Creating a profitable small business is a difficult task, even if it is not subject to illegal activity. In the real world, a variety of criminal activities can have a negative impact on businesses, which can be especially damaging to small companies as they struggle to survive and compete. Shoplifting is a common problem faced by retail businesses that can have a detrimental effect on profitability.
How Shoplifting Impacts Profit
Retail businesses earn revenue by purchasing goods from wholesalers and manufacturers and then selling those goods to end consumers in retail stores or over the Internet. When a shoplifter steals an item from a retailer, the business can no longer sell that item to pay for the cost it incurred when it purchased the item, and other expenses like rent and employee wages. Depending on a store's profit margin, it may have to sell dozens of units to make up for the revenue lost due to stolen items.
For instance, if a firm has a 2 percent profit margin and a shoplifter steals an item that is worth $10, the store must sell $500 worth of goods to recover the loss. Profit margins can especially thin small businesses because they often have little power to negotiate with wholesalers and manufacturers, which can magnify the impact of theft.
The amount of profit stores lose due to shoplifting is not easy to quantity. Businesses can lose inventory in ways other than shoplifting, such as theft by employees and theft by deliverymen or vendors. The difference between the amount of inventory a company should have and the amount it actually has is known as "shrinkage." Shrinkage indicates losses due to shoplifting and other thefts and errors. According to a 2009 study conducted by the National Retail Federation, about 35 percent of shrinkage was the result of shoplifting in 2007, and total shrinkage amounted to 1.44 of total retail sales.
Compensating for Shoplifting
While casual shoplifters may feel that taking a few small items from a retailer is a victimless crime, it can have a negative effect on other customers. Since businesses lose profit due to shoplifting, they may set prices higher than they would otherwise to compensate for the losses. In a sense, shoplifting acts as a tax on retailers that is ultimately passed on to paying consumers. Small businesses that raise prices may lose customers to larger competitors, which are often better equipped to absorb losses and keep their prices low.
Retail businesses can employ a variety of theft prevention measures to fight against shoplifting. Common prevention methods include posting warning signs that shoplifters will be punished, installing security cameras, training employees to be aware of shoplifting and putting security devices on products. Fastening goods down and locking products away in display cases can help prevent shoplifting of valuable items.
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