The state of loss prevention in retail

Some Walmart store employees are now wearing body cameras as part of a pilot program.

“While we don’t talk about the specifics of our security measures, we are always looking at new and innovative technology used across the retail industry,” Walmart said in a statement to Retail Dive. “This is a pilot we are testing in one market, and we will evaluate the results before making any longer-term decisions.”

The body camera initiative is focused on worker safety and is not related to loss prevention or theft, according to a person with knowledge of the situation. Walmart is currently testing the technology at a handful of stores in the Dallas market.

“Retailers are making every effort to ensure the safety and well-being of their customers, associates and communities,” David Johnston, the National Retail Federation’s vice president of asset protection and retail operations, told Retail Dive in an email. “The use of body cameras is still a newer technology being used in retail and individual retailers are finding how this technology best works within their environments.”

Johnston pointed to an NRF study released Tuesday in collaboration with the Loss Prevention Research Council and SensorMatic that found about 91% of the senior loss prevention and retail industry security executives surveyed said shoplifter violence and aggression has risen compared to 2019.

Retailers have implemented a variety of security measures to protect in-store associates and the merchandise from theft and acts of violence, the report says. The enhanced security measures include locking up merchandise; removing products from the sales floor; RFID tagging; shopping cart locks; receipt checks or exit gates; and posting uniformed security or law enforcement in stores. The report acknowledged that some of these measures “negatively impact the customer experience.”

According to 84% of those polled in the survey, violence during a crime has become more of a concern than it was a year ago. Fifty five percent said guest-related violence was more of a concern, 40% cited employee-related violence and 34% named mass violence or an active assailant.

“Workers have been sounding the alarm on Walmart’s workplace safety crisis for years. From mass shootings, to physical and verbal assaults from customers, associates do not feel safe,” Terrysa Guerra, co-executive director of retail advocacy group United for Respect, told Retail Dive in a statement. “As the largest private employer in the country, Walmart has the resources to make real changes to improve worker safety, and this rollout of body cameras is not an adequate solution.”

Guerra said there’s limited evidence body cameras will improve associate safety. Instead what associates need, Guerra said, is a larger workforce investment, along with higher staffing levels, improved safety training and enhanced safety protocols. 

Retail and grocery stores nationwide have often been the scene of mass violence in recent years, including in 2022, when a Walmart supervisor shot and killed six people and injured four others inside a Chesapeake, Virginia, store.

Dollar General joins other retailers in changing its tune around shrink.

 

Shrink, which includes inventory loss for all kinds of reasons, including theft, damage and bookkeeping errors, has been a hot topic in recent years, despite the fact that, according to research from the National Retail Federation, there has been remarkable consistency in shrink rates industrywide. The group this year ended its annual shrink report. 

Several retailers, including Dollar General, have highlighted their shrink problems in recent years, however. Dollar General CEO Todd Vasos recently called shrink “the most significant headwind in our business,” and Dilts said Thursday that “shrink rates as a percentage of sales continue to be higher than we would like to see in our stores.”

But the downturn in shrink bested the retailer’s expectations, she also said.

“We are making progress as we work to get closer to pre-pandemic levels, and believe our actions are having a positive impact,” she said.

She didn’t specify which actions those are, but the company decided to drastically reduce self-checkout in its effort to combat shrink. In the fourth quarter and throughout next year, improvements in shrink should be a tailwind for the retailer’s results, including as a “big contributor to gross margin,” she said.

“Shrink is really a continuous improvement journey,” Dilts said. “Just as a reminder, because of the long tail, it does take a full year for us to get the full impact of any actions that we take to show up in the financial statements, just because, as we take inventory through the year, that's when we'll get the benefit of that.”

Dollar General said Q3 net sales rose 5% year over year to $10.2 billion as comparable sales rose 1.3%. Inventory declined 7% on a per-store basis. Net income fell nearly 29% to $196.5 million.

Gross margin contracted by 18 basis points to 28.8%, due to markdowns, inventory damages and higher consumables sales, partly offset by higher markups, lower shrink and lower inventory costs. The shrink improvement contributed 29 basis points and beat the retailer’s expectations, Chief Financial Officer Kelly Dilts told analysts.

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According to the National Retail Federation’s (NRF) 2023 National Retail Security Survey, the number of violent shoplifting events rose by over a third in the last year, with 88% of retailers saying that today’s shoplifters are more aggressive than in the past.

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Several major retailers in the U.S. use a century-old accounting practice known as “the retail inventory method,” which relies on retail prices to estimate inventory, even though it fails to take full advantage of modern technology and distorts business metrics and tactics.

“It also creates a lot of games,” said Paula Rosenblum, a retail analyst and co-founder of RSR Research, who has criticized the practice for years. “One of the reasons merchants don't want to give it up is that they get to play some serious games with it.”

Judging by explanations given by multiple companies in their annual reports, the retail inventory method, or RIM, is employed because of its “practicality” and widespread use in the industry. However, at least one retailer, Dillard’s, also pinpoints the very aspects that many experts see as problematic.

“Inherent in the retail inventory method calculation are certain significant management judgments including, among others, merchandise markon, markups and markdowns, which significantly impact the ending inventory valuation at cost as well as the resulting gross margins,” according to financial filings from the department store. 

What that means, experts warn, is that the retail inventory method interferes with sound merchandising and pricing decisions. RIM can even muddy the picture when it comes to inventory shrink.

However, there is a superior alternative, known as “cost accounting.” This method is more dependable because it makes the most of 21st-century data systems, and because, as its name implies, it’s based on what a retailer paid for inventory — which, unlike what inventory sells for, doesn’t waver.

Oliver Chen, managing director and senior equity research analyst at TD Cowen, for years has touted the value of replacing RIM with the cost method of accounting.

“These companies need to get faster, more agile, and they need merchants and inventory planning and everybody to be more connected,” he said by phone. “The retail inventory method is a more manual process, designed when we didn't have barcodes or computers.”

How it started, how it’s going

The retail inventory method is an accounting practice developed by Shakespeare scholar-turned-retail expert Malcolm McNair in the 1920s to enable a retailer to calculate the value of its inventory without having to manually count it — a godsend before the age of point-of-sale systems and computers. RIM provides an estimate of inventory based on retail prices, including permanent markups or markdowns. It was especially handy for larger businesses like department stores with lots of merchandise of various types.

By 1970 it was prevalent, and it remains in use despite the advent of digital technologies that provide speed, precision and granularity. Along with Dillard’s, Target, Walmart, Kohl’s, J.C. Penney and Dollar Tree are among retailers that still employ the retail inventory method, according to their most recent annual reports.

Nearly a third of companies on the National Retail Federation’s top 100 list still use RIM to some extent, with about a quarter only on RIM and the rest using a hybrid model (the byproduct of mergers and acquisitions and/or PE firms that have multiple brands), according to PwC. Abroad, far fewer retailers use RIM because it’s only accepted under International Financial Reporting Standards (akin to GAAP) under certain conditions, according to Suni Shamapande, partner at PwC U.S. In the U.S., both RIM and the cost method align with generally accepted accounting principles or GAAP.

But retailers in the U.S. are increasingly rethinking RIM because the cost method’s specificity provides a clearer picture of inventory and margins, with implications for a host of retail functions, Shamapande said by video conference.

“Today, retailers have perpetual inventory systems and computers that can do the calculations, which we didn’t have in 1920,” he said. “If you tried to do it at the item level way back when, that would have been too much for a bookkeeper, particularly in department stores. But today systems and computers are doing it for you, calculating real-time cost at the item level.”

Trading in RIM for a cost method is a daunting task, entailing an overhaul of accounting, inventory management and buying that affects operations and financial reports. Two major retailers that have done so say they are happy they did.

In February, Adrian Mitchell, Macy’s Inc.’s chief financial officer and chief operating officer, told analysts that Macy’s department stores had fully converted from RIM to cost accounting, saying, “I'm really excited about what it means” for buying, selling and other decisions. In March, Nordstrom Chief Financial Officer Cathy Smith similarly announced a transition to the cost method as of this fiscal year.

“This shift to operating in units and cost lays the foundation for us to deliver on our business priorities more effectively,” she said.

RIM versus cost

The breakdowns of these accounting methods are simplified for this article and charts are based on cost accounting using weighted average cost; variations like “first in, first out,” also known as FIFO, or “last in, first out,” also known as LIFO, among others, aren’t discussed.

RIM’s formula hinges on the cost complement — also known as the cost ratio or cost-to-retail ratio — which is equivalent to the cost of goods available divided by the retail price of goods available (multiplied by 100 to get a percentage).

The fluctuating nature of pricing puts the cost complement, and therefore RIM, on shaky ground, experts say.

“There's where the games are, because what's the retail price? What if you're having a promotion? And what if you put something on promotion for six months?” Rosenblum said by video conference. “You’re imputing this number, this cost complement number, not computing it. And there's so many reasons why it's messy.”

Cost accounting, by contrast, relies on the costs of goods, which remain the same, no matter if the retail price changes over a week, a month, a quarter or a year.

"In RIM accounting, if retailers conduct a permanent markdown, we have to update the cost-to-retail ratio, and, effectively, you would have reduced the cost of goods sold or COGS and the value of the inventory. You must reflect that in your financials immediately,” Shamapande said. “In cost accounting, it only affects margin and COGS when the item is sold, unless you mark it down below cost." 

Inventory planning and productivity

The main advantage of RIM is its relatively easy math, which provides a quick approximation of inventory without waiting for a physical count; even today, that is done only a few times each year. One major disadvantage is that it can send the wrong message: Retailers using RIM estimate their ending inventory based on price, so markdowns distort how much is really left.

This affects buying behavior that often isn’t conducive to business outcomes, according to several experts, including analysts and retail veterans.

Inventory planning will always be an art to some extent because buyers must sometimes bet on an item, color or design that has never been on the market before; because macro forces like the economy change; and because consumer behavior is generally fickle. If a retailer brings in too much, inventory bloats and leads to discounts. Bringing in too little means missed sales, so most buyers will order somewhat above their plan. In fashion and other sectors where changing tastes, styles and/or seasons affect demand, this is especially tricky. 

To manage this, buyers make periodic adjustments in their orders from vendors, depending on what sold versus what’s left. Using the cost method, the value of their inventory remains constant because it’s based on historical fact: what they paid for it. Using RIM, though, the value of inventory fluctuates with price. If an item doesn’t sell and is marked down, the lower price will drive down the value of the inventory that is left. Paradoxically, that’s a signal to buy again.

“In retail inventory method accounting, if you take a markdown, you devalue your inventory,” Kelly Pedersen, PwC global retail leader, said by video conference. “That means you have less inventory, and that means, based on your plan, you can receive more inventory.” 

By the same token, when buyers operate under RIM and want to finish out a quarter on a high note, with bigger margins, they might avoid markdowns until the quarter ends, experts said. Just as a markdown drives down the value of the inventory and signals a “buy,” avoiding a markdown keeps inventory up and precludes a buy, including orders of fresh merchandise. 

For TD Cowen’s Chen, this is the main reason why retailers should bite the bullet and switch to cost accounting. 

“Sometimes buyers, just because they're in a category, are incentivized to buy for their category,” he said. “You need a system and a structure to identify when it's not a good idea to buy tops or bottoms, and also have the computers to help inform you. That's the big thing this unlocks.”

Seeing a shrink

Although retailers have talked less about shrink, or lost inventory, in recent quarters, the industry has been preoccupied with it for the last few years. While a retailer is unlikely to adopt a new method of accounting just because of shrink, the inventory noise created by RIM does make it a factor when there’s confusion around missing inventory and its causes, according to PwC’s Shamapande.

RIM’s reliance on estimates based on selling-price changes is a problem here, Shamapande said. Plus, because those estimates are limited to the department or class level, there is a dearth of item-level accuracy, which makes it difficult to determine whether items are stolen, damaged, expired or missing for other reasons, he said.

A lack of inventory visibility has vexed the industry. Many retailers have blamed theft, while some loss-prevention experts believe that administrative mistakes are undercounted. In its most recent shrink report, the National Retail Federation estimates $112 billion worth of inventory was lost in 2022, with nearly two-thirds due to internal causes, including employee theft and process errors.

The intricacies, implications and expense of switching to cost accounting dissuade some retailers, according to Joe Schmitt, managing director at Berkeley Research Group. For any grappling with a major shrink problem, though, taking the leap is probably wise, he said by video conference.

“I think that's muddying the waters a bit from the perspective of retail accounting method clients that we have, is they just really don't know what's going on until it's too late,” he said. “A cost-accounting method would probably be better operationally to address that shrink issue. It would just depend on how much that's actually impacting a particular client, whether we would go down that path.”

Seeing a profit

The switch from RIM to cost accounting may whipsaw year-over-year comparisons that can temporarily skew financial reports.

This fiscal year at Macy’s, due to the conversion to cost accounting, neither gross margin nor inventory have been directly comparable to prior periods, contributing to a year-over-year gross margin beat in Q2 but a miss in Q3, executives said this month. For 2024, the shift to cost accounting will be responsible for most of an anticipated gross margin rate decline and will have inventory flat, rather than down by low single-digits, according to CFO Mitchell.

In addition, Nordstrom’s transition to the cost method of accounting pinched a little early in the year because it threw its markdown recognition out of whack, creating what CFO Smith said was “a slight headwind in our 2024 results.” Specifically, under the retail inventory method, Q1 2023 “benefited modestly” from the timing of markdown recognition in Q4 2022, she said.

As previously noted, inventory under cost accounting is the same regardless of markdowns. That means that weighing the cost of inventory against the various prices of an item — in other words, calculating margins — is simplified because, rather than RIM’s inconsistent, markdown-inflected estimates, the cost is always the cost.

This “unlocks gross margin return on inventory (GMROI) and gives merchants the tools to measure and buy against markdowns occurring in real-time versus overbuying and cushioning against markdown allowances,” Chen said in a client note last year.

Or as Nordstrom’s Smith said: “We will see profitability at the item level, guiding us in executing with intention and speed.”

This also allows for more effective pricing strategies, according to Shamapande.

"Generally, cost accounting provides a more finished view of margin at the item level, and not having to worry about the accounting implications of a markdown allows retailers to better price goods for their customers,” he said.

While Chen said he is pleased that Macy’s and Nordstrom have finally moved on from RIM, he laments that cost accounting is not more established in the industry, writing last year that it “should have been implemented once point-of-sale systems that identified SKUs were in-store, but better late than never.”

Retail crime, including shrink, has been a hot topic in the industry in recent years.

“Retail shrink is out of control and theft is eroding retailer sales and margin,” Michael Brown, a partner with global strategy and management consulting firm Kearney, said in an email to Retail Dive. “Consumers are unable to purchase items that are out of stock either as a result of theft or because they’re locked behind glass and are not easily accessed when stores are short staffed. Sales are also impacted when the cost of protecting goods and staffing cabinets is built into the cost of the protected products – this manifests itself as inflation.”

A majority of in-store shoppers — 60% — have encountered lock-up merchandise in stores on a regular basis, per a survey of more than 5,000 consumers conducted by data tech firm Numerator.

Twenty-seven percent of shoppers said they would choose another retailer or abandon their purchase entirely if they came across locked-up products, but 62% said they would typically wait for assistance from an employee. The survey also found that those unwilling to wait for assistance will spend 21% of their dollars online compared to 18% for those who waited.

Some 61% of shoppers reported seeing an increase in products locked up over the past year, with most of those being seen at drug stores and mass retailers.

A vast majority of consumers see products locked at mass retailers and drug stores, 68% and 62% respectively.  Grocery stores (31%), department stores (25%) and home improvement stores (23%) also see their share of lock-ups.

“When faced with a locked product, there's more than a 1 in 4 chance shoppers will leave that retailer without making a purchase,” Amanda Schoenbauer, a Numerator analyst, said in an email. “This rises even higher if you're talking about younger shoppers, people with children, or if the locked items are in everyday categories like health and beauty.”

Locking up merchandise should be a last resort to combat theft, according to Brown, who pointed to other approaches, including employing security cameras, extra staffing and security tags.

Consumers in urban areas and the Western U.S. are seeing a much higher percentage of locked-up merchandise than other parts of the country, per the survey. Over half of consumers in the Riverside-San Bernardino-Ontario metro area are reporting high levels of locked-up products, 51% in Las Vegas-Henderson-Paradise, and 45% in Los Angeles-Long Beach-Anaheim.

After conducting annual research on shrink for more than three decades, the National Retail Federation won’t release a report on the issue this year.

“Over the last several years, as the nature of retail loss has evolved, it has become clear that a broad study about retail shrink is no longer sufficient for capturing the key challenges and needs of the industry,” Mary McGinty, NRF vice president of communications and public affairs, said by email. “We will be releasing a new report later this year that examines the landscape of retail theft and violence, which are key challenges for the industry.”

The latest available statistics on shrink in the industry can be found in last year’s National Retail Security Survey, as it’s formally known, McGinty said. That was the group’s 32nd report on shrink, reflecting numbers from 2022.

The decision came out of NRF’s ongoing practice of reevaluating “the methods and tools we use for capturing key trends that impact businesses and consumers to ensure that we are providing the most accurate and actionable information possible,” she said. “At times, this means that we make necessary changes to long-standing studies or benchmarks in order to ensure that they reflect the needs and drivers of the modern retail industry.”

Shrink has been in particular focus in recent years, however, with retailers including Target, Five Below, Dick’s Sporting Goods and Walgreens calling out the problem in earnings reports, though early this year some also reported improvements. The NRF has long found a surprising consistency with 2022’s levels of shrink and theft relatively flat to 2021, in a pattern seen across several years.

According to the most recent survey, 63% of lost inventory has internal causes, with 36% from external theft, including shoplifting, credit card fraud, organized retail crime, cargo theft and other retail crimes committed by nonemployees. Several retailers have kept the focus on crime, not just because of inventory losses but also out of concern for store workers and customers. In 2022, 65% of shrink was due to all sorts of theft, including all types of external theft as well as theft by employees, per NRF’s most recent report.

Numbers on retail crime have been difficult to come by, with confusion around statistics and terminology and a dearth of reliable data. Last year, after a Retail Dive analysis revealed an error in a special NRF crime report, the group retracted a key statistic.

In addition to releasing new statistics on retail crime later this year, the NRF is holding a “Fight Retail Crime Day” later this month, in order to pressure Congressional lawmakers to pass legislation that addresses the issue. Late last year, a member of a U.S. House of Representatives committee that took up the bill urged the group to provide better data.

Trevor Wagener, director of the research center and chief economist at the Computer & Communications Industry Association, said the information has been useful to many over the years, and not just retailers.

"The inventory shrink figures from the NRF's NRSS are valuable benchmarks for researchers, policymakers, and industry,” he said by email. “Hopefully they will be published again in the future."

But Brand Elverston, who has been working in retail asset protection for more than two decades, including at major retailers, said the reports have been of limited value over the years because much of their information was open to doubt. Although the surveys were anonymous, for example, some major retailers would skip questions about shrink levels because those numbers aren’t public information.

Moreover, when it comes to the reasons behind inventory loss, most retailers have even less visibility, he said.

“It's impossible for retailers to have sales data-like accuracy in the shrink arena, because by definition, it's ambiguous,” he said by phone. “It's estimations, depending on the sophistication of their system. And to say, over 30 years, 70 cents of every shrink dollar is theft — it became, in my mind, repetitious and a bit unrevealing. That's an inaccurate and a heavily biased assumption, because no retailer truly has item-level financial shrink to understand thoroughly what the sources and contributions are in each of those elements on the pie chart.”

REI is now not accepting returns from a “small subset” of its members who have repeatedly abused its return policies, the company confirmed to Retail Dive via email.

Members have up to one year to return most items, while nonmembers have 90 days. The company may accept a return without a receipt if it was purchased using a membership.

However, according to REI, a limited number of people have abused the company’s return policy. That group had an average return rate of 79%. They returned $2,400 worth of gear in the past year and $1,400 of that product was used, a spokesperson said. As a result, while those members may still shop at REI, the company said they will no longer be allowed to make any returns or exchanges.

“We’ve tried to curb this behavior by some members over the past several years with targeted warnings and probationary periods,” the company told Retail Dive in a statement. “Unfortunately, these tactics have not proven effective.” 

The outdoor retailer and cooperative said that while the people in question make up less than 0.02% of its 24 million members, they “have demonstrated a clear abuse of the return policy, as determined by an established pattern of transaction history and damage.”

On its website, the co-op says the exceptions, “ensure that every return or exchange is handled with fairness and protects the integrity of our membership and customers.” REI accepts returns of new items in stores or by mail with proof of purchase, regardless if they were purchased in store, online or by phone. 

While the business doesn’t announce quarterly results, the cooperative reported $3.76 billion in revenue in 2023, down 2.4% from the prior year. However, REI also incurred a $311 million net loss last year due to investments in hourly employee pay; its commitment to providing member rewards; and a $169 million noncash valuation against its deferred tax assets.

The company has 181 locations in the U.S. The retailer said it plans to go forward with plans to open six new stores in 2025. It also plans to invest in its existing store fleet to improve the customer shopping and employee workplace experience, REI said last month.

According to a report by the National Retail Federation, the industry lost a total of $101 billion as a result of return fraud or abuse in 2023. According to the report, which included survey data, the top three types of return fraud were returning used, nondefective items; returning stolen or shoplifted merchandise; and returning items bought with fake or stolen payment information.

CVS’ unlocking feature follows shopper frustration with retailers securing inventory in stores as a way to deter retail crime.

CVS Health introduced a mobile app that allows shoppers in a handful of stores to unlock secured display cabinets to access merchandise, the company announced. The feature is a test for now. 

With the app, which succeeds the retailer’s previous CVS Pharmacy app, shoppers can also access savings offers and pick up prescriptions in stores using personalized barcodes. Through partnerships with Everyday Health, Headspace and other companies, CVS app users will have access to a variety of health and wellness content.

The drugstore retailer also leaned into AI for the overhaul, integrating AI into its search functions to help shoppers locate products, services and information. It plans to add a conversational AI chatbot to answer questions about medication refills and order status later this year.

Some drugstores and mass-market retailers, as well as beauty retailer Ulta, have turned to locking products behind glass to prevent theft, and staffing issues further deter shoppers from buying the products they want, experts told Retail Dive. While 62% of consumers will wait for assistance from a store staffer if they find a product locked up, 27% of shoppers will abandon their purchase or choose a different retailer, according to a survey from the data technology company Numerator. 

CVS’ app also includes features to manage shoppers’ healthcare needs, including vaccine scheduling and prescription management. The retailer will continue enhancing its mobile app this year with additional features, including personalized recommendations and educational content for patients with chronic medical conditions and efforts to connect them to cost savings and copay assistance programs. 

“As a company, we are super focused on improving the health care experience,” Tilak Mandadi, executive vice president at CVS Health, said in a statement. “The CVS Health app will make it easier for our customers to access and manage their health and care, save time and money, and make informed decisions about their health.”

The app upgrade comes a few months after CVS announced plans to lay off 2,900 employees, about 1% of its workforce, on the back of a plan released to reduce expenses by $2 billion. Just weeks after the layoffs, CVS named David Joyner as its chief executive officer, replacing Karen Lynch. 

Alongside its cost-cutting efforts, CVS has also invested in its product assortment, welcoming several new brands. The drugstore chain recently introduced tween period care brand Pinkie across more than 3,300 locations. Days later, the skin care brand Curology announced its expansion into 3,800 CVS locations. 

PorchPals, an insurance product designed to cover the loss of stolen packages, has opened a wait list to subscribe, which is now available nationally.

The problem is large and growing alongside e-commerce itself, though assessments of it vary. More than 30% of those surveyed this year by Insurancequotes.com say a package was taken from their porch, doorstep or building lobby, up from 24% in 2023 and 26% in 2022.

According to Capital One research, in the U.S. last year, one of every 180 packages delivered was stolen, totaling 119 million. U.S. consumers lost $13.4 billion to package theft, with each package worth $112.30 on average, per that report. According to Security.org, which compiles research on a variety of home security issues, $12 billion worth of deliveries were swiped last year, with as many as 58 million U.S. households affected in the last 12 months.

PorchPals’ protection, which costs $15 per month or $120 total with an annual subscription, is linked to a customer’s debit or credit cards. The company touts the coverage as broad and efficient, noting that it applies to deliveries from a variety of retailers, that a claim can be filed in minutes and that reimbursement is sent within 72 hours of an approved claim.

“PorchPals is designed to make package protection seamless, affordable, and most importantly, reliable,” co-founder James Moore said in a statement. “With porch piracy on the rise, Americans need to feel confident that their purchases are safe — from the moment they click ‘buy’ to the moment they pick up their package.”

The company was co-founded by New York Giants football player Adoree Jackson and developed “by a team of seasoned enterprise, insurance, and consumer product experts,” per its press release. The company is also backed by insurers Newline Group, OdysseyRe and Lockton, a spokesperson said.

Consumers already have some recourse when it comes to stolen deliveries. Retailers will often refund customers who never received their package. Some rental and homeowner policies cover such thefts, though their deductibles may be higher than the value of the package’s contents, or expensive purchases could exceed limits, according to Western Coast Insurance Services. Coverage for this type of theft may be able to be added to a policy, Western Coast said. Some credit cards also already offer porch piracy protection, covering items that have been stolen before they are in your possession, according to credit reporting firm Experian. 

Those coverages sometimes require the victim to file a police report, while PorchPals does not, according to a company spokesperson.

There are some limits to the PorchPals coverage, though. Subscribers can only make up to three claims each year, totaling $2,000 or less. The company plans to increase that in the future, as it scales, but with additional guardrails to thwart fraudulent claims, a spokesperson said.

Trucking, railroad and shipper representatives raised the alarm about the rise of cargo theft affecting U.S. supply chains during a congressional hearing.

Leaders from BNSF, the Owner-Operator Independent Drivers Association, Tanager Logistics and Academy Sports and Outdoors urged lawmakers to step up enforcement during a Senate subcommittee hearing.

Broker fraud, shipment interception and other forms of cargo theft are costing supply chains up to $35 billion annually, multiple speakers said, citing data from the federal Homeland Security Investigations agency.

Those crimes are contributing to higher consumer costs — and threatening some carriers’ livelihoods.

“Since I began my testimony, a small business trucker has likely fallen prey to fraud that could jeopardize their entire business,” OOIDA EVP Lewie Pugh said. “That's how commonplace freight fraud is becoming in trucking.”

Much of the crime is committed by repeat offenders, and only one in 10 results in an arrest, Sen. Todd Young said, citing the American Trucking Associations.

Cargo theft rises and gets creative

The rise in cargo theft is hurting truckers, logistics companies, shippers and if it continues can also begin to hurt consumers’ pockets.

“In my 25 years in the supply chain, I've never seen cargo theft this prevalent,” Robert Howell, chief supply chain officer at Academy Sports and Outdoors, said during the hearing.

Howell said the types of thefts include load interception, identity theft, double brokering and cyber fraud. Crime in this area has advanced from stealing a truckload or duplicating a Department of Transportation motor carrier number to cyber theft of online credentials and systems.

“Recently, we had a shipment we call private label swimwear. It was intercepted on its way from Nevada to our Texas distribution center. As you can imagine, this is critical this time of year for the season. Unfortunately, we had to react when that load was stolen and repurpose and reposition product throughout our network,” Howell said.

The event resulted in additional costs to the company as well as shipment delays, and ultimately an impact to the consumer, Howell added. It also impacted third-party service providers, brokers and carriers.

Another logistics provider, Tanager Logistics and Double Diamond Transport, got its email spoofed and its identity stolen in a separate case, CEO Adam Blanchard testified.

“Posing as Tanager Logistics, the criminals brokered loads to unsuspecting motor carriers who delivered the cargo, while the scammers pocketed the money,” Blanchard said. “In just one example, they diverted a full truckload of energy drinks with a retail value well over six figures, over 1,000 miles from Texas to California.”

Emboldened by the lack of investigations and prosecutions, cargo thieves are growing the size and sophistication of their operations, Blanchard warned.

“At this very moment, two Tanager Logistics are listed on the FMCSA official website: my company and an imposter,” he said. “We provided this evidence to FMCSA, but they refused to take it down.”

Congress urged to take action

While stakeholders shared how cargo theft has impacted their individual company and industry, all of them advised congress on measures that need to be taken to start controlling the theft that is happening.

An estimated 65,000 thefts occurred in 2024, which was about a 40% increase over the prior year, Will Johnson, chief special agent at BNSF Railway Police Department said during the hearing, citing the Association of American Railroads.

The rise could be attributed to the lack of coordination and jurisdictional guidance.

“Cargo theft cases often cross multiple state lines, making jurisdictional coordination, prosecution and data collection extremely difficult,” Johnson said. A lack of a coordinated federal cargo theft enforcement effort also hinders effective prosecution, he added.

Johnson urged congress to consider multiple action items as a starting point to find effective solutions. Johnson’s suggestions include:

1. Support the establishment of a Federal Supply Chain Crime Coordination Center and Supply Chain Fraud and Theft Task Force to address cargo theft in all aspects of the supply chain.
2. Direct funding to dedicated federal prosecutors to tackle cargo theft cases.
3. Modernize the Federal Motor Carrier Safety Administration vetting process to include stronger authentication methods, real time carrier verification, and implement controls around the sale or transfer of DOT and MC numbers.
4. Increase criminal penalties for cargo theft cases.
5. Allow all victims aggregated harm to be considered in these offenses.
6. Encourage public private partnerships between corporate security teams, carrier monitoring services, load boards, insurers and law enforcement through data sharing initiatives.
7. Allow the prosecution venue to be established at the place of offense, and also at the victims U.S. corporate place of residence.
8. Ease the burden on crime victims by allowing CBP the authority to waive regulatory fines when cases are proven that theft had occurred.

Pugh, the OOIDA EVP, advised congress to pass the Household Goods Shipping Consumer Protection Act. This bill would provide FMCSA the necessary tools to protect consumers from fraud by scammers in the interstate transportation of household goods.

Pugh said the bill would also require brokers to register with a physical address, which is something carriers have done for years and it’s a minor change with a major impact on protecting motor carriers.

“Congress must also use its oversight to ensure existing programs can help prevent fraud are better prioritized. This includes improving FMCSA’s national consumer complaint database, or NCCDB, which OOIDA has advocated for for years,” he said.

Retailers have more questions than answers about theft and merchandise loss.

Crime in general remains a top concern, according to a recent report by the National Retail Federation, a survey of loss prevention and security executives at 164 mid-size to large retailers. Such executives at more than 82 of those companies agreed that certain issues, all related to crime, were more of a concern than they had been a year before, including: organized retail crime, shoplifting, return fraud, repeat offenses and theft related to the in-store pickup or return of merchandise that had been ordered online. 

But the impact on retailers has been tough to measure, and it’s unclear how reliable this report is. In 2023, the NRF retracted a key claim about how much merchandise shrink is due to organized retail crime, following Retail Dive’s 2023 discovery of a major flaw in the group’s estimation of crime’s impact on shrink. Then, in 2024, the group ceased publication of the annual shrink report that had guided the industry for more than 30 years.

As with its shrink reports, the NRF’s crime research is based on surveys of a limited number of executives, based on their impressions rather than hard numbers like reports to law enforcement. The executives reported a 26% increase in shoplifting from 2022 to 2023, and “a 93% increase in the average number of shoplifting incidents per year in 2023 versus 2019 and a 90% increase in dollar loss due to shoplifting during that same time period.”

The National Incident-Based Reporting System, or NIBRS, also shows shoplifting rates up 93% from 2019 to 2023, a finding that NRF calls a coincidence. However, the law enforcement agency has another more established database (the Summary Reporting System) that shows the nationwide shoplifting rate for those two years as about even. However, NIBRS’ spike is not entirely due to actual crime rates, but, rather, reflects the ongoing addition of new sources of crime statistics. This makes the Summary more accurate for now, Ernesto Lopez, senior research specialist at the Council on Criminal Justice, told Retail Dive last year. 

In its most recent update, CCJ found that the average reported shoplifting rate was up 14% in 2024 and 1% in the last five years; this likely reflects some amount of underreporting by retailers to law enforcement, per that report.

The industry’s concerns are not all about shrink. Most alarming in the NRF’s survey was how many retailers reported an escalation of violence. More than 70% of those surveyed said shoplifters are exhibiting more violence and aggression compared to a year ago, with more than 90% saying that’s true compared to 2019. 

But shrink itself may be less of a concern. The NRF’s shift in research strategy came just as some retailers began to report that their merchandise losses were improving, in some cases after they tweaked operations.

Yet that marks another difficult area to measure. It’s not really clear just how much merchandise is lost to crime. Some loss prevention experts believe that retailers need a better sense of how much of their inventory is actually going missing, for any reason.

Those employing the retail inventory method, a legacy accounting practice that leverages price to determine ending inventory value, may not have as good a grip on their levels as they believe. Retailers with a major shrink problem may want to consider switching to a cost method of accounting, experts say.

While theft remains a major source of shrink, it may not loom as large as some retailers believe, given that other sources have been consistently underappreciated for years, according to Brand Elverston, founder and principal of Elverston Consulting and a loss prevention expert. If loss prevention strategies are failing to stem shrink, it may be because they are too narrowly focused, he said.

Most retailers need a more holistic approach than they have, with better coordination between their store operations and loss prevention teams, according to Johnny Custer, senior director of retail risk solutions at Think LP.

“There are some very progressive retailers where the relationship between operations and LP is seamless, and loss prevention is a specialized extension of the operations team,” Custer said by video conference. “That's ultimately where we all need to be, but they are few and far between. Then we're not just ‘loss prevention,’ we're asset protection, we're asset and profit protection. We're profit-optimization specialists.”

These issues don’t erase the fact that retailers have to do something about crime and shrink. Here’s how retailers have taken on these challenges.

Locked-up merchandise

Stores in many locations have been keeping certain items behind lock and key in order to thwart thieves, with a majority of shoppers reporting that they encounter locked-up merchandise on a regular basis. But this in turn has managed to also thwart customers: Numerator estimates that there’s a better than one in four chance that a customer will leave rather than wait for assistance with a locked case.

This may be leading at least some retailers to revisit this tactic. This week, for example, CVS Health said it is testing the ability to unlock merchandise via its new app.

And Walgreens CEO Tim Wentworth earlier this month told analysts that he had met with the company’s head of asset protection “to look at some of the creative things that we are looking at both as a company and as an industry as it relates to the customer experience on shrink.”

“When you lock things up, for example, you don't sell as many of them,” he said. “We've kind of proven that pretty conclusively. But we're excited about the fact that we have revamped our team.”

Self-checkout

At some locations, theft via self-checkout is higher than organized retail crime, with research from the University of Leicester estimating in recent years that self-checkout in the U.S. accounts for one-fifth to nearly one-quarter of all unknown store losses.

The technology was seen by many as a way to save on labor costs. But some retailers have discovered that self-checkout works better for both the retailer and its customers if those areas are adequately staffed. To combat shrink, several retailers have now scaled back or even yanked the kiosks from their stores.

Target and others have begun leveraging the self-service option for limited quantities, for example. Dollar General recently said merchandise loss was down significantly, just a few months after removing self-checkout from most of its stores. The discounter said that it expects year-on-year declines in shrink, and a related benefit to margins, to continue.

Cargo theft

Cargo theft — merchandise stolen from some point in the supply chain — may get more attention this year.

According to the FBI these crimes can involve fraudsters tricking shippers, including diverting cargo from its legitimate destination; cyber theft like phishing emails that enable fraudulent pickups; and altering a bill of lading in order to pilfer from a truck.

Some experts already see cargo theft as an underappreciated reason for lost merchandise, and it reached unprecedented levels in 2024. Nearly 45% of the loss prevention executives surveyed by the NRF said that cargo theft had become “more of a concern” in the last year.

Indeed, as of mid-December, reported cargo theft had surpassed 2023 “by several hundred incidents,” according to CargoNet, which found a 36% rise in Texas and a 21% rise in California.

Public policy

Retail industry groups see beefing up law enforcement as key to fighting retail crime, and have pushed for stiffer penalties against shoplifting and other theft, plus greater prosecutorial powers at the state and federal levels. 

In California, voters approved a measure, Proposition 36, that goes further than a law signed by the governor. The new rules will recategorize lower-level thefts as a felony for people with prior convictions and allow for more extensive prison sentences. 

Nationally, without the improved data that some members of Congress had called for, the Combating Organized Retail Crime Act of 2023 went nowhere last year. The bill must now be reintroduced into the new Congress in order to get a vote.

That doesn’t mean the fight is over, however. The NRF says that it “continues to advocate for national legislation to bring federal resources and support to local, state and tribal efforts to curtail ORC,” with almost all of the loss prevention and security executives surveyed agreeing that “federal legislation is needed to effectively combat organized retail crime.”

That may get a boost from the White House, according to a research note from Chris Bottiglieri, equity research analyst at BNP Paribas Exane.

“We suspect the Trump administration may take a more hard-line stance on retail theft (and crime more broadly), which may serve as a catalyst for further relief on shrink,” Bottiglieri said.