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A new study says Canadian retailers are losing about $4 billion annually to shrinkage, which is the loss of inventory through theft, damage, inventory and accounting errors and fraud. The 2012 Canadian Retail Security Survey, conducted by PwC in conjunction with the Retail Council of Canada (RCC), reported an average shrink rate of 1.04% of inventory for all respondents.

“To put retail shrink in perspective,” explained Paul Beaumont, director of PwC’s Canadian Retail Consulting Services practice, “total dollars lost to shrink is almost the same amount as the total investment made each year by the entire Canadian retail industry in their information technology departments and more than what retailers invested in their finance departments.”

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The good news—if you can call it good news—is that the amount of inventory shrinkage as a percentage of sales has remained steady since this same study was last conducted in 2008. The researchers attributed this stability in the shrink rate to an increase among retailers in the use of closed-circuit TV/DVR security systems, observation mirrors and 1-800 “tip” lines to help control losses in both store and warehouse environments. Some 65% of respondents said that they use these tools to control shrinkage, up from just 39% four years ago. “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,” says Stephen O’Keefe, vice-president of operations for the RCC.

Interestingly, is seems the shrinkage problem is becoming more of an internal than external threat for retailers. According to the survey, external theft of merchandise, by shoplifters and organized crime, actually decreased since 2008, from 65% to 43%. Meanwhile, the proportion of inventory loss through internal employee theft increased from 19% to 33% since the last survey. O’Keefe says this increase is due, in part, to increased reporting of employee theft.

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“Due to the nature of its business, the retail industry tends to be at greater risk to internal crimes such as employee theft,” says O’Keefe. “The focus of employers is to create a heightened sense of awareness and need for staff to be a part of the solution.”

The increase in employee theft has also likely been impacted, says Beaumont, by the fact that about 29% of retail employers now ask new hires to pass a police background check, half as many as four years ago. “A dishonest employee, with inside knowledge of retail operations and systems, has the ability to do more harm than typical shoplifters,” warns Beaumont.

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