Loss prevention spending tied to retail shrink levels
Checkpoint Systems Inc, a leading manufacturer and marketer of identification, tracking, security and merchandising solutions for the retail industry and its supply chain, announced the results of a survey on loss prevention (LP) budgeting trends among retailers that illustrates the relationship between LP budgets and theft levels.
The retail industry has been hit hard by the recent economic downturn, but retailers considering cutting their LP budgets to save money should think twice. According to the recent Loss Prevention Budget Trends report, there is a strong correlation between reducing LP spending and increased retail shrink.
An independent research firm, Preference Research, anonymously surveyed 329 qualified subscribers of a national loss prevention magazine in May 2008, asking them a series of questions about their LP budget practices and shrink levels.
Historically, retailers have reduced their LP budgets during economic slowdowns. According to the survey, 77% of respondents reported that during past soft economies their spending was cut or delayed, with 61% reporting their spending was not restored to prior levels until after the recession. Another 33% indicated that their LP spending was not restored at all.
That trend may be continuing: 38% of respondents reported that their annual LP budget had been delayed or cut after their budget plan was finalized, while only 8% reported an increase in their budget.
If history is a guide, those retailers cutting their LP budgets may pay a higher cost in shrink. The majority of respondents correlated reduced LP spending with increased theft, with 68% reporting that shrink increased when LP spending was cut. Sixty percent of respondents expected merchandise shrink to increase as a result of reduced or delayed loss prevention budgets/spending, compared to 30% who said shrink would remain the same.
These are tough economic times for retailers, and the impulse to reduce spending is understandable, said Rob van der Merwe, President and CEO of Checkpoint Systems, Inc. However, as the research clearly shows, savings found through cutting the LP budget could be quickly surpassed by the cost of increased theft.
Nearly all respondents--95%--agreed that during weak economic times or recessions, merchandise shrink was more likely to increase, and 98% agreed that cutting LP budgets would make retailers more susceptible to theft during an economic slowdown. According to a recent study from the Center for Retail Research, theft costs the world's retailers more than $98 billion.
Retailers are under intense pressure to manage costs, but any reduction in LP spending has to be measured against the potential impact of increased shrink, continued Rob van der Merwe. It is our hope that this survey will help loss prevention managers more clearly define the value of their technology investments.
Survey results also indicated that most retailers have either increased their 2008 LP budgets over 2007, or maintained them at existing levels. Asked how their 2008 budgets compared with 2007, 32% responded that their budgets would be higher, 36% said their budgets would remain the same, and 32% responded that they were lowering their LP budgets.
Smaller retailers appear to be spending more on LP in 2008: 36% of respondents with fewer than 1,000 stores reported higher budgets for 2008, versus 27% of respondents with more than 1,000 stores.
Checkpoint Systems Inc