This is one of the key findings of Retail Fraud’s first survey into the use of retail loss prevention systems, processes and strategies by the UK’s leading retailers, scheduled to be published and released at the Retail Fraud Conference this 14 April.
Other key findings include low investment in fraud management systems, a disconnect between store and online shrink, increased trends in return goods fraud and a poor take-up of contactless payment technologies at the present time because of the perceived deployment costs.
Independently researched by Martec International, which interviewed the UK’s leading 100 retailers with annual sales totalling £98.7 billion, encompassing over 47,000 stores, the survey highlights the scale of current fraud threats and the mitigation methods either in place or not.
Key findings included:
- Shrinkage levels averaged 0.9% of sales varying between 2.9% of sales for hospitality and leisure retailers to a low of 0.7% for home shopping retailers. With most retailers achieving pre-tax profits of 1.5-7% of sales, shrinkage levels of 0.9% represent a significant dent in profits
- Almost 60% of loss prevention executives believe that shrinkage will get worse in the life of this parliament, while 34% believe it will remain the same. This is due to the weak economy as people steal for ‘need rather than greed’
- The biggest area of loss is shoplifting or external stock theft (34%), followed by employee theft (26% of respondents). Internal cash theft represents 10%
- Store-based fraud prevention spend averages 0.8% of sales, just under average shrinkage levels but for 20% of retailers the spend on loss prevention is higher than their shrinkage level. For example, department stores and mass merchants/variety stores spend a far higher proportion of their sales on loss prevention than other retail sectors at 2.2%
- At 0.3% of sales, online fraud prevention spending is much lower than in store although some costs may be hidden for retailers new to online trading as these functions are carried out by other departments such as finance and e- commerce. But as internet trading becomes a higher proportion of sales for most retailers (it is 10.9% for the leading 100 UK retailers currently), then it is expected that online loss prevention spend will increase
- Introducing and maintaining a culture of loss prevention in the business was a priority for 23% as this is seen as the most effective way of reducing shrinkage in tough economic times, followed by internal or staff fraud with 20%
- For most retailers interviewed, the head of loss prevention does not have responsibility for online fraud. As true multi-channel retailing comes of age, loss prevention departments may need to be restructured so all losses are managed together
- Return fraud averages 0.17% of sales, almost 20% of total shrinkage. This includes increased trends in ‘wardrobing’ clothes for special occasions and returning for full refund, returning stolen merchandise for full price, receipt fraud and price switching
- Stock counting is predominantly carried out in-house (66%) with 28% outsourcing the function. Just over a third were happy with their current stock counting process. The biggest improvements required are better trained staff (17%) and better use of technology (13%)
- Alarms are used by 97% of the store based retailers, security cameras used by 96% and card payment security systems used by 95%. Online, the ‘must-have’ systems are online payment security used by 91%, payer authentication (81%) and fraud screening (75%)
- Use of self-checkout tills accounts for 2.3% with the remainder being manned tills. This is predicted to increase particularly in other environments such as DIY and mass merchants
- Retailers were asked to mark out of 10 what the possibility was of them integrating contactless payment methods with current processes over the next three years, and the rating was 2 out of 10 showing a low interest probably because of the costs of adoption' However, the leisure and hospitality retailers averaged 3.5 out of 10, with fast food and coffee shop companies especially interested
- Recent statistics show that the Bank of England removes from circulation over £10 million in counterfeit notes per year, but almost 32% of retailers do not use any systems for forgery detection, maybe because of their reducing effectiveness against sophisticated copies
- The majority of retailers do not use fraud management systems with almost 64% not using
- The fraudulent use of coupons is on the rise but only 10% of retailers use any sort of system to detect and prevent. As this is an area that is starting to impact on retailers’ bottom lines, this look set to increase