Canadian retailers lose about $4-billion a year to theft, accounting errors and damaged products, with an increase in the percentage of employees involved in the activities from 2008, a study has found.
Overall, the so-called shrink rate has remained relatively steady since the last study in 2008, when losses totalled about $3-billion.
The report, to be issued on Wednesday by PricewaterhouseCoopers LLP and Retail Council of Canada, estimated that employee theft grew to more than 33 per cent of theft-related incidents, from 19 per cent in 2008. Theft by external parties including shoplifters and organized crime dropped to 43 per cent of reported incidents from 65 per cent in 2008, it estimated.
Retailers reported an average shrink rate of 1.04 per cent of sales in 2011, compared with 1.42 per cent in the United States.
Alcohol, women's apparel, cosmetics and fragrances were among the top stolen items.
Retailers used more closed circuit television and DVR recording systems, observation mirrors and toll-free tip lines to control both in-store and in-warehouse losses, the study found. More than 65 per cent of respondents indicated they always used those tools compared with just 39 per cent in 2008.
But only 35 per cent of retailers said they frequently used alarms on merchandise, compared with 72 per cent in 2008. "Retailers are using more sophisticated and concealed tools to keep shrink low while at the same time trying to provide customers with a better experience interacting with their merchandise," said Stephen O'Keefe, vice-president of operations at the retail council.
He said the retail industry tends to be at greater risk of employee theft than shoplifting. "The focus for employers is to create a heightened sense of awareness and need for staff to be a part of the solution, which has resulted in more reporting of incidents than ever before."
Because of the shift to more employee theft, many retailers have decided to increase their investments in managing internal theft. "A dishonest employee with inside knowledge of retail operations and systems has the ability to do more harm than typical shoplifters," said Paul Beaumont, director of PwC's Canadian retail consulting services practice.
Retailers that respond with a severe punishment of an employee send a clear message that there is zero tolerance for dishonest behaviour, he said. The study found that 88 per cent of respondents charged the employee criminally and 94 per cent dismissed the employee with cause.
While three out of five retailers performed pre-employment screenings before hiring new staff, only 29 per cent requested new employees pass a police background check – half as many as in 2008.