Published June 16, 2015
By Chris Ferrell
Principal, Tompkins International
According to the National Association for Shoplifting Prevention there are approximately $13.0 billion of merchandise shoplifted each year in the United States. Perhaps surprisingly, it is estimated that almost 85% of goods shoplifted are stolen by employees; leaving only 15.2% — about $2.0 billion – worth of goods which are stolen out of stores by customers.
Both numbers are undeniably large. Retailers and consumer products manufacturers have gone to great lengths to keep these numbers in check. For smaller items, one of the more tried-and-true means of limiting shoplifting has been through the liberal use of extra packaging material. It only makes sense: a big package is more difficult to steal than a small one. The bigger item has the added benefit of increased gravitas on the shelf, a consumer is more likely to notice – and presumably consider purchasing – an item in a larger package. Among the most popular – and presumably effective – form of oversized packaging used as a theft-deterrent for Consumer Packaged Goods (CPG) items is the ubiquitous “clamshell pack”, the clear plastic packaging that is almost impossible to open without a knife or scissors.
Clamshell technology first rose to prominence in the 1990’s as a shoplifting deterrent forCDs and PC software. During this time ordering from home involved looking through a (paper) catalog and then talking to someone on the phone; a selling channel that was a small niche for all but a few retailers specialized in the area. I mention these outdated products and methodologies for a reason: the packaging is still commonly used even though the items people buy and the way that they shop have almost certainly changed. This makes sense because the extra packaging is still an excellent shoplifting deterrent / eye-catcher … and until recently there was not any substantial financial reason to make a change.
Change took place at the beginning of 2015, when UPS and FedEx each decided to subject all U.S. ground parcel shipments to a Dimensional Weight (DIM Weight) calculation in addition to the traditional weight-based system, charging the higher of the two. In short, all of that extra packaging now has a cost beyond the additional raw materials. The first financial results since DIM pricing started have been released by UPS and FedEx. While pure numbers are hard to come by, it appears that the two publicly-traded behemoths are on pace for a combined revenue increase of $2.7 billion in the U.S. domestic ground service sector. Even after factoring out a substantial General Rate Increase (GRI) of 4.9% that both UPS and FedEx took on top of the other changes, it still leaves approximately $2.0 billion in extra freight charges directly attributable to DIM. This “highway robbery” is actually the necessary response for all industries due to the explosive growth of online shopping and home-delivery services; the parcel providers need to be able to charge for the space being used.
But this means consumer products manufacturers and retailers (and, potentially, their customers) are paying about $2.0 billion more in freight, on top of untold billions in additional packaging materials, to minimize the chance of shoplifting and enhance the shelf presence of a product that will never actually be on a store shelf.
While the idea of making changes that have the potential to increase shoplifting might seem unpalatable, when weighed against the certainty of increased shipping charges caused by DIM pricing, it could still be the financially prudent thing to do.