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THE EUROPEAN RETAIL THEFT BAROMETER

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THE EUROPEAN RETAIL THEFT BAROMETER Powered By Docstoc
					T H E E U RO P E A N
R E TA I L T H E F T
BAROMETER
      Monitoring the Costs of Shrinkage
                 and Crime
           for Europe’s Retailers


     Fourth Report to the Retail Industry
Centre for Retail Research
Lenton Business Centre
Lenton Boulevard
Nottingham
NG7 2BY
+44 115 970 0555
E-mail research@retailresearch.org

www.retailresearch.org
Shrinkage in an Enlarged Europe
Foreword to the 4th European Retail Theft Barometer

It has taken just three editions for the ERTB to become a best seller of a report. We receive many phone
calls and emails from retailers and journalists from all over Europe seeking advanced information, all of
which we have to decline until Professor Bamfield publishes the findings.

What makes the ERTB different to other studies is the fact that it is an accurate index of retail theft as
reported by the stores themselves.

This year the study includes the findings from the central European countries of Poland, the
Czech Republic, Hungary, Slovakia, Latvia, Lithuania and Estonia to reflect the changing face of the              Per Levin,
newly-enlarged EU.                                                                                             President Europe,
                                                                                                              Checkpoint Systems
We live in a global economy and retail is literally the shop window of that economy. The figures therefore
provide a valuable insight into shrinkage over this newly enlarged territory as well as providing retailers
with vital intelligence about how each of them is thinking in terms of solutions.

As always, the figures speak volumes and this year’s report correctly draws a direct correlation between
the increasing use of Source Tagging (57 per cent of retailers now employ Source Tagging with a further
16% in the early stages of a programme) and the 2.2 per cent drop in the overall shrinkage, a trend that
was first identified in the last survey.

The report this year included additional questions about Radio Frequency Identification (RFID), the
so-called ‘smart’ technology that is more than an anti-shrinkage device, but will in the next decade
revolutionise the retail supply chain as we know it. This is still a few years ahead, but the fact that
retailers are today investing more in Source Tagging and RF/EAS technology systems, the technology
building blocks for future RFID migration, shows that they are serious about reducing shrinkage and
dramatically improving supply chain efficiencies.

Looking to the future applications involving RFID, one of the most significant findings was that more
than 60 per cent of retailers feel that consumer anxiety will disappear once they understand more about
the technology.

The message is therefore clear – RF/EAS and Source Tagging are proving invaluable in the fight against
shrinkage. Looking ahead RFID is on the retailer’s radar, but organisations involved in trails and
promotions must involve the consumer at every level to ensure their buy-in now, and in the future.

I am delighted that Checkpoint Systems is once again sponsoring the European Retail Theft Barometer,
the largest survey of retail crime in the world, now in its fourth year.

We are indebted to Professor Joshua Bamfield and his team at the Centre for Retail Research (CRR) and
to the 400+ retailers who gave up their time to take part in the study.



Per Levin




                                                                       4
THE EUROPEAN RETAIL THEFT BAROMETER

               September 2004


      Monitoring the Costs of Shrinkage
                 and Crime
           for Europe’s Retailers


     Fourth Report to the Retail Industry




                      5
Executive Summary
This Fourth Report of the European Retail Theft Barometer            by higher security spending, retailer crime- prevention
presents a Europe-wide study of crime in the retail sector.          policies and the alertness of staff.
It covers 24 countries, including, for the first time, the         . Retailers reported major progress with EAS source
Central European countries of Poland, the Czech Republic,            tagging. 24% had more than 250 product lines tagged at
Hungary, Slovakia, and Latvia, Lithuania and Estonia.                source and a further 33% had 10-250 product lines
                                                                     source-tagged. 16% were in the early stages of source
Results have been provided in the 12 months to June 2004             tagging with up to 9 lines being received already tagged.
by 423 major European retailers, with a combined turnover
of € 355 514 million, 23 274 retail stores, and more than          . 9% of retailers (110-120 companies) were already
20% of European retail trade. The response rate was 26%.             evaluating RFID (radio frequency identification)
                                                                     products as part of their commitment to improving
. The average shrinkage (stock loss from crime or                    efficiency and fighting crime. 28% expected to start trials
  wastage) suffered by stores in 24 countries fell from              before 2006 and a further 20% within 3-5 years.
  1.37% of turnover to 1.34%, a reduction of 2.2%. The 17
  Western European countries that were the basis of the            . 16% expected RFID implementation to occur within
  first three surveys (see Appendix) did slightly less well,         2 years, 37% within 3-5 years, and 22% in 6-8 years.
  reducing their shrinkage rate from 1.37% to 1.35%                . Customer anxieties about RFID were thought important
  (down 1.8%). The average shrinkage rate of Europe’s                in making the final decision to adopt RFID, although
  retailers is now at its lowest for four years.                     64% believed that anxieties would disappear as
. The Central European retailers had shrinkage figures               consumers knew more about the technology. 87% of
  which fell from 1.40% (2003) to 1.32% in 2004 and were             respondents felt that consumer attitudes would be taken
  not radically different from the rest of Europe.                   into account by retailers when making the RFID
                                                                     investment decision.
. Stockloss in 2004 was equivalent to € 30 783.5 million.
                                                                   . Most saw a significant RFID commitment being made,
. The variance in national shrinkage rates continued to              when it occurred, with 28% of retailers expected to tag
  narrow. Some of the countries with high rates made the             more than 500 product lines and 43% between 251 and
  greatest shrinkage reductions, whilst many low-shrinkage           500 (as opposed to 20 high-loss lines), a total of 71%.
  countries made little further progress.                            14% expected their company to tag between 1-50 lines
. Customer thieves were perceived to be the largest source           and 15% 51-250.
  of shrinkage loss responsible for 48% of the shrinkage           . Most retailers saw RFID affecting operations and
  total (€ 14 635 million). Staff theft increased to 29%             logistics with security as one of a number of issues that
  (€ 9 069 million) and suppliers for 7% (€ 2 088 million).          would be considered when opting for RFID. Only 4%
  There was a reduction in internal error, process failures          thought security would be the only issue in deciding on
  and pricing mistakes (16% of shrinkage or € 4 990                  RFID. 34% saw security as one of several issues in the
  million). Therefore 84% of shrinkage was thought to be             RFID decision, 20% thought security was a principal
  crime-related in some way.                                         issue and 15% felt that security needs would be
. Retailers apprehended 1051902 customer thieves in 2004             considered to some extent when deciding on RFID. Only
  and 75539 employee thieves. This was a reduction of                27% thought that other issues were more important than
  21% since 2001, although apprehensions of employee                 security.
  thieves rose by 3%. The average amount stolen by                 . Retailers put forward 11 product groups that they thought
  apprehended customer thieves was € 78.56 and by                    were essential for RFID. These were widely-sold items
  employee thieves € 357.85.                                         that suffered high rates of theft. They included shaving
. Retail spending on security and loss prevention rose to a          products, cosmetics, perfume/deodorants, digital
  total of € 7 207 million. Much of this was spent on                cameras, mobile phones, DvDs, CDs, Games consoles
  security staff (37% contract employees and 20% direct              and games software, personal Hi-Fis, designer
  employees), an increase to 24% on security equipment               accessories and handbags and leather goods. A range of
  (including EAS and CCTV), 7% on cash collection and                other products that were also stolen was also put forward,
  7% on depreciation.                                                including vitamins, coffee, sunglasses, power tools,
                                                                     batteries, camcorders, computer software, textiles and
. The costs of retail crime in 2004 were estimated to be             spirits.
  € 32 999 million, consisting of € 25 793 million (crime
  by customers, staff and suppliers) plus € 7 207 million          . This study has been funded by an independent grant from
  costs of security.                                                 Checkpoint Systems Europe as a contribution to
                                                                     discussion within the sector.
. Retail crime costs every person in Europe € 71.52 per
  year, a reduction from 2003’s € 75.28 per person, caused



                                                               6
Retail Shrinkage and the new Survey in 2004                           Table 1


Fall in shrinkage                                                     SHRINKAGE                                  percentage
                                                                      (as % of turnover)          2004    2003     change
The favourable shrinkage trends first seen in last year’s
European Retail Theft Barometer have continued amongst                Austria                   0,97%    0,98%     -1,00%
Western European retailers. The rate of shrinkage fell from           Belgium/Luxembourg        1,32%    1,32%       0,0%
1.37% (12 months to June 2003) to 1.35% (12 months to June            Denmark                   1,31%    1,35%      -3,0%
2004) in Western Europe, a fall of 1.8% (Table 1). Before             Finland                   1,42%    1,44%      -1,4%
2003, shrinkage costs had been rising constantly. The                 France                    1,40%    1,41%      -0,7%
continued improvement in shrinkage trends will be welcome             Germany                   1,16%    1,16%       0,0%
news to the retail industry and to consumers.                         Greece                    1,41%    1,43%      -1,4%
                                                                      Ireland                   1,34%    1,35%      -0,7%
In the new EU accession states, which are reported here for           Italy                     1,36%    1,36%       0,0%
the first time, shrinkage fell from 1.40% to 1.32% over the           The Netherlands           1,35%    1,32%       2,3%
same period, a fall of 5.4%.                                          Norway                    1,38%    1,42%      -2,8%
                                                                      Portugal                  1,41%    1,44%      -2,1%
The combined average shrinkage rate for the 24 states of              Spain                     1,36%    1,38%      -1,4%
Western and Central Europe surveyed here is estimated to be           Sweden                    1,36%    1,37%      -0,7%
1.34% (down 2.2% since 2003). This is equivalent to € 30 783          Switzerland               0,89%    0,89%       0,0%
millions.                                                             United Kingdom            1,59%    1,69%      -5,9%
                                                                      Western Europe
There is no evidence of a lack of interest by criminals in            weighted average          1,35%    1,37%     -1,8%
stealing from shops: retailers have responded to the growing
scale of losses by becoming better at fighting crime as well as       Czech Republic            1,38%    1,40%    -1,40%
deterring and preventing it. Spending on security and crime           Hungary                   1,31%    1,38%    -5,10%
prevention by Europe’s retailers is now € 7 207 million,              Poland                    1,34%    1,42%    -5,60%
demonstrating the importance that the retail industry now             Slovakia                  1,30%    1,40%    -7,10%
places upon reducing crime and shrinkage. Now with the                Baltic States *           1,05%    1,21%   -13,20%
pressure on retail profit margins throughout Europe caused by         Central Europe
competitive markets, slack consumer demand, and an                    weighted average          1,32%    1,40%    -5,40%
uncertain economic outlook, retailers are focusing their skills
and resources to minimise stock losses.                               Overall                   1,34%    1,37%    -2,20%

The countries with the lowest average shrinkage rates were, as        (* Latvia, Estonia, Lithuania)
before, Switzerland, Austria and Germany, whilst the UK,
Finland and Greece had the highest rates. The new countries
surveyed tended to cluster around the European average, with
retailers in the three Baltic states achieving the lowest
shrinkage rate.

Shrinkage

Shrinkage’ is an accountancy figure, reflecting the difference
between the financial revenue the business should have
received (based upon inventory and purchases) and the
amount actually received. Shrinkage losses are caused mainly
by people stealing goods or money from the company but also
by a range of small or large process errors, accounting lapses,
and pricing mistakes that also produce apparent inventory
losses. In addition to the actual loss of inventory, declared
‘shrinkage’ rates will also be affected by company policy,




                                                                  7
accounting rules, and tax regulations that will influence              Survey information
practice and account for some differences in results.
                                                                       This is the largest study into retail crime, shrinkage and
Though shrinkage is often used as a proxy for retail crime it is       security in the world. It now covers 24 countries with a
not identical to crime against shops. It is a convenient figure        combined population of 461 million. Most but not all the
which is used almost universally by retailers for management-          countries surveyed are members of the EU or have agreed
control purposes. The costs of crime against shops are more            terms to join the EU.
difficult to calculate, although we provide an estimate later in
this report.                                                           Retailers from 17 Western European countries are surveyed
                                                                       (however, Luxembourg’s results are combined with Belgium
Retailers were asked to give information for their last                to preserve confidentiality) and seven Central European
complete year. The figures provided here relate to the twelve-         countries (three being published as ‘Baltic states’ to preserve
months trading period normally ending in early or the middle           confidentiality).
of the year 2004.
                                                                       The questionnaires were sent to Security Managers, Finance
New countries surveyed                                                 Directors, or the person responsible for the functional area of
                                                                       Loss Prevention within major retailers. For logistical reasons,
Agreement on the accession of new states to the European               it does not cover small retailers, although their importance is
Union (EU) has provided the opportunity to include retailers           recognised to the economies of all countries surveyed.
from a further seven countries to this survey. Questionnaires          Questionnaires have been returned by 423 major retailers,
were sent to a sample of retailers in the Czech Republic,              responsible for a total of 23 274 retail outlets and a combined
Hungary, Poland, Slovakia, and the Baltic states of Latvia,            turnover of € 355 514 million. This is equivalent to more than
Lithuania and Estonia. The results from the three Baltic states        20% of the retail sales of Europe.
were combined in order to maintain confidentiality and obtain
a valid sample. No political implications should be drawn              Where averages are quoted for Europe as a whole, these are
from this process or the inclusion or non-inclusion of any             ‘weighted’ in relation to the size of the retail sectors in
country in this study.                                                 different countries. Further details about the survey can be
                                                                       found in the Appendix.
The total population of the seven states was 71.5 million in
2002 compared to the population of 390 million of the
seventeen Western European countries included in the first
three surveys.

Throughout this Report, the term ‘Western Europe’ means 17
countries: the EU countries plus Norway and Switzerland
used for the first three editions of the European Retail Theft
Barometer. The term ‘Central Europe’ means the seven of the
new EU accession countries included here. No political
implications are intended by this terminology.

It is the first time that retailers in these countries have
participated in a Europe-wide analysis of shrinkage and crime
problems in the retail industry. This is another first for this
survey.

To aid comparisons with previous years, in every table of
results we have usually provided an average for retailers in
Western Europe (‘subtotal’ on the same basis as before) as
well as a grand total for retailers from every country in the
survey.




                                                                   8
The Trends in Retail Shrinkage                                       Figure 1
                                                                                Shrinkage Figures Western Europe
Most countries shared in the fall in shrinkage in 2004,
although shrinkage increased in The Netherlands and                      2000
remained unchanged in Belgium/Luxembourg, Germany,
Italy, and Switzerland. There is renewed evidence that the
variance in shrinkage rates between countries is continuing to           2001
narrow. A number of the countries with high average
shrinkage rates such as the UK, Portugal, Norway, again
gained greater shrinkage reductions than other Western                   2002
European countries. The UK, with the highest average
shrinkage rate amongst countries in the survey, gained the
largest reduction in shrinkage amongst Western European                  2003
countries. Only the Baltic states with their massive 13.2%
reduction performed better. Those countries such as Germany,
Austria and Switzerland with the lowest shrinkage rates made             2004
found it difficult to improve on their recent performance.
                                                                                1      1.10      1.20    1.30      1.40     1.50
The new countries surveyed cut their shrinkage by an average
of 5.4% compared to last year, although this varied from a
7.1% reduction in Slovakia to a 1.4% reduction in the Czech          Table 2
Republic. It is understood that there have been concerns about
                                                                                    Trends in Shrinkage in 2004
high shrinkage rates amongst central European retailers, yet
these figures demonstrate that effective action is being taken                                increase    same        decrease
to combat this problem.                                              Austria                    27%       43%             30%
                                                                     Belgium/Luxembourg         23%       41%             36%
Now that The European Retail Theft Barometer has surveyed            Denmark                    19%       44%             37%
retailers in Western Europe in four separate years, it is            Finland                    22%       42%             36%
possible to trace the success of their work to combat                France                     20%       46%             34%
shrinkage. The average shrinkage rate rose from 1.40% in             Germany                    28%       44%             28%
2000 to 1.42% (2001) before peaking at 1.45% in 2002, after          Greece                     30%       35%             35%
which it has fallen to an average of 1.35%                           Ireland                    28%       43%             29%
                                                                     Italy                      24%       46%             30%
Although the shrinkage averages quoted for most countries            The Netherlands            34%       43%             23%
show a decrease, the pattern in every country varies                 Norway                     26%       39%             35%
considerably. In most countries, some retailers managed to           Portugal                   28%       38%             34%
reduce shrinkage, some suffered an increase, and with others         Spain                      23%       48%             29%
it stayed the same. Table 2 shows that this pattern was              Sweden                     22%       47%             31%
widespread. The European Retail Theft Barometer                      Switzerland                26%       48%             26%
demonstrates how differently companies can be affected by            United Kingdom             28%       38%             34%
shrinkage trends. Over the last year, 43% of the companies           Czech Republic             40%       32%             28%
that responded had no change in shrinkage, 31% found that            Hungary                    32%       45%             23%
shrinkage rose, and in 26% of companies shrinkage fell.              Poland                     26%       42%             32%
Changes in shrinkage rarely result from just doing one thing.        Slovakia                   24%       44%             32%
They result usually from a combination of policies, security         Baltic States              31%       35%             34%
spending, better procedures, investment in IT and security           Average                    26%       43%             31%
equipment, and good practice and alertness by staff. They may
take more than one year to achieve a favourable outcome.

However if the trends in shrinkage, which have already been
noted, continue then we will still see a variable pattern in
shrinkage results between retailers but much more consistency
between European countries.



                                                                 9
Table 3                                                                  Shrinkage by Kinds of Business
             Shrinkage as percentage of turnover
                                                                         Table 3 shows the ways in which the ‘average’ shrinkage rate
                                    2004        2003     Change          varies between different kinds of retail business. Different
                                                                         kinds of retail business normally have different shrinkage
Food                              1,02%      1,04%        -1,7%          problems. Supermarkets/hypermarkets, General/discount
- Supermarkets & Hypermarkets     0,86%      0,91%        -5,5%          stores and shoes and leather have low rates of shrinkage,
- Food Specialists                1,51%      1,53%        -1,3%          whilst ‘Other non-food’ specialists, Clothing and textiles, and
General/discount Stores           0,77%      0,75%          2,7%         Food specialists have higher rates of shrinkage.
Department stores                 1,49%      1,53%        -2,6%
Clothing & Textiles               1,70%      1,72%         -1,2%         The largest reductions in shrinkage were seen in
Electrical/video/music            1,08%      1,10%         -1,8%         Supermarkets/hypermarkets and Department stores. However
Hardware/DIY/furniture            1,53%      1,56%        -1,9%          two categories actually recorded increases in shrinkage: Other
Shoes & Leather                   0,59%      0,60%        -1,7%          non-food’ specialists and General/discount stores.
Other non-food                    2,20%      1,99%        10,6%
Overall                           1,34%      1,37%        -2,2%
                                                                         Sources of Retail Shrinkage

Table 4                                                                  Table 4 shows the four main sources of shrinkage for retailers
                                                                         covered by this survey.
                    Sources of Shrinkage 2004

                              percentage               € millions        The main difference compared with previous years is the
                                                                         continued growth in the proportion of shrinkage thought to be
Customers                          48,0%                14.635,2         caused by employees. This increased from 28% last year to
Employees                          29,0%                 9.069,4         29% this year. Whilst this is only a small rise, it compares
Suppliers                           7,0%                 2.088,3         unfavourably with 25.8% in 2002. It marks a further
Internal error                     16,0%                 4.990,6         recognition by retailers of the losses caused by an extremely
Totals                             100%                 30.783,5         small group of staff and accounted for € 9 069 million in the
                                                                         period ending 2004. Theft by customers is still seen as the
                                                                         largest source of loss and is responsible for 48% of shrinkage
                                                                         equivalent to € 14 635 million (see Table 4). It should be
Figure 2                                                                 emphasised that most shrinkage is unseen at the time it occurs.
                 Sources of Retail Shrinkage 2004                        It may be months before it is known. Thus the estimates in
                                                                         Table 4 are perceptions or estimates made by retail security
                     Suppliers                                           managers based on their current understanding of the source
                                                Internal error           of the major problems they face.
                     7%
                                                16%

 Employees                                                               Theft or error by suppliers and delivery staff as it affects
 29%                                                                     retailers directly was thought to cause a further 7% of
                                                                         shrinkage loss, equivalent to € 2 088 million. Administrative
                                                                         error, process mistakes, waste, pricing or accounting problems
                                                                         was thought to account for the remainder of retailers’ losses,
                                                                         or 16% (€ 4 990 million) of the total, a reduction of 1%
                                                                         compared to last year. It is well known that retailers have been
                                                                         tightening their procedures in many countries, stimulated in
                                                                         part by initiatives such as the Efficient Consumer Response
                                                                         Shrinkage Project, which has led to this reduction on losses.


                                                  Customers
                                                  48%




                                                                    10
Further detail of the sources of shrinkage for every country is          Table 5
given in Table 5. Amongst Western European countries, the
                                                                                     2004 Sources of Shrinkage by Country
UK and Norway have the two highest proportions of staff
theft, although the Central European countries (apart from the
Baltic states) all indicate high proportions of staff theft, with                                                           internal
Poland estimating that 38% of its shrinkage is caused by staff                             customers    staff   suppliers     error
theft.                                                                   Austria            53,0%       24,5%      5,0%      17,5%
                                                                         Belgium/
High proportions of customer theft are normally seen in this             Luxembourg         48,5%       27,5%      6,0%      18,0%
survey amongst countries where staff theft is low. The highest           Denmark            45,5%       32,5%      7,0%      15,0%
proportions of customer theft occur in Greece and                        Finland            47,0%       31,0%      9,0%      13,0%
Switzerland. The proportion of shrinkage caused by theft by              France             47,0%       29,4%      6,5%      17,1%
suppliers varies considerably between countries, with Italy,             Germany            52,0%       24,1%      7,6%      16,3%
Portugal and Finland over 9% and the lowest estimates in the             Greece             58,0%       17,0%      7,0%      18,0%
UK (4.5%), Austria and the Czech Republic.
                                                                         Ireland            47,2%       29,4%      7,6%      15,8%
                                                                         Italy              50,4%       22,9%      9,9%      16,8%
                                                                         The Netherlands    45,9%       32,4%      6,7%      15,0%
                                                                         Norway             44,0%       34,0%      6,0%      16,0%
                                                                         Portugal           53,9%       22,4%      9,1%      14,6%
                                                                         Spain              50,0%       26,5%      7,5%      16,0%
                                                                         Sweden             43,0%       29,3%      8,9%      18,8%
                                                                         Switzerland        56,3%       21,7%      6,5%      15,5%
                                                                         United Kingdom     43,8%       36,4%      4,5%      15,3%
                                                                         Averages 2004      48,5%      28,4%      6,8%      16,3%
                                                                         (Average 2003)     47,8%       28,5%      6,8%      16,9%


                                                                         Czech Republic     45,0%       35,0%      5,0%      15,0%
                                                                         Hungary            41,0%       33,0%      8,0%      18,0%
                                                                         Poland             40,0%       38,0%      7,0%      15,0%
                                                                         Slovakia           42,0%       34,0%      8,0%      16,0%
                                                                         Baltic States      47,0%       30,0%      7,0%      16,0%


                                                                         Totals             47,9%      29,0%      6,9%      16,2%
                                                                         (Weighted Averages)




                                                                    11
Table 6                                                                                     The Numbers Apprehended for Retail Crime
                        Thieves apprehended 2004
                                                                                            In the twelve months to June 2004, retailers apprehended
                              numbers             percentage                average         more than one million persons for theft from shops. The
                                                     change                 amount          number of customer thieves apprehended was 1 051 902,
                                                   over 2001                  stolen        employee thieves was 75 539, making a combined total of
                                                                                            1 127 441 (Table 6). The average amount stolen by customer
Customer thieves               1051902                     -22%             € 78.56         thieves who were apprehended was € 78.56 and by staff
Employee thieves                 75539                      +3%             € 357.85        € 357.85.
Total                          1127441                    -21%
                                                                                            The number of thieves apprehended by retailers has fallen by
                                                                                            21% since 2001. This was not caused by a reduction in the
Table 7                                                                                     number of people attempting to steal, but by a dual process.
              Numbers of thieves apprehended in 2004                                        Retailers find it increasingly difficult to obtain full support
                                                                                            from the Police and the Criminal Justice System (see
Austria - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -       10979         European Retail Theft Barometer III). Moreover retailers are
Belgium/Luxembourg - - - - - - - - - - - - - - - - - - - - - -                18985         adopting loss prevention policies based on deterring criminals
Denmark - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -         13139         and crime prevention: many of them have reduced policies
Finland - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -       10924         which focused mainly on arresting large numbers of people.
France - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -       188622
Germany - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -        154894         However the Central European retailers in this survey all
Greece - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -         2674         tended to apprehend considerable numbers of thieves and in
Ireland - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -        2614         the 12 months to June 2004 they arrested 129104 persons. The
Italy - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -    107572         figures for each country are given in Table 7.
The Netherlands - - - - - - - - - - - - - - - - - - - - - - - - - -           35299
Norway - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -          10312
Portugal - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -         9720         Security and Loss Prevention
Spain - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -       37271
Sweden - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -          17310         Retailers have increasingly to self-police. By 2004, the
Switzerland - - - - - - - - - - - - - - - - - - - - - - - - - - - - -         10402         amount spent on security and loss prevention had risen to
United Kingdom - - - - - - - - - - - - - - - - - - - - - - - - -             367621         € 7 207 million. This was a rise of € 299 millions by Western
Czech Republic - - - - - - - - - - - - - - - - - - - - - - - - - -            19784         European retailers compared with the last Report. Security
Hungary - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -         20697         spending by retailers is now equivalent to 23% of shrinkage.
Poland - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -        66789
Slovakia - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -         9702         Security spending by retailers is now equivalent to € 15.62 per
Baltic States - - - - - - - - - - - - - - - - - - - - - - - - - - - -         12131         head for every person in the 24 countries surveyed, an
                                                                                            indicator of how seriously retailers take this problem.
Total - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 1127441
                                                                                            The breakdown of security expenditures is shown in Figure 3.
                                                                                            It can be seen that the major element of security spending is
Figure 3                                                                                    on security employees, whether internal or hired from an
                          Security spending 2004
                                                                                            external security company. Security employees now account
                                                                                            for 57% of security spending, a reduction compared to last
        Cash collection 7%                    Others 4%                                     year. Spending on security equipment, including electronic
                                                                   Contract                 surveillance, has risen and now accounts for 24% of security
Depreciation 7%                                                    employees                budgets.
                                                                   37%
Direct                                                                                      The amount spend on security by country can be seen in Table 9.
employees
20%



  Security
  equipment 24%

Security spending € 7207 millions
                                                                                       12
The Costs of Retail Crime in Europe                                    Table 8

                                                                                         The total costs of crime 2004
In this Section, we estimate the impact of retail crime on
Europe’s retailers and consumers. The figures for shrinkage            Costs of crime by customers                          € 14 635
have already been provided in Table 1, but shrinkage does not          + costs of crime by staff                            € 9 069
measure only retail crime.                                             + costs of crime by suppliers                        € 2 088
                                                                       Costs of retail security                             € 7 207
The European Retail Theft Barometer measures crime against
shops by calculating the costs of retail crime. These costs are        TOTAL COST OF CRIME                     =            € 32 999
the amount stolen from shops plus the amount spent on
security. The figures for 2004 are shown in Table 8.

Customer crime costs € 14 635 million, crime by employees
€ 9 069 million, thefts by suppliers and losses in the                 Table 9
distribution chain were € 2 088 million, and the costs of
                                                                                             Costs of crime 2004
security and loss prevention were € 7 207 million.

Table 9 shows that the combined total for the costs of crime in                     crime-related       security     costs of        costs
the 24 countries surveyed was therefore € 32 999 million. This                         shrinkage       spending        crime     per head
cost of crime was equivalent to € 71.52 per head for every                                € millions   € millions   € millions   € per year
man, women and child in the countries concerned.
                                                                       Austria                 361          134          495         61.09
                                                                       Belgium/
                                                                       Luxembourg              904          248         1152       107.85
                                                                       Denmark                 457          139          596       112.85
                                                                       Finland                 468          126          594       114.78
                                                                       France                 4712         1340         6052       101.63
                                                                       Germany                4488         1373         5861        70.58
                                                                       Greece                  309           97          406        38.19
                                                                       Ireland                 238           70          308        84.94
                                                                       Italy                  2357          625         2982        51.85
                                                                       The Netherlands         840          266         1106        69.18
                                                                       Norway                  469          152          621       137.79
                                                                       Portugal                181           50          231        22.94
                                                                       Spain                  1535          488         2023        50.52
                                                                       Sweden                  637          177          814        91.68
                                                                       Switzerland             443          194          637        88.07
                                                                       United Kingdom         5370         1185         6555       109.91
                                                                       Sub-Total             23769         6664        30433        78.04

                                                                       Czech Republic          360           95           455        44.20
                                                                       Hungary                 235           75           310        30.62
                                                                       Poland                 1171          300          1471        38.37
                                                                       Slovakia                144           37           181        33.35
                                                                       Baltic States           113           36           149        20.44
                                                                       Subtotal               2024          543          2566        35.91

                                                                       Totals                25792         7207        32999         71.52




                                                                  13
Electronic Article Surveillance and Radio                                 Plans for Radio Frequency Identification
Frequency Identification Devices                                          Devices

In addition to asking questions about retailers’ shrinkage and            The use of radio frequency identification devices (RFID) is
crime losses, the survey also enquired about progress and                 under increasing discussion amongst retailers. They are seen
policies regarding electronic tagging of merchandise.                     as providing companies with considerable information about
                                                                          inventories, providing many different benefits, and being as
Electronic article surveillance tags are small devices that               important (or even more important) as EPoS.
alarm if goods are removed from the store without being
deactivated. These are widely available in retailing and, at              Retailers in the study were asked ‘Is your company planning
present, are mainly used for security purposes.                           to use RFID (‘Smart’ Tags or ‘Intelligent’ Tags) now or in the
                                                                          future?’ No retailers claimed to be implementing RFID now,
Radio frequency identification devices are tags that hold a               but 9% were currently holding evaluation trials. This relates to
certain amount of data that can be used for stock control,                38 companies in the sample, equating perhaps to 110-120
security, sales, logistics and other functions. Most retailers are        retailers across Europe carrying out full trials. This result is
at a comparatively early stage in finding out how to use these            consistent with GartnerG2 research that there are around 100
products.                                                                 major RFID projects in Europe (June 2004)

                                                                          Twenty eight per cent of retailers expected to start trials within
Electronic Article Surveillance                                           one or two years from now (ie before 2006) and a further 20%
                                                                          thought their trial would start between three and five years
In the past few years there has been increasing interest in the           from now. Therefore 48% of all retailers surveyed expected
opportunities provided for retailers by source tagging, the               to start trials in the forseeable future. There were 43% of
practice whereby electronic article surveillance (EAS) tags are           retailers with no plans at present for the use of RFID. Of the
fixed to the goods before they arrive in the store.                       companies surveyed, larger retailers were normally more
                                                                          likely to have plans to evaluate RFID. Of the largest 100
The European Retail Theft Barometer II in 2002 estimated                  retailers, 15% claimed to be evaluating RFID already, 37%
that the number of lines source tagged had increased by 221%              expected to start trials within one to two years, and only
in twelve months, from an admittedly low base. By June 2004,              one-quarter had no plans at present.
the position had changed considerably.

. 24% of retailers with EAS had more than 250 product lines               Plans to Implement RFID
  source tagged with up to 70% of their inventory being
  received already tagged.                                                Implementation, as opposed to trials, of RFID across a
                                                                          significant proportion of the retailer’s product range was
. 33% of retailers with EAS had between 10 and 250 lines                  thought likely by 16% of retailers to occur in one to two years.
  source tagged.
                                                                          Most however thought it would take rather longer, with 37%
. 16% were in the early stages of source tagging with up to               thinking significant implementation would occur in three to
  9 lines being source tagged.                                            five years and a further 22% believing it would take six to
                                                                          eight years. Only 25% thought there would be no significant
. 27% of retailers with EAS received no source-tagged                     level of implementation at all during this period.
  merchandise.
                                                                          The implication of these results is that there would be some
Thus 57% of retailers with EAS already received a significant             progress in implementing RFID by 2006 and, by 2009, 53%
proportion of their stock already tagged and a further 16%                of retailers expect to have made substantial progress in
were in the early stages of a source-tagging programme.                   implementing RFID within a significant proportion of their
                                                                          inventories.




                                                                     14
Consumer Reaction to RFID                                             Table 10

                                                                                              Plans for the use of RFID
The survey showed that retailers were alert to any concerns
that consumers may have about the use of the new RFID                 Evaluation trials currently being held --------------------              9%
technology. Table 12 indicates that almost two-thirds of              We expect to start trials in 1-2 years ---------------------            28%
retailers felt that consumer anxieties about RFID resulted            We expect to start trials in 3-5 years ---------------------            20%
from ‘fear of the unknown’ and that these anxieties would             No plans at present -----------------------------------------           43%
disappear with greater experience or knowledge of RFID.

When making a decision about RFID, the survey showed that
                                                                      Table 11
managers believed that an assessment of consumer reactions
would be part of the evaluation made by their companies                                      Plans to implement RFID
when deciding whether to adopt RFID (Table 13). This is
normal in the adoption of all new technologies including what         RFID implementation 1-2 years ---------------------------               16%
are now conventional technologies such as bar-code scanning           RFID implementation 3-5 years ---------------------------               37%
and EPoS. Only 13% thought that consumer reaction was not             RFID implementation 6-8 years ---------------------------               22%
important.                                                            No plans at present-------------------------------------------          25%

Thirty-four per cent thought consumer reactions would be
quite important and a further 32% felt consumer reactions             Table 12
would be of some importance. Thus around 66% believed that
                                                                             Will consumer anxieties about RFID disappear as
the reactions of consumers would be, at least, taken into
                                                                                   they know more about the technology?
account in the final decision-making process. A further 9% of
retailers believed that consumer reactions would be the most
important factor and 12% that these would be highly                   Yes - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 64%
important in the adoption decision.                                   No - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 22%
                                                                      Don’t know - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 14%

Security in the RFID Decision

There has been a lot of discussion about the precise role of          Table 13
security in RFID decision making. Whilst RFID is claimed to                        How important will be consumer reaction
provide great benefits in reducing crime and other shrinkage                             to the adoption of RFID?
losses, some practitioners feel that security is simply one of
the functional areas to which it may be applied. These views          Not important - - - - - - - - - - - - - - - - - - - - - - - - - - - -   13%
seem to be endorsed by the survey (Table 14). As few as 4%            Some importance - - - - - - - - - - - - - - - - - - - - - - - - -       32%
of respondents felt that security was the only issue for              Quite important - - - - - - - - - - - - - - - - - - - - - - - - - -     34%
consideration when deciding on RFID, whilst 27% felt that             Highly important - - - - - - - - - - - - - - - - - - - - - - - - -      12%
other issues were more important than security in the RFID            Most important - - - - - - - - - - - - - - - - - - - - - - - - - - -     9%
decision.

                                                                      Table 14

                                                                                 How important will security issues be in the
                                                                                       final decision about RFID?

                                                                      Other issues more important                                             27%
                                                                      Security is considered to some extent when
                                                                      deciding on RFID                                                        15%
                                                                      Security is one of several issues in making decision                    34%
                                                                      Security is a principal issue in deciding about RFID                    20%
                                                                      Security is the only issue in deciding about RFID                        4%




                                                                 15
Table 15

           How many product lines do you expect your                                  The most representative view was that ‘Security is only one of
                 company to tag with RFID?                                            several issues in making the RFID decision’, a view held by
                                                                                      34%, whilst another 20% felt security is a principal issue, and
Number of RFID product lines                                                          15% that it is considered to some extent. Most people
1-50 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -   14%        therefore felt that security requirements will be taken into
51-250 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -     15%        account when deciding about RFID, with the key differences
251-500 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -      43%        being whether security will be a principal issue or one that is
>500 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -   28%        merely given some consideration.


                                                                                      Number of RFID Product Lines Expected
Table 16

           Product lines most suitable for RFID tagging                               Table 15 provides some answers to the question about the
                                                                                      scale of implementation expected with RFID. Seventy-one per
Most frequently cited                           Other product lines                   cent expected to tag more than 250 product lines, including
Shaving products                                Camcorders                            28% that expected to tag more than 500 lines. Fourteen per
Digital cameras                                 DvD players                           cent would tag less than 50 lines and 15% between 51 and 250
DvD’s                                           Laptop PCs                            lines. Expectations vary. The number of lines to be tagged
Cosmetics                                       PC components                         reflects different strategies, different kinds of retailer, and
Handbags and leather                            High price toys                       different problems as well as differences in the expected rate
goods, belts                                    Computer software                     of return. It does not necessarily imply a lack of commitment.
Perfume/deodorant                               Batteries
Mobile phones                                   High value designer labels
Designer accessories                            and womenswear                        Which Product Lines should be RFID Tagged
Games consoles & software                       Watches
Personal Hi-Fis                                 Sunglasses                            Retailers were also asked to nominate product lines most
Music CDs                                       Vitamins                              suitable for RFID tagging. The range of items chosen tended
                                                Slimming products                     to reflect lists published in previous editions of the European
                                                Coffee                                Retail Theft Barometer dealing with the most stolen items.
                                                Neckties                              However the financial case for RFID tags on low-cost items is
                                                Sports brands                         more difficult to make so the suggestions tended to be more
                                                Power tools                           costly stolen items. The most frequently-cited items for RFID
                                                Locks                                 tagging included widely-sold small electronic items, mobile
                                                Spirits                               phones, DvDs, cosmetics, perfumes/deodorant, accessories
                                                Shoes                                 leather goods such as handbags, wallets and belts, and well-
                                                Textiles                              known shaving products.
                                                Films
                                                                                      The other products listed were also subject to theft but were
                                                                                      sold generally by a smaller range of stores. Goods ranged
                                                                                      from coffee and vitamins to designer goods and womenswear
                                                                                      and DvD Players, watches and camcorders.




                                                                                 16
Survey Methods

OBJECTIVES.                                                             COLLATING THE DATA.
The purpose of the European Retail Theft Barometer is to                Retailers were allocated to one of nine types of business. A
capture the extent of crime-related losses and shrinkage                distinction was made between a ‘nil response’ (no reply was
suffered by retailers throughout Europe and to note trends              entered to a question) and ‘0’. The ‘0’ was counted but not the
both in the scale of losses and in the security policies adopted        nil response. The question which retailers found it most
by companies. This study has been funded by an independent              difficult to, or, on occasions were not willing to, answer
grant from Checkpoint Systems Europe as a contribution to               related to the amount spent on security. Only 45% of
discussion within the sector.                                           respondents gave an answer. The data provided was consistent
                                                                        (no responses needed to be abandoned because of material
THE QUESTIONNAIRES.                                                     error), but certainly showed that there were significant
The loss prevention managers or finance directors of 1,650 of           differences between retailers in the same country.
the major retailers in Europe were sent a questionnaire for
completion. The questionnaire included 24 questions, which              CALCULATING THE RESULTS.
ranged from the level of shrinkage (as a percentage of sales)           In a survey of this kind there is a danger that a small and
from which they suffered to their attitudes towards RFID. The           unrepresentative number of respondents can influence the
questionnaire was in French, English, German, Spanish and               average – either exaggerating a ‘trend’ or minimising a
Italian.                                                                problem. To avoid this, we have not used simple arithmetic
                                                                        averages, but have weighted each reply in accordance with the
CONTACT DETAILS.                                                        turnover of the company involved. Thus the shrinkage result
The names and addresses of the companies were drawn from a              for Germany is not a simple addition of the average
combination of commercial lists and the Centre’s own list of            shrinkages of the companies which reported, but each result
UK and European retailers.                                              has been weighted so that the shrinkage of a € 500 million
                                                                        firm is calculated at five times more than a € 100 million
CROSS SECTION BY COUNTRY AND BY TYPE.                                   company.
The final composite list covered the major retailers in 24
European countries, drawn from all kinds of retail business.            COUNTRY WEIGHTINGS.
The number of questionnaires sent out to retailers in each              Similarly the results of retailers in each country have been
country was broadly proportionate to the significance of the            weighted in proportion to the total retail sales of that country
retail industry in that country. Between 25-45 questionnaires           to prevent differences in the response rates between countries
were sent to smaller countries in order to encourage replies            affecting the overall result.
from a representative sample of the sector as a whole in each
country. The growth of cross-border and international retailing
meant that a number of respondents would naturally have
been providing information about more than one country. The
results for Luxembourg were included with Belgium in order
to protect commercial confidentiality and the results for
Latvia, Lithuania and Estonia were combined as ‘Baltic
states’. No political implications should be drawn from this
process or the inclusion or non-inclusion of any country.

THE RESPONSE.
423 useable returns were provided including returns that were
made on-line. This is a response rate of 26%, which is
perfectly satisfactory for a study of this kind although it is a
reduction compared to 2003. The number of returns made by
retailers in each country and the collective scale of those
retailers that responded can be seen in the Table.




                                                                   17
Appendix

                                 Companies in the European Retail Theft Barometer survey 2004

                                            Number                        Number                     Combined turnover
                                            of firms                      of stores               of respondents € millions

                                            Nº de                          Nº de                         Facturación
                                           empresas                       tiendas                       total (MM €)



                                          Anzahl der                    Anzahl der                   Gesamtumsatz der
                                         Unternehmen                    Geschäfte                der Befragten in millionen



                                            Nombre                        Nombre                 Chiffres d’affaires combinés
                                               de                           de                  des entreprises ayant répondu
                                           entreprises                    magasins                     millions d’euros



                                            Numero                        Numero                    Fatturato combinato
                                           di aziende                 di punti vendita                degli intervistati
                                                                                                       in milioni di €



Austria                                        15                           270                             1378
Belgium/Luxembourg                             17                           349                             5144
Denmark                                        16                           212                             4705
Finland                                        11                           631                             4787
France                                         32                          4074                            78754
Germany                                        38                          2543                            52515
Greece                                         16                           604                            11157
Ireland                                        29                           261                             7049
Italy                                          32                          1905                            50356
The Netherlands                                21                          1657                            15221
Norway                                         17                           320                             4456
Portugal                                       19                           551                             2773
Spain                                          27                          1134                            13103
Sweden                                         13                           930                             4751
Switzerland                                    13                           456                             5466
United Kingdom                                 43                          6606                            87268
Sub-Total                                     359                         22502                           348882

Czech Republic                                  9                            135                               15
Hungary                                        18                            216                             2633
Poland                                         12                            204                             1751
Slovakia                                        9                             81                              905
Baltic States                                  16                            136                             1328
Subtotal                                       64                            772                             6632

Totals                                        423                         23274                           355514

(* Latvia, Lithuania, Estonia)




                                                             75

				
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