Internal errors and employee theft may worsen retail crime sprees.
Retailers Overstate Theft as Cover for Internal Issues, Report Suggests
Retailers across the country have been facing a surge in theft, both in-store and online. However, a new report indicates that some businesses may have been exaggerating the extent of external theft to mask internal problems, such as employee theft.
During the first quarter earnings, major retailers attributed their shrinking margins to organized theft by gangs and an increase in smash-and-grab incidents. This issue is expected to resurface when these companies report their second-quarter earnings next week.
“Some companies have since identified theft from employees as a major contributor to losses, even as they blame external theft in public,” said an anonymous source.
Retail analyst Neil Saunders acknowledges that while shrinkage has been on the rise, it is challenging to determine the exact proportion attributed to theft versus internal issues and mistakes made by retailers.
Shrinkage refers to the discrepancy between the expected inventory and the actual inventory held by a retailer. It can result from various factors, including shoplifting, employee theft, cashier errors, and damaged goods. Saunders believes that theft and shoplifting are often used as a convenient explanation for broader performance issues.
“It is a problem, we know that, it does take money off margins, we know that, but there’s too much opacity in the way in which it’s reported, and it is being partly used as an excuse for generally bad performance,” Saunders explained.
While there is no definitive data on whether employees steal more than shoplifters, it may be easier for employees to engage in theft due to their familiarity with a store’s security vulnerabilities and the ability to carefully plan their actions. Additionally, internal theft can go unnoticed for extended periods because it is easier to conceal.
Warehouses and locations where online orders are prepared are particularly susceptible to internal theft. Employees may collaborate with others or exploit their positions to add extra items to orders.
One recent case involved a former Amazon warehouse operations manager who, along with two accomplices, stole $9.4 million over a span of 18 months. The manager used her position to submit fake invoices for non-existent vendors, resulting in fraudulent proceeds being transferred to her and her co-conspirators’ bank accounts.
While instances of employee theft are well-documented, some small business owners argue that the claims made in the report undermine their experiences. Deborah Koenigsberger, a New York City small business owner, emphasized that while there may be isolated cases of employee theft, the majority of retailers and their staff are honest and struggling to survive.
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