Retail Faces a Crime Problem: The Truth in the Data Fog

Any in-depth look at retail theft reveals a clear problem: it is unclear how serious it is, whether it is increasing, or even if it is actually getting worse.

Nevertheless, the industry itself and some retail chains continue to emphasize the issue in research reports, earnings calls, and other forums. On October 26, representatives from the National Retail Federation went to Capitol Hill for what the organization called "Fight Retail Crime Day," aimed at "advocating for legislative solutions to address organized retail crime."

Many cite reports of high-profile smash-and-grab robberies or arrests of organized thieves as evidence of the problem. In terms of statistics, journalists, lawmakers, and other business groups rely on data from NRF and the Retail Industry Leaders Association (RILA). Meanwhile, some analysts believe the retail industry may be exaggerating the problem, at least to some extent.

"While theft levels may have risen, companies may also be using this as an opportunity to divert attention from recent margin pressure due to increased promotions and poor inventory management," said the William Blair analyst team, led by Dylan Carden, in a client note on October 25. "We also believe that some recent permanent store closures attributed to shrink are actually related to the underperformance of those stores."

The issue is muddied by various uncertainties, especially because most of the discussion—whether in media, analysis, or within the industry—conflates terms and figures.

What are we talking about?

Assessing the impact of retail crime on the industry is complicated by multiple terms that are poorly defined or used interchangeably.

In recent years, NRF has annually released its "Retail Security Survey," billed as "the state of national retail security and organized retail crime." Based on surveys of dozens of retailers (the exact number varies by year), the study delves into inventory loss, known as "shrink."

That is where the problem begins. Shrink encompasses inventory loss from various causes, including theft, operational or process errors, and systemic failures. According to NRF's annual Retail Security Survey, the retail shrink rate rose from 1.4% in 2021 to 1.6% in 2022.

The term "shrink" is often used by media, researchers, and the industry as a synonym for "theft," even though, according to NRF data, more than a third of shrink stems from administrative causes unrelated to any form of theft.

NRF itself is not precise on this issue. In its press release announcing the latest survey, NRF described the entire shrink figure (in dollars) as a "retail crime" problem, even though retail crime is only a subset of total shrink.

Earlier this month, this error surfaced in New York. New York Governor Kathy Hochul vetoed a bipartisan bill that would have established an organized retail crime task force. In public statements, the Retail Council of New York criticized the move, noting that "stores investing in New York communities lost $4.4 billion to retail theft." Amanda Powers, a spokesperson for the council, said via email that the figure came from a Capital One Shopping report on retail theft, which treated NRF's total shrink figure as theft and extrapolated it by state.

However, based on how the Capital One report handled NRF statistics, the amount for all types of retail theft in New York would be $2.86 billion. Powers declined to comment on that possibility, saying the organization did not have additional relevant statistics to assess.

Shrink levels have changed little

Shrink levels have remained relatively stable since at least 2015. To calculate the financial impact of shrink, NRF uses the U.S. Commerce Department's revised estimates of total retail sales. In 2022, NRF estimated shrink losses at $112.1 billion, up from $93.9 billion in 2021. These figures are not adjusted for inflation.

"Shrink is such a broad term that it is difficult to parse what is behind the numbers. Of course, retailers mention it, but they are reluctant to share too many details," Neil Saunders, managing director of GlobalData, said via email.

Retailers are highly focused on theft because, according to NRF's survey, about two-thirds of shrink—unaccounted-for inventory—is estimated to be stolen, whether by employees or external thieves. In 2022, employee theft accounted for 29% of shrink, while external theft—including shoplifting, cargo theft, and organized retail crime—accounted for 36%.

The biggest problem? Maybe, maybe not

One type of theft that NRF and RILA focus on most is "organized retail crime" (ORC). NRF defines it as "theft/fraud activity conducted for the purpose of converting illegally obtained merchandise, cash, cargo, or cash equivalents into financial gain (not for personal use), typically through online or offline sales."

Experts say this definition is neither legally binding nor precise, leading to inconsistencies in reporting by store employees, loss prevention staff, and police. Like "shrink," the term "organized retail crime" is often conflated with other types of retail theft, including shoplifting, employee theft, and cargo theft. Due to differing methodologies across local, state, and federal jurisdictions as well as businesses themselves, law enforcement, prosecutors, legislators, criminologists, and retail loss prevention personnel do not define these terms consistently.

"It is a well-known problem in the industry that there are different interpretations of the definition of organized retail crime, and even within the same organization, different employees may interpret the same data and reach different conclusions," said Trevor Wagener, director of research and chief economist at the Computer & Communications Industry Association (CCIA), who studies these issues.

Moreover, the scale of organized retail crime may no longer be as clear as it once was. Today, according to NRF and RILA, it is unclear what proportion of shrink is attributed to organized retail crime. But these organizations have attempted to measure it in the past.

In its 2020 report, NRF said that "ORC costs retailers an average of $719,548 per $1 billion in sales," equivalent to 0.07% of sales. More recently, it has stopped separately publishing its impact on the industry. Today, NRF still cites data when discussing organized retail crime but no longer releases specific financial costs for the issue.

Danielle Inman, senior director of media relations at NRF, said via email that this is because retailers reported ORC losses lower than NRF expected. She said NRF believes "the reported dollar value of ORC may be just the tip of the iceberg and may significantly underestimate the problem."

According to Inman, not all retailers investigate ORC—some because they are less susceptible, but others may overlook the severity of the issue. NRF also said it no longer specifies dollar losses because the consequences of organized retail crime are not all financial, noting that more than two-thirds of survey respondents said violence and assaults increased in 2022 compared to 2021.

However, some analysts believe the industry may be exaggerating the problem. S&P Global Ratings in September called retail theft "one of the biggest risks facing the industry," but its analyst team led by Diya Iyer also said, "We believe some retail companies may be exaggerating the contribution of theft this year." Similarly, William Blair analysts speculated in a recent research note that some retailers may be using theft as an excuse to mask poor merchandise sales or poor store management.

"Shrink is such a broad term that it is difficult to parse what is behind the numbers." —Neil Saunders, Managing Director, GlobalData

Most importantly, as a subset of retail theft (itself a subset of shrink), ORC has been difficult for the industry to quantify, said CCIA's Wagener. He said existing data suggests that, overall, organized retail crime is not driving the rise in shrink.

"A deeper problem with ORC is that no one—not even retailers themselves—has a clear picture of the actual scale of the problem," he said. "I do not doubt that ORC patterns have increased in limited stores in specific cities, but those stores do not appear to be representative."

The numbers come from within

This shows that, beyond terminological confusion and a lack of detail, figures on shrink and theft are often outdated, inadequate, misread, or a combination of these. In turn, vague or inaccurate statistics are widely cited in media and elsewhere.

First, industry reports on theft rely on surveys of relatively few large retail chains. NRF's Retail Security Survey and RILA's 2021 statistics on stolen goods rely on non-representative samples, which experts say call their conclusions into question.

RILA's 2021 report on retail crime estimated that retailers lost up to $68.9 billion in stolen goods in 2019, a figure based on extrapolations from data from "five major interstate retail companies." CCIA's Wagener said five is too few for such an extrapolation, and that the surveyed companies being large chains could also skew results. Jason Brewer, RILA's senior executive vice president of communications and marketing, said the organization no longer conducts such research.

NRF's annual shrink report includes data from more than five retailers but also relies on a relatively small sample. The organization's most recent calculation was based on survey responses from 177 retail brands. That is nearly three times the 63 respondents last year, but it is still a small fraction of its membership (about 16,000 retailers).

NRF's respondents collectively had annual retail sales of $1.6 trillion and operated more than 97,000 retail locations in the U.S. As with RILA's estimate, the retail theft experienced by these major players may not be representative of the entire industry, Wagener said.

Trent Buskirk, a data science professor at Bowling Green State University and survey data expert, said the fact that the vast majority of members did not respond could also be a problem. "Non-respondents may have very different experiences with theft, but they just may not think it is worth reporting," he said in a phone call. "Non-response bias could inflate these statistics. When you see figures like '70% of retailers,' that is a fairly high consensus rate. That situation suggests the possibility of non-response bias."

NRF did not directly respond to such criticism, only adding that about 35 of the surveyed retailers were businesses with fewer than 200 stores.

The power and weakness of numbers

The figures produced by these surveys worsen when they are mislabeled or plugged into unsupported mathematical formulas.

For example, RILA's finding two years ago that $68.9 billion in goods were stolen annually has been particularly persistent. Often cited as "nearly $70 billion," the figure still circulates in press releases, media reports, and white papers. The statistic, from a 2021 survey of five large retailers, quickly gained traction and is often used to describe the scale of organized retail crime.

However, RILA's Brewer said via email that the finding referred to all theft, not just organized retail crime. In fact, RILA itself "no longer uses that figure broadly in our communications because it is several years old," Brewer said. Nevertheless, RILA remains comfortable with the figure because the report came from 2021 and its information was from 2019.

"I now always add the caveat that more recent research suggests the figure is now significantly higher, which aligns with benchmarking surveys we conduct with the asset protection community," Brewer said.

As Wagener previously noted, including in testimony before the U.S. Congress in June, RILA's sample size and nature call the figure into question. Yet other credible sources have adopted it, often treating it solely as a measure of organized retail crime rather than all types of theft.

In 2021, the California Retailers Association used RILA's finding to make its own claim that organized retail crime caused $3.6 billion in annual retail losses in the state. The Los Angeles Times noted that this was equivalent to 25% of the state's annual retail sales—unlikely or even impossible—especially given that NRF estimated organized retail theft averaged 0.07% of retail sales that year, "about 330 times lower than CRA's estimate."

Despite its questionable utility, the statistic is still cited authoritatively. U.S. Immigration and Customs Enforcement adopted it last year, and the Department of Homeland Security used it in its online information on combating organized retail crime. The U.S. Chamber of Commerce uses RILA's report when calculating retail theft by state. Reuters included RILA's figure in its June explanatory report on retail crime.

"We recognize the challenges the retail industry and law enforcement face in collecting and analyzing accurate and consistent data to measure the number of incidents in communities across the country." —Mary McGinty, Vice President of Communications and Public Affairs, NRF

In an email to Retail Dive, Brendan Dugan, president of the Coalition of Law Enforcement and Retail (CLEAR), called RILA's figure "the most current reflection of retail loss to ORC," even though RILA described it as all theft. Senator Chuck Grassley (R-Iowa) is among those who recently publicly cited the figure, touting his meeting with NRF in a late-October press release.

Wagener believes NRF's data is imperfect but more credible than RILA's. However, in one case, NRF inadvertently cited a source that misquoted an old NRF shrink figure as an ORC estimate.

In a report this year focused specifically on organized retail crime, released jointly with risk, compliance, investigation, and monitoring firm K2 Integrity, NRF said shrink in 2021 was $94.5 billion, "with nearly half attributed to ORC, according to NRF survey data and research from the National Coalition of Law Enforcement."

This came from testimony by CLEAR's Dugan, who told the Senate Judiciary Committee in 2021 that the organization estimated organized retail crime cost retailers $45 billion annually. In an email to Retail Dive, Dugan confirmed he was citing NRF's 2016 report on total retail shrink as CLEAR's ORC estimate.

This means that in the crime report released in 2023, NRF used shrink totals from two different years—one as total shrink and the other as the ORC subset of that shrink. In fact, each figure reflected inventory loss from all causes, unadjusted for inflation, five years apart.

In an email, NRF Vice President of Communications and Public Affairs Mary McGinty said NRF "was not aware that Ben Dugan cited any NRF report, study, or data in his 2021 Senate testimony," and said it "will review with K2 and, if necessary, correct and update the report."

She said "daily theft incidents" and "recovering millions of dollars in stolen retail merchandise" should remain the organization's focus. "We support the widely understood fact that organized retail crime is a serious problem affecting retailers and communities of all sizes across the country," she added. "At the same time, we recognize the challenges the retail industry and law enforcement face in collecting and analyzing accurate and consistent data to measure the number of incidents in communities across the country."

In fact, based on figures and methodology from NRF's earlier shrink reports, inventory loss attributed to organized retail crime was not close to 50% as the NRF/K2 report suggested, but closer to 5%, Wagener found. All of this means...