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BW Businessworld

War On Pilferage

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The man who walked into a music showroom at a prominent mall in Saket, New Delhi, on a balmy Monday afternoon was obviously a doting father — and reasonably affluent. He was well-attired and wheeling his three-year-old around in an expensive pram. After checking out the goods on offer, he strolled out because he had found nothing worth buying. But he had walked away with a headphone set worth nearly Rs 35,000, after snipping off its security tag, and without paying for it.

For the police investigating the case, the first lead was provided by the cameras covering the mall's parking lot. A video grab of the man getting into the car with his son had picked up the vehicle's number. When the investigators caught up with him in the suburb of Gurgaon, they found that he was exactly what he looked like — a well-off man with a baby, who could have easily paid for the stuff he had stolen. But the sheer adrenalin rush of outwitting shopkeepers made him steal from different shops and malls. There was a hidden compartment in the pram, where he would stuff the goods he fancied but didn't want to pay for. He knew how to take advantage of busy attendants and lax security systems. He knew how to get rid of security tags that would trigger off an alarm at the gate. With his son sitting in the pram, he would walk right past guards without evoking any suspicion.

Welcome to the retail industry's big nightmare — stock pilferage, or, to use industry parlance, "shrinkage", which is measured by counting the difference between the inventory on the books of a retailer and what it actually holds. The Global Retail Theft Barometer, which tracks retail shrinkage in 43 countries, shows that India has the highest rates of shrinkage in the world. The country's retail industry reported shrinkage of 2.38 per cent of the total inventory. In contrast, Taiwanese retailers reported a shrinkage rate of 0.91 per cent, Hong Kong had 0.95 per cent, and Japan and Austria had 1.04 per cent retail shrinkage. Russia, which has the second worst shrinkage problem, reports a figure that is lower than 2 per cent.

Analysts and consultants put the size of the Indian retail industry at $450 billion. The fledgling organised retail portion is estimated to be about $25 billion or so and growing at 15-20 per cent. At its current rate, shrinkage losses of organised retailers amount to a whopping $595-600 million — Rs 3,200 crore or so. Shrinkage losses are not due to shoplifting by customers alone. Theft by employees, administrative mistakes, under billing and other clerical errors, along with vendor fraud also gets counted while calculating total shrinkage. But most retailers reckon that employee theft and shoplifting together account for a whopping 80 per cent or more of total shrinkage losses.

$ 119 bn: Total loss in inventory in 2011, up 6.6 per cent since 2010
1.45%: The average shrinkage in 43 countries, compared to 1.36% in 2010
35.9%: Annual increase in shoplifting; 24% retailers suffered more employee theft
$28.3 bn: Money spent to check retail crime and losses in 2011

(Source: Global Retail Theft Survey 2011. The survey covered 1,187 retailers in 43 countries)

For the new organised retail companies that are still struggling with format issues, high rentals, expensive debt and inefficient supply chains, the problem of high shrinkage often takes a back seat as they try to sort out other problems. But as many retailers are now realising, cutting down shrinkage losses — even if they cannot be extinguished altogether — can mean the difference between being a profitable operation and a loss-making one. And every percentage reduction in shrinkage can result in crores of rupees worth of savings.

Boosters And Amateurs
The big problem that crops up in combating shrinkage is that there is no typical shoplifter profile that retailers can watch out for. "People who steal from stores can be employees and customers, but retailers should have rigorous stock counting and accounting practices to avoid pilferage," says Arun Sirdeshmukh, former CEO of Reliance Trends, which has 70 stores across the country.

Shoplifters can be professionals — dubbed "boosters" by the trade — or they could be amateurs, who have spotted an opportunity and taken it up. They could be good planners, who walk into a shop with the intention of stealing, or simply well-to-do shoppers who steal for the thrill of it when they spot an opportunity. They could even be children or adults who pick up and eat chocolates or other consumables on display and walk out without paying for the stuff. Or they could be employees who have colluded to systematically steal from their employer.

In Mumbai, Vinay Nadkarni, managing director of Globus, agrees with the sentiments expressed by Sirdeshmukh. "It is a fact of life for retailers. We cannot do away with this. We have to accept that it will occur again and again," says Nadkarni. He points out that while shrinkage cannot be entirely eradicated, it can be reduced quite dramatically.

Dishonest employees have the biggest opportunity. The boom in organised retail has led to a severe shortage of people, which makes many HR managers hire without carrying out adequate background checks. This adds to the problem. A senior executive in Bangalore's famous Mantri Mall cites the example of a group of employees working with the driver of a delivery van who would replace butter packs in sealed cartons with packs of edible oils. They got away with this for months before a surprise check caught them out.

Sirdeshmukh points out that employees have dozens of means of stealing from the shop if they want to do so. Like customers who shoplift, employees, too, can walk out of the store after concealing merchandise in a purse, pocket, or bag, especially if they have worked for some time and built up a certain degree of trust with the guards. Employees can also steal cash, allow others to steal merchandise, eat food, steal from refunds or get access to credit card information.

Amruto Basuray, who owns 16 Puma stores and four Chicco outlets, talks about how one of his stores in Delhi's Ambience Mall nearly lost Rs 72,000 one morning. The store manager had informed the staff that he would be late for work and one of the staff came very early that morning and accessed the cash-till. Basuray and team suspected the cleaning staff initially, but on accessing the mall's CCTV, noticed a staff who was hovering around the store much before the reporting time. "When the police came, the man confessed and he had the money lodged with a relative who was waiting in the mall," says Basuray.

On Guard: Security Forces Help Fight Shrinkage
Captain Gautam Chathanat, head of security for the 800,000 square feet Orion Mall in Brigade Gateway, Bangalore, has more than 200 security personnel managing the property. But his main task is behind the scenes, he has 12 television sets — each with 16 mini screens — and nearly 225 cameras that track 1 million people a month. Chathanat and his four-member team man the screens to guide the G4S security providers 24 hours a day and digitally record 60 days of footage for future reference. "Shrinkage is unavoidable, but security is paramount in any mall business as there are people with different intentions coming in," says Vishal Mirchandani, CEO, retail, Brigade Enterprises. He adds that in the late 1990s, shrinkage in an organised retail store was as high as 8 per cent only because organised retailers spent much less on security. This was brought down to 2 per cent or less in 2012.

While employee theft is a big problem in both organised and unorganised retail, the former probably have to deal with more casual and professional shoplifters than the latter. In fact, analysts say that the advent of walk-in stores, with aisles piled with goods, and the concept of selfservice have helped provide opportunities that did not exist earlier. The fact that the cash counters are at one end of a huge room, the guards are often overworked, and there are changing rooms with no intrusive cameras recording what goes on inside makes it easy for the professional thief. Department stores and hyper-market formats are especially vulnerable as they cover huge areas, have relatively low staff-to-customer ratios, and have all manner of goods that are easy to conceal.

In terms of percentage, vegetables and fresh produce have the highest shrinkage or pilferage rates — as high as 7-9 per cent in some cases. That is because, say retailers, vegetables do not have security tags and can be concealed easily, if they are not being stolen in bulk. And many fruits can be consumed in the store itself.

(Left to Right: BW Pics By Tribhuwan Sharma and Bornali B.)

Apparel is another great favourite of shoplifters. Almost every apparel retailer has stories of well-dressed men and women walking into changing rooms with dozens of things to try out, and walking out wearing some new clothes, underneath their old ones, and with the bar codes and safety tags snipped off to avoid triggering the detectors at the gates. In one particular case in Mumbai, an obviously pregnant woman was found to be faking her condition with dozens of clothes concealed under her kameez.

The difference between professional boosters and amateur shoplifters is in the goods they steal. Professionals stick to expensive stuff that can be easily resold — branded clothing and jewellery and other stuff such as sprays, deodorants, etc. Casual shoplifters do not usually go into a store with the intention of stealing — they simply see the opportunity to take something and do so. It could be expensive stuff, but it could equally be something fairly low in value.

Gaps In Security
The big reason for Indian retail's high shrinkage is that most players in the organised sector are still on the learning curve. According to Arun Mahajan, founder, Mahajan & Aibara, a retail consultancy in Mumbai, the maximum shrinkage takes place in new stores where the staff is not yet used to security systems. Another reason for shrinkage is new staff or change of management or employees at the store level.

In other cases, it is simply because the security systems are not in place for weeks after the shop has opened. In the Cosmos Mall at Whitefield, Bangalore, the walk-in liquor outlet called Madhulika routinely lost expensive bottles to customers who would conceal an extra bottle while paying. The pilferage continued until the retailer decided to install CCTVs and began monitoring footage. Among the people he caught were young executives who could easily buy all the liquor they stole.

Many retailers, say analysts, also suffer pilferage because they do not train their staff adequately to watch out for suspicious customers. And also because they often deploy a couple of guards at the doorway of the outlet to catch all miscreants. In most malls, the general area security is provided by the mall management itself — and it installs CCTV cameras, and has guards deployed on all floors. The problem is that on rush days, guards are overwhelmed. And anyway, mall security cannot monitor what is happening within a particular outlet.

Then there are the unmonitored areas. Few malls have guards in washrooms. Jonathan Yach, CEO of Bangalore's Mantri Mall — which had 1.5 million visitors in the month of January — says managing people is one of the toughest tasks. A mall may look like a structure where retail stores have security and there is nothing to worry about, but then if one looked at the kind of items that can be lifted, it starts from light bulbs to water taps, faucets and other bathroom fittings. "This is a common sight apart from the retail theft that one witnesses," says Yach.

"Shrinkage is part of life for large format retailers. The challenge is more in the food business, where there are no security tags to check shoplifting," says Mahajan. He says high value stuff such as premium sunglasses and high-end perfumes are rarely stolen as they are kept locked and have attendants hovering around them. According to Ashutosh Chakradeo, head of buying, merchandising and supply chain at Hypercity, "Pilferage is a part of the business and it cannot be taken out of the system." Hypercity, one of the country's largest hypermarkets, is all the more stifled on the issue of pilferage as it deals with food and consumer goods. For Hypercity, shrinkage accounts for 0.6 of its total sales.

On the days of sales and festivals, security is beefed up and employees are made more vigilant. "Pilferage is at its peak during such periods," says Chakradeo, adding that it is difficult to track each and every person on such occasions. "We experience such incidents (where a customer is involved in theft) more than three times a month. However, people at high-end stores are more aware of the security systems and do not dare commit such crimes."

The big problem is prosecuting shoplifters even when they are caught. While employees can still be charged with embezzlement, most shoplifters are charged under section 403 (dishonest misappropriation of property) of the IPC, an easily bailable offence and not under section 378, which is non-bailable. Few ever get prosecuted. Most cases are settled out of court, and even repeat offenders find a way of getting away with lax sentences as the police have more serious crimes to deal with.

Fighting Back
As the Indian retail industry matures, the fight to reduce shrinkage to global levels has begun in earnest. Some of the bigger names already boast of shrinkages as low as 0.7 per cent or even lower. At Globus, the shrinkage is currently pegged at 0.69 per cent of the total sales of Rs 235 crore, says Nadkarni. According to him, the number — in the last three years — has come down from 0.7 due to improved security solutions in the country. The other factors that can check pilferage is investment in the right resources and having an effective management. "We are aiming to bring shrinkage to below 0.6 per cent this year; however, we (retailers) can never ever eradicate the problem from the system," says Nadkarni.

At Max Fashion, the Rs 400-crore company of the Landmark Group, the management claims pilferage numbers have been strictly controlled. "In our group, it is typically below 0.4 per cent, whereas, globally, in the organised retail industry, it is about 1.5 per cent," says Vasanth Kumar, executive director of Max Fashion. He says pilferage was controlled through security guards, sensormatic security hard tags (AM technology) and billing controls. Of late, with advancements in technology, established retailers have introduced "on the shop floor" controls and monitoring or restricting inventory movements, general surveillance (CCTV), electronic recording of movements on the shop floor, RF technology security tags (both hard and soft tags) and perpetual stock cycle count.

For food and beverage retailers, the job is the toughest since many stock-keeping units (SKUs) are easy to steal and get away with. In Delhi, retail store 24/7 has a separate security for day and night as it realised it was losing more goods at night. "We have had to deploy bouncers at night as we see a lot of customer traction during the wee hours. There would be 50-70 people at any given time trying to shop," says Samir Modi, managing director of 24/7. That has helped Modi cut down pilferage losses quite dramatically. "Our rate of pilferage has fallen down from 9 per cent to 0.5 per cent over the past three years." Though for Modi, loss from pilferage runs only into a couple of thousand rupees, his aim is to ensure that the rate remains low. Employees are constantly churned, since a lot of cases are generated through employee leads. Product placement at the store is also changed to ensure higher priced SKUs are moved behind the counter.

Training staff goes a long way in controlling pilferage. "There is a stringent system in place to thwart any damage or attempt to steal merchandise based on internal standard operating procedures and disciplinary action policy," says Kumar of Max. Regular communication is sent to the shop floor employees on practices used by cheats and workshops are conducted to train them on how to monitor suspicious elements and act as whistleblowers.

Hypercity has taken many steps to deter casual and professional shoplifters. "We have a tight internal process and there are security guards who roam around the store in plain clothes. We also have regular audits and do an inventory count once in a quarter to know if things are missing," Chakradeo adds.

Click To View Enlarged Graphic

Best Price Cash & Carry, a joint venture between Bharti and Walmart, fights pilferage by locking all their 100 trucks with a special seal and lock. The 140-odd EasyDay stores of Bharti Retail use this special system. The seal is broken and the locks opened by the store manager only after the driver enters the store delivery area. The stock is then recorded by the manager before it is unloaded.

Reliance Retail stores have an SLP (security and loss prevention) team, which includes structure for value, speciality, joint ventures and brands and the supply chain. Integral to the SLP is the system design team, which designs all security systems that are deployed at the stores. All these are effectively supported by a fraud prevention team. Having the SLP team has meant that Reliance Retail has an overall shrinkage of 0.5 per cent.

 The SLP team uses a combination of trained manpower and sophisticated surveillance technology. The technological nerve centre of the SLP team operations is the RR SOC — the Reliance Retail Security Operations Centre — which is a control room that works 24x7, 365 days a year. All cameras and sites are monitored on a real-time basis — and any access violations are recorded instantly. Personnel who man the centre are provided with updated contact details of security staff at all the sites across India, giving them reach and accessibility.

Malls also help out with their own security procedures and systems. Most malls have their security outsourced to specialist agencies such as Topsgrup, SIS and AP Securitas. The private guards are plain-clothed and are trained to pin down and secure the offender till the police arrive. The retailer is left to select his own security from a security contractor. There is one security guard for a 2,000 sq. ft shop. His task is to check and stamp bills, also collect bags at the counter. Once an offender is caught by the shop security, then the mall security takes over. An average 500,000 sq. ft mall can have more than 60 security personnel.

All these steps have helped to an extent. The shrinkage in Indian retail — though the highest in the world — has actually come down from last year, when it stood at an astonishing 2.72 per cent of total goods. Still, the war on shrinkage has just about begun. It will be a long time before it can be considered won.


(This story was published in Businessworld Issue Dated 14-05-2012)