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Inside job or outside job. Five-dollar magazine or $5,000 suit. Merchandise is still flying off retail shelves – it’s just that now, in this tough new economy, fewer people are paying for it. Inside the $500-million (and growing) shoplifting problem.

Retailers call it “shrinkage” and it doesn’t get much more dramatic than a Honda Prelude backing up at full speed through a plate glass storefront.

“I knew it was a Prelude,” says Jason Van Unen, the 37-year-old owner of J. Gregory Men’s Apparel, an upscale haberdashery with locations in West Vancouver and South Surrey. That’s because he found a bumper along with the shattered glass blown “all the way to the back” of the Surrey store.

The crash-and-dash criminals boosted $60,000 in stock, twice as much as thieves had taken three years prior when they pried their way through his front door. This time his entire spring line was gone. Because Van Unen buys eight months in advance, there was no way he could restock. Instead, he spent two weeks in his store behind boarded plywood working on an inventory list for the insurance company.

“The $60,000 of stock taken – that’s at cost,” explains Van Unen. “Yes, the insurance company reimbursed all of that – but I don’t pay my bills on cost. I make zero dollars on it. For the rest of that season, I basically made no money.”

Shoplifting, theft by employees, theft by organized criminals or plain old mismanagement of inventory: for retailers, it’s all shrinkage. It’s the black hole. Whatever’s lost in there never returns.
According to a 2007 survey by the Retail Council of Canada and PricewaterhouseCoopers LLP, shrinkage for medium and large retailers (those with more than 20 employees) amounts to 1.02 per cent of total net sales. But several such retailers throughout the Lower Mainland say the shrinkage for an individual store can reach five times that amount – enough, in the present economy, to put certain retailers on the brink of bankruptcy. Nationally, it’s estimated by the Retail Council that shrinkage costs retailers – and the rest of us, thanks to compensating retail price hikes – $3.6 billion a year.

“If you extrapolate those figures for British Columbia, that’s more than $500 million – a half-billion dollars a year – being stolen from B.C. retailers,” says Max Logan, the council’s B.C. director of government relations and membership services. In the big picture, that’s more than the earned income of 97 of the top 100 public corporations listed in this year’s BCBusiness Top 100 survey. For the small and medium retailer, according to a 2007 Ipsos Reid survey conducted for the council and Royal Bank of Canada, that’s a loss due to shrinkage of $1,005 per store per month. The smallest portion of that shrinkage, about $100, is due to human error and mismanagement – not checking shipping invoices, paying for something you didn’t receive – and as inventory control systems have become more sophisticated that amount of “book error” is going down.

“There’s a greater variety of software programs and computer-technology-based systems that can help even the smallest retailer to better manage their systems than, say, 15 or 20 years ago,” says Mark Startup, president and CEO of Retail B.C., the region’s retail lobby. As for the rest of the shrinkage, the Retail Council estimates that employees steal $200 and customer theft accounts for $700 per month.

Not everybody agrees that those numbers paint an accurate picture. Joe Calvano, president and owner of Dollar Giant Inc., the B.C.-based national chain of dollar stores, says the biggest loss for him – “no question about it” – is theft by employees, whether it’s collusion between trucking companies and store employees, under-ringing at the cash register or scanning a lower-priced tag at the till and pocketing the difference (often in collusion with customers) or just plain old theft (taking out the garbage and leaving product at the bins to pick up later).

Still, the retail veteran – who’s also worked at KMart, Superstar and Army & Navy – says he’s always surprised. Recently, Calvano hired someone he “knew from way back” who was a “hard worker, doing a really good job.” Calvano even lent him some money. A week or two later, he discovered the employee had stolen the store’s bank deposits.

The Retail Council of Canada’s next industry survey is scheduled for release in May (after this magazine goes to press), and the council’s Max Logan isn’t expecting a pretty picture: “I think it’s pretty fair to say we’re expecting – as a result of the tougher economy – to see the shrink numbers up.”

That fear exists throughout the industry, including among giants such as London Drugs. “I think there is some truth to the notion that crime does worsen – especially street-level property crime – in tough economic times,” says Tony Hunt, general manager of loss prevention at the Richmond-based retailer. Still, Hunt – who declined to provide statistics on shoplifting at London Drugs – cautions it’s “a little too soon for us to know if indeed that is the case” with this recession.

So what causes people to steal? UBC psychology professor Lorne Korman, an authority on concurrent disorders (which includes, among many other things, shoplifting addictions), is cautious in answering the question, saying there are many reasons and no simple answers. Some steal for hunger. Some steal to feed an addiction. Others steal for the cheap thrill or the pure greed. But Korman says that what stops most of us from actually doing the deed is anxiety.

“Some people don’t necessarily experience a lot of anxiety,” he says. “Some people don’t feel shame. They don’t feel fear. Or they don’t feel much of it. They don’t work the same way. It’s not their only issue, but one of their problems is they’re not hardwired to feel certain kinds of emotions that the rest of us do – emotions like anxiety that actually bind us in kind of a larger social compact.” He offers the example of Saudi Arabia, where the punishment meted out is amputation of the right hand. Korman notes that a second offense can result in losing one’s other hand, and yet the hardened thief, not infrequently, will choose to steal again. “These are people who are just not guided by the same hardwired reactions.”

The Elizabeth Fry Society is one of several organizations that treat shop theft as a veritable illness, offering an ongoing 12-step program for women with shoplifting addictions. (Shoplifting addiction is usually associated with women, but U.S. statistics reveal that men shoplift just as often.) Korman questions whether shoplifting can clinically be described as an addiction, but says, “It’s absolutely true that some people are compulsively shoplifting, and the behaviour looks a lot like addiction. They tried many times to stop; they failed. They want to stop; they can’t. It’s getting them into trouble, but they still do it. They spend a lot of their days thinking about doing it or preparing to do it or doing it or recovering from it.” Korman’s diagnosis, however, is that the condition is rare. London Drugs’ Tony Hunt agrees. He says in his 20 years in the business, he’s only encountered one person who actually had a compulsive disorder that caused him to steal repeatedly.

The more serious danger, according to the Retail Council’s Logan, is that retail crime is getting much more sophisticated and better organized: “When we’re talking about theft and shrinkage, we’re no longer talking about teenagers shoplifting. We’re talking about well-organized, well-funded criminal enterprises.” To illustrate his point, Logan directs me to online sites where new products in original packaging are offered at half the retail price of specifically named stores – most likely the same stores from which they were stolen.

At the same time as shoplifting has increased in sophistication, it has dropped as a priority for local authorities, say many retailers. “The police are so busy, the courts are so busy – everybody’s so busy,” says Dollar Giant’s Calvano. “The police just look at you when you bring a shoplifter in, as if to say, ‘Give me a break.’ It’s almost acceptable.”

When his South Surrey store was ransacked at 2 a.m., Van Unen, who lives close by, was wakened by his phone alarm and rushed to the store within 10 minutes. (The thieves had already gone.) He then sat for more than two hours – amidst the rubble, the broken plate glass and his remaining exposed stock – waiting for the police to arrive. To add insult to injury, he later discovered that he was for a time considered a suspect in his own store’s robbery. “It was bizarre,” he says.

Tony Hunt says he has had much better experiences with the 40-plus police agencies London Drugs deals with across Western Canada. But that’s likely because large retail operations such as his can afford to employ and train employees dedicated solely to security and can provide, as Hunt says, “the information [police] need to be able to help us.”

For smaller retailers such as Van Unen, however, assembling the appropriate information for arrest and finding the time necessary to pursue cases through the courts is a challenge. When Van Unen discovered a charming 80-something English grandma who frequently dropped into J. Gregory’s to chat slipping a $175 shirt into her purse, he simply expelled and banned her from the store – a response typical of smaller retailers. According to the Retail Council, about 80 per cent of retailers do end up charging and prosecuting people they find stealing in their stores; employees caught stealing are fired and are charged about 60 per cent of the time. But for small independent retailers, says the council’s Logan, there’s no doubt that they, more than larger retailers, feel the pain of theft.

One of the reasons why retailers, especially the smaller ones, avoid court action is the often lenient sentences associated with such crimes. Most people who plead guilty to a charge of shoplifting receive a discharge, a suspended sentence or probation. A jail sentence is typically reserved for people with a criminal record – and even then, the maximum jail sentence of two years is very rarely handed out. The Retail Council is currently trying to encourage public policy changes, Logan says, to make certain that when people are caught, they’re dealt with appropriately. “There’s a lot of work done by the retailer or by the police,” he says, “and then someone goes to court and gets a slap on the wrist. That’s a big frustration that we’d like remedied.”

As for Van Unen, he’s had enough. Now when he spots a shoplifter – no matter whose store it is – he confronts them directly. Recently, he followed a woman with a “massive bag” whom he spotted crossing the parking lot outside his Surrey store. He chased her across the lot and into the neighbouring Safeway, where she pretended to use the bank machine. “I walked up to her and I said, ‘I know exactly what you’re doing. Get off the property now,’” he recalls. When she fled with the bag into a car with two accomplices, Van Unen pursued them in his own auto, calling the police with his cellphone. At a stoplight, the girl leapt out, dashed to his car, dumped the contents of the bag in his lap and pleaded that she’d never done this before. Later Van Unen returned more than $2,000 worth of jeans to the victimized retailer.

Different retailers take different approaches to solving the problem of shoplifting. “Customer service is the number one deterrent in our stores,” says London Drugs’ Hunt. It’s one of the reasons that staffers approach you and ask if there’s anything they can do for you. “For an established security program,” he adds, “we really focus on the environment that we provide for our customers and staff to work in – a secure, safe environment people can have confidence in. We put a lot of effort and invest a lot of money in protecting that environment, and we do it all the time.”

For small retailers such as Van Unen, it’s about vigilance: “I’m always watching the front of my store and I’m ready for anybody trying to rip me off.”