. “However, given the immediate realities of a tight labour market, retailers must strike a balance between treating the vast majority of honest employees fairly while deterring the small number of dishonest ones.”
The report concludes that by prioritising technological investment in loss prevention and encouraging engagement with police to deter crime, retailers can restore profitability, and safeguard workers amidst the ever-evolving battle on retail fast.
