Fraud and shoplifting cost the retail industry $44 billion last year. That is almost twice the annual revenue of retailer Macy’s Inc. (NYSE: M). While shoplifting is the largest part of the loss, employee theft is second. Retailers are having trouble protecting themselves from their own workers.

According to study results released by the National Retail Federation (NRF), “retailers say inventory shrink averaged 1.38 percent of retail sales, or $44 billion, in 2014.”

Further, the National Retail Federation/University of Florida National Retail Security Survey showed:

Specifically, retailers surveyed estimate that shoplifting accounted for the largest part of reported shrink in 2014 — 38 percent, followed by employee/internal theft (34.5%), administrative and paperwork errors (16.5%), vendor fraud or error (6.8%) and unknown loss (6.1%).

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While the industry has taken the problem seriously, some retailers have done little to improve their security. NRF Vice President of Loss Prevention Bob Moraca said:

A common misperception about shoplifting is that retailers can “afford” the loss of a candy bar or a pair of jeans, but the truth is that the industry loses billions of dollars each year at the hands of callous criminals that could be put towards human capital, promotions and other necessary business operations. Though we are encouraged by the partnerships forged with law enforcement over the years and advances in technology that will help deter a crime before it happens, criminals continue to thwart much of the progress retailers have made thus far.

But:

When it comes to loss prevention budgets, 39.4 percent of those surveyed say their budget for 2015 increased over last year; just over one-third (36.6%) said their budgets would be similar to what they were last year — leaving 23.9 percent of respondents with decreased resources.

It is hard to fathom why any retailer would drop its investment in preventing losses. Maybe the cost of the protection is more than the cost of losses, for some portion of the industry. If so, the NRF has not highlighted that possibility.

Methodology: The National Retail Security Survey is a survey of loss prevention executives that benchmarks retail shrinkage and operational information about how retailers are combating losses. The study, which surveyed 100 senior loss prevention executives from various sectors in retail in March and April 2015, is a partnership between the University of Florida and the National Retail Federation.

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