A $3 Billion Shoplifting Problem

Wal-Mart has a $3 billion theft problem:

Shoppers at Wal-Mart stores across America are loading carts with merchandise - maybe a flat-screen TV, a few DVDs and a six-pack of beer - and strolling out without paying. Employees also are helping themselves to goods they haven't paid for.

The world's largest retailer is saying little about these kinds of thefts, but its recent public disclosures that it is experiencing an increase in so-called shrinkage at its U.S. stores suggests that inventory losses due to shoplifting, employee theft, paperwork errors and supplier fraud could be worsening.

The hit is likely to rise to more than $3 billion this year for Wal-Mart Stores Inc. (WMT), which generated sales of $348.6 billion last year, according to retail consultant Burt Flickinger III.

Flickinger and other analysts say the increase in theft may be tied to Wal-Mart's highly publicized decision last year to no longer prosecute minor cases of shoplifting in order to focus on organized shoplifting rings. Former employees also say staffing levels, including security personnel, have been reduced, making it easier for theft to occur. And a union-backed group critical of the retailer's personnel policies contends general worker discontent is playing a role.

Wal-Mart faces a 1 percent problem with "shrinkage" which is larger than the GDP of more than a few nations. The cause could be all of the above, but the real culprit is that there is an opportunity to do it, and that opportunity, when there, may be just enough to push someone to try it, particularly when both the store and the legal system are not likely to press charges or if they do, the punishments tend to be light.

If Wal-Mart announced, merely announced, that it would prosecute shop-lifters and sticky-fingered employees, you would probably see a 30-40 percent decrease in theft because more people would figure it is not worth the risk.