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that the correlation between sales and shrinkage at the aggregate
Target-wide level is strong.
Dr. Seago conducted a regression analysis of the
relationship between sales and shrinkage at the aggregate Target-
wide level during the years 1979 through 1988 (the 10-year
correlation analysis). For each Target store, he paired actual
sales figures between inventory dates with verified shrinkage
figures for the same period. Dr. Seago then aggregated the data
according to the taxable year in which the closing inventory was
taken. He is of the opinion that, for the years examined, “[t]he
change in sales each year explained over 97% of the change in
shrinkage.” Dr. Seago concludes that, “according to the
statistical evidence, sales is a nearly perfect predictor of the
loss from shrinkage.” He did not conduct a similar analysis with
respect to Dayton's.
To compensate for the absence of data to test correlation
at the LIFO pool level, Dr. Seago randomly placed individual
Target stores into 21 “surrogate pools” and examined the
correlation between sales and shrinkage for the fiscal years 1979
through 1988. Dr. Seago concludes that the correlation between
sales and shrinkage at the surrogate pool level is strong and
that “comparable results would be achieved if sales and shrinkage
for the actual LIFO pools were available.”
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