Retail shrinkage is increasing by 8-15% per year

Security Center of Iceland promotes new ways to handle loss prevention.


The Security Center of Iceland recently held a seminar where new ideas for fighting shrinkage were presented.

"The shrinkage problem is quite significant in most retail businesses and to be able to fight it is vital," says Omar Jonsson, Marketing Manager at The Security Center.

At the seminar, two specialized types of software from the Danish software company Milestone Systems were promoted for identifying and analyzing possible shrinkage by theft or error. Milestone is in the forefront worldwide in surveillance software for managing IP cameras. The Security Center of Iceland is a Milestone partner in Iceland, and amongst current Milestone users in Iceland are Reykjavik City, Ministry of Justice, and the retail chain Kaupas.

Omar states that shrinkage can basically be categorized in three different sectors: first, when goods are not correctly delivered from vendors; second is any types of clerical errors, and third is shrinkage inside the store which can be traced to both customers and employees.


Shrinkage is a global problem

At the seminar, statistics for European shrinkage were discussed. European shrinkage is estimated to have been 2,000 billion ISK in 2006, and in Denmark alone 84,000 ISK are lost in shrinkage every minute.

"The problem is enormous and the retail industry is bleeding money in shrinkage, which could lead to lower prices if they could handle the problem, as eventually the customer is always paying for the damage in the end. Many retailers are putting significant effort in fighting shrinkage as it can really be a key factor for their business," says Omar.

At the seminar it was revealed that worldwide shrinkage affects from 1.5-3% of revenue in the retail industry and has been increasing by 8-15% per year (different between countries). Earlier studies showed that approximately 50% of shrinkage from inside the store was caused by employees and 50% by customers, but more recent studies speculate that up to 80% comes from employees. This shift can be traced, for example, to increased security efforts inside stores that have limited the possibility for customers to steal products.

"In this specific research, it also highlighted that a large amount of thefts can actually be traced not just to regular employees but also to managers - and that is a very shocking finding. Another interesting point of view is that 10% of goods are targets for 60% of the shrinkage, which means that for shoplifters special types of products are much more appealing than others, such as cigarettes and expensive products," reports Omar.


Two types of software

"Milestone XProtect Transact enables companies to link transaction data from cash registers with video so it’s easy to compare data with goods on the table. The system allows operators to use text search, and with that possibility it’s easy, for example, to look into the 10% of products especially involved in the majority of shrinkage and see if they are properly handled at the cash register," Omar informs.

Statoil installed the system for evaluation at a gas station in Denmark that had the highest shrinkage (Statoil runs approximately 300 service stations around Denmark). After implementing the system, they found out that they had significant problems with the staff which they had to fight, and after doing that, the branch moved from the top of the problem list to bottom ten. After this successful evaluation Statoil started to implement the system in other service stations and now have it in around 150 of Statoil’s 300 service stations, and the number is increasing rapidly.

"The system is quite simple to implement and is a great choice for smaller retailers. Calculations from Milestone customers on ROI that were presented at the seminar show that the investment has paid off within a year in many cases," says Omar.

"Milestone XProtect Retail is much more advanced software which collaborates data to a single server, where you can define various criteria for the system to observe. For companies who have tens of thousands of transactions, it may not be cost effective to observe them all for mistakes. They have to use some intelligence to sort out the transactions most likely to be linked to shrinkage, and this software allows them to identify exactly what types of transaction they want to observe based on their individual needs - it can be different between companies or branches where the main problem lies," Omar explains. "The system was installed in the IKEA pilot store in the Netherlands with great results where ROI was measured in less than a year."


The interest is high

Omar relates that Icelandic retailers have shown great interest in this new technology.

"Retailers are like all businesses: always looking into cost vs. gain and the ROI is critical for them. I think Icelandic retailers are well aware of the shrinkage problem and are doing what they can to fight it. I think many of them will use this new technology sooner than later to help them fight shrinkage, get better results out of their business and hopefully with the benefit for customers in lower prices," he concludes.

This article was translated to English from an article that ran Tuesday, 20 March 2007 on page 10 in the largest Icelandic business newspaper, Vidskiptabladet: www.vb.is; see the full article in Icelandic here

Security Center of Iceland (ORYGGISMIDSTODIN)
Security Center of Iceland has specialized in providing security equipment and guarding services for home and businesses since 1995. They provide total range of security including CCTV, Fire distinguishers, access control etc. Learn more at http://www.oryggi.is/company_profile/.

Security Center of Iceland has specialized in providing security equipment and guarding services for home and businesses since 1995. They provide total range of security including CCTV, Fire distinguishers, access control etc. Learn more at http://www.oryggi.is/company_profile/.