GAINESVILLE, Fla.—While the 2008 National Retail Security Survey Final Report, which was released in mid-October, continues to find that the largest contribution to shrink is employee theft at 42.7 percent of all losses, or approximately $15.5 billion in impact, there is a new way to look at that number. Something the survey did not account for in previous years was how much theft included collaboration between employees and outside parties. While retailers often cite any theft that involves an employee as ‘internal theft,’ the 2008 survey collected information on collusion efforts between internal and external partners. Of the nearly 43 percent of employee theft, retailers reported that 14.4 percent involved collusion between and employee and an external party.

“This is an important number because in the LP system it’s black or white—either internal or eternal,” said Joe LaRocca, senior asset protection advisor with the National Retail Federation. “So when you read the report and the majority of losses is internal, but external had co-conspirator, that starts to balance the numbers out to almost 50/50, which is important given the ORC activity we’ve seen where employees are passing merchandise off to friends. That was a big ‘ah hah’ moment.”

LaRocca is referring to the second most significant contribution to shrink: shoplifting, with retailers reporting nearly 36 percent or $12.9 billion in losses.

Dan Doyle, senior vice president of human resources and loss prevention for Bealls Department Store, agreed that tracking collusion is an important detail. “I think historically we’ve always known it existed and just done a poor job of tracking it,” he said. “It’s certainly something we have experienced at some level and I think it’s a number that’s hard to measure, but not surprised at least by the perception of the figure and something we need to track further over time.”

The study as a whole reveals that shrink rose significantly in 2008 to 1.51 percent from 1.44 percent in 2007. While this represents significant growth in shrink, the report clarifies that last year’s shrink was an “all time lowest” and, overall, shrink rates continue to decline over the past decade.

Regardless of industry-wide improvements in shrink rates, it remains a $36.3 billion problem for retailers.

And while this survey provides an overall view of shrink of retailers nationwide, it is critical for specific segments to be able to use this survey as a benchmarking tool for their sector.

Children’s apparel, for example, reported the second highest rate of shrink at 2.26 percent. However, David Shugan, director of loss prevention for Carter's Inc., said that this number needs to be taken with a grain of salt, as only two children’s apparel outlets contributed to the survey. “Children’s apparel looks like it’s up and based on conversations in the children’s industry from loss prevention executives, we’re seeing external theft going on as it is in all of retail,” he said. “But we see our shrink heading in the right direction and have some good numbers.”

For some retailers, this year is the first time they’ve been represented in the survey. The category of strip centers was added in 2008. “We demanded it and felt that we had different issues than malls and other retailers face,” said Tina Sellers, vice president of loss prevention for Game Stop. While Game Stop does have some mall locations, many of its venues are within independent strip center settings. “The reason we asked for it was because the survey is only useful in terms of looking at your particular segment … Having our own segment meant that we could look how shrink is affecting our peers and the ones in strip centers and so it’s very important to have this designated category.”

Sellers said she was surprised by some of the numbers in the report. While the survey reports that strip centers are the third highest shrink rates at 2.22, Sellers reports that “shrink is at all-time low” at Game Stop. 

And while internal and external theft remains the largest issues retailers face in terms of shrink, loss due to administrative and paperwork errors contributed nearly 15 percent or $5.59 billion in losses. Also, vendor fraud contributed 3.74 percent or $1.34 billion of losses in 2008.

And while this report offers a lot of information pertinent to retailers in nearly all segments, everyone interviewed for this article emphasized the importance of having more retailers contribute. “This report helps us understand what other people are doing and their shrink levels,” said Shugan from Carter’s. “This is the only full statistical benchmarking tool we have in the industry, so there’s a lot of value in it.”