Retailers Brace for Surge in Shoplifting
Weak Economy Expected to Spark Increase in Theft
By Ellis Mnyandu
Reuters
NEW YORK (Nov. 5, 2001) - As the United States beefs up its defenses against attacks like those of Sept. 11, U.S. retailers and especially drugstores, are bracing against a lesser threat but one that could cost billions: Shoplifting.
With the holiday shopping season just around the corner and the economy heading south, the temptation to steal for some people is just too hard to resist, the stores say.
Thousands of people have lost their jobs in the weeks since the Sept. 11 attacks on the United States, which may have pushed an already weakening economy into recession. Unemployment surged to a five-year high in October, according to a report issued Friday.
Some analysts say that the threat of anthrax and the constant talk of other, possibly worse, forms of attacks, has diminished the relative risk of being caught shoplifting. Security officials are being forced to deal with other, more pressing issues, at a time when the threat of shoplifting losses is on the rise.
''Clearly, I believe the weak economy is certainly a factor in increased shrink,'' said Tom Ryan, chairman, president and chief executive officer of CVS Corp., the No. 2 drugstore chain.
''Shrink,'' or ''shrinkage'' are the industry terms for shoplifting, administrative errors and vendor fraud.
''We expect increased shrink expense for the first half of 2002,'' Ryan said on Tuesday as CVS unveiled a 16 percent drop in third-quarter profits.
THE COST
According to the National Retail Federation, shrinkage cost U.S. retailers a whopping $25.2 billion in 1999, and that figure is likely to grow as the economy remains in the doldrums.
Although shrinkage affects most of retail, drugstores are seen as particularly vulnerable because of the large proportion of higher-margin front-end merchandise that they carry.
The front-end includes such staple items as toothpaste, snacks, soda, cosmetics, jewelry, greeting cards, and small appliances.
But CVS -- which currently operates more than 4,100 stores -- said items on the hot list of shoplifters' were disposable cameras, nicotine replacement kits, home diagnostic kits, batteries and film.
Duane Reade Inc., a leading regional drugstore chain in the New York City area, said last Friday it also saw higher levels of ''shrink-related losses'' during the business interruption that followed the plane attacks on the World Trade Center.
''As unemployment continues to rise and GDP continues to fall, then shrink levels are going to get worse,'' said Mark Husson, an analyst at Merrill Lynch. ''Shrinkage is making a difficult situation even worse.''
Husson said most retailers had tended not to make a big deal out of shrinkage before. But better inventory management systems have increased their awareness of the problem.
Many retailers, including drugstores, can now easily gain a clearer picture of what jumps the checkout, as well as the impact of the problem on their profit margins.
BACKGROUND CHECKS
Rite Aid Corp., the nation's No. 3 drugstore chain after Walgreen Co. and CVS, says it has reintroduced background screening of prospective staff in its efforts to curb shrinkage.
''We have taken a variety of steps to reduce shrinkage,'' said Rite Aid spokeswoman Karen Rugen.
Rite Aid, based in Camp Hill, Pennsylvania, which operates about 3,600 stores, has also hired more store guards and sought help from a private firm to evaluate its supply chain system, she added.
Rite Aid reported a 1.2 percentage-point drop in gross margins for the fiscal second quarter, due in part to theft by customers and employees.
CVS, based in Woonsocket, Rhode Island, said that among other measures, it will put merchandise susceptible to theft behind counters or behind glass displays.
Asked about the shrinkage problem, Walgreen spokeswoman Carol Hively said, ''We have not seen anything out of the ordinary''.
''Shrinkage is always a factor in retail. It's not anything that's going to hinder our growth,'' Hively said. Walgreen operates more than 3,500 stores and currently plans to open 475 stores through 2002 and operate 6,000 stores by 2010.
While the initial reports show that the shrinkage is on the rise, some security experts expect that, in the longer term, the nation's heightened sense of security since the Sept. 11 attacks may also help retailers, perhaps as early as this coming holiday shopping season.
''I think the vigilance will help deter some of the shoplifting,'' said Joseph Ricci, a spokesman for the International Security Management Association.
REUTERS Reut10:14 11-05-01
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