Employee Theft Takes Toll on Retailers

Retailers looking to cut their theft losses would do well to leave the customers alone and keep a wary eye on their own employees, according to a new survey.

Employee theft accounts for seven times more revenue loss for retailers than shoplifting, said the annual loss-prevention survey by Ernst & Young, released Friday.

The survey, “An Ounce of Prevention,” showed retailers reported $2.2 billion in 1989 theft losses, an average of $21 million for the 160 companies responding and an increase of 10% over 1988.

“The average recovery per employee apprehended was $1,350, compared to an average of just $196 recovered from each customer taken into custody, even though 93% of those apprehended were customers,” said Gerald Smith, who heads the firm’s retail group in Chicago.

Smith said it’s not just a “front door-back door” problem as employees learn how to manipulate the sales system to steal both money and merchandise.

The survey said 45% of thefts were detected at the point of sale--the cash register.

Common methods of employee theft included ringing up a sale and then voiding it, doing a phony return and undercharging friends for merchandise. About 10% of the thefts were reported in the stock area.

“At a time like this with retail sales slowing down, it’s more important than ever for retailers to find ways to save money,” Smith said. “By reducing losses caused by thefts, retailers can help offset sluggish sales to some degree.

Drug abuse contributed to employee theft, with more than 50% reporting evidence of drug use by those apprehended. Those retailers estimated 30% of customer apprehensions and 25% of employee arrests were drug-related.

In 1989, retailers spent $2.5 million, on average, to combat shrinkage, or loss by theft, 20% more than in 1988.