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Retailers have a systemic problem. They know that a percentage of the people walking into their stores are there solely to steal. But with full knowledge, they still welcome all as if they will be paying for their purchases. They also know that unbridled access to goods leads to higher sales, but allowing that also creates a gateway for higher theft.
Retailers also know, however, that every dollar they preserve through the utilization of loss prevention (LP) programs will float gracefully to the bottom line. They won’t need to ship it, inventory it, stay open late to sell it, or mark it down to turn it over. That’s exactly why the cost of shrinkage is so high to retailers, and why they are willing to spend up to 5 percent of their gross sales to limit it.
While the basics of reducing shoplifting and employee theft are what retailers need to keep paramount in their LP plans, there are several newer threats that are looming.
First there’s Organized Retail Theft (ORT) – Organized Retail Crime (ORC), which studies indicate cost retailers anywhere from $15 billion to $30 billion per year. The wide variation in those numbers alone indicates that retail is still trying to get its arms around the reality. ORT-ORC involves more than the loss of money. Since it oftentimes focuses on human consumables, such as over-the-counter medicines and baby formula, those items are often tainted in the repackaging process and can injure or even kill those who consume them.
Additionally, ORT-ORC rings have been linked to terrorist organizations, and profits from these criminal enterprises are funneled into the terrorist organizations. That’s why federal law enforcement is trying to separate these crimes from the more “benign” crimes of shoplifting or employee theft, and assigning stiffer penalties for these crimes. Today, ORT-ORC groups will include people working on the inside as employees of the retailers.
Exposure to litigation has always been a problem for retailers; recent changes in two areas are drawing the attention of trial lawyers across the country, who have jumped upon the “insufficient security lawsuit” runaway train that is speeding uncontrolled into the shopping centers and malls of America. Every year, thousands of retailers are sued. Many times for things they didn’t even know they could be liable for. Trial attorneys are one of the largest groups of lobbyists in the country, and they have worked to create laws to increase the level of vicarious liability to retailers. Retailers have exposure to a number of vicarious liability lawsuits, including claims of insufficient security. The following are two such cases:
When a 79-year-old woman was abducted in midday from a grocery store parking lot and killed, the grocery store owner was faced with a wrongful-death lawsuit because of insufficient security. The State Supreme Court held the store owner liable, stating that the store owner had a duty to provide security for its patrons. In 2010, the average wrongful death award was $11.8 million.
The wife of a man who was shot and killed in a movie theater was awarded $6.6 million, because of “insufficient security” at the mall where the theater was located. The plaintiffs sued, claiming the defendant failed to provide visible security, which would have had a “scarecrow” effect on criminals. The defendant argued that although no security presence was visible, the security was adequate for the area. The jury felt otherwise.
The other area is “slips and falls,” which retailers have dealt with (up until this time) by simply licking their wounds and paying off settlements. A study, which took place in 2001, revealed that the average jury verdict award was $31,312; with one of the highest jury awards being $264,000. However, in 2006, the average jury award for a slip and fall was $189,000. What’s even more surprising, however, is the fact that among all of the slip-and-fall cases that occurred in 2006, only two made it to a jury award; meaning that mostly all were being settled before they made it to court. Insurance adjusters who provide actuarial data now believe that the average out-of-court settlement for slips and falls has risen 25 percent higher than the average jury award settlement in 2001.
So if you’re a retailer, you count upon your loss prevention services providers to supply the right mix of services designed to mitigate the risks. Just like death and taxes, retail shrinkage is something you just can’t avoid in life; and retailers know that all too well.
Author’s note: Sources to be credited for information included in this article are The Advanced Floor Safety Group; The American Society for Asset Protection; and The National Retail Federation 2010 ORT Report.