11/29/2004

Shoplifting Costs Increasing

A recent article on msn.com discusses the increased proliferation of shoplifting and the subsequent costs incurred on suppliers. Heading into the busy holiday shopping season, two recently released reports state that theft costs are starting to become a national problem and a growing financial burden. Companies must spend more money on surveillance equipment, training, and the legal costs associated with theft.

According to the 16th Annual Retail Theft Survey by Jack L. Hayes International, nearly $2 billion was lost to shoplifting and employee theft in 24 U.S. retail companies in 2003. Retail theft -- both by employees and shoplifters -- increased 4.7 percent last year from 2002.

Increased shoplifting is causing an increase in supplier costs which in turn could result in higher prices for consumers.

6 comments:

Dr. Tufte said...

-1 on Kova's comment for 2 spelling errors.

Shoplifting is actually like inflation, believe it or not.

The reason is that it is hard to see how shoplifting can make society as a whole worse or better off. The good that is stolen is still part of the economy. Just like an even inflation in the price of everything is a wash.

But, just like inflation, the problem with shoplifting is that is causes people to spend money on things they ordinarily wouldn't - like inventory protection. That's a deadweight loss for society.

Further, inventory protection is a strategic decision that isn't beneficial to firms. A retailer isn't hurt by shoplifting if they can pass that cost along to consumers. So, they will be hurt if their demand is elastic. But that wouldn't even make a difference if all the retailers colluded to provide no inventory protection - if no one did it, then the price rise would fall on consumers whether their demand was elastic or not. But, that equilibrium isn't Nash for the firms. What is the Nash equilbrium is for all the firms to offer some sort of inventory protection, and to eat some of the costs of it. The reason is that if your competitor provides inventory protection and keeps their prices down, they will steal your business. So every managers choice is to combat shoplifting.

pramahaphil said...

Theft is most likely a bigger problem with employees than with the general public. Employees are more likely to commit thefts because of opportunity and the ease of rationalization. It is far easier for a sales manager to walk out of a store with stolen goods because they also have knowledge of specific internal controls that they need to avoid.

pramahaphil said...
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Ernie said...

Supplier and more importantly retail stores are not exactly paying for the costs related to shoplifting as much as the person posting this article would have you believe. Every t-shirt, pair of pants, shoes or anything else you buy already has a price percentage placed into it in order for the retailers to recoup their losses from shoplifting. I don't feel bad for Wal-Mart or any other retailer because I know that I'm paying for their shoplifitng problems every time I purchase something there.

Jordan said...

Dr. Tufte said:

"Shoplifting is actually like inflation, believe it or not."

I never thought of shoplifting as inflation before. But I think that the cost of shoplifting gets passed on to consumers even if businesses implement inventory protection. Especially if all businesses have inventory protection to some degree, the consumers will pick up some of the cost.

Dr. Tufte said...

Good point - you either pay for the stolen goods, or the costs of protecting them.