- 36 -
during the taxable years ending in 1980 through 1989.6 He
determined an R2 of 0.367. Dr. Seago explains that finding by
stating, “while an accrual based solely on the historical
relationship between sales and shrinkage would result in
substantial errors in predictions * * *, Target personnel are
able to significantly reduce the error by adjusting the accrual
factor to take into account factors known to contribute to
shrinkage in the particular store.” Dr. Seago asserts that the
demonstrated success of Target in predicting store shrinkage
suggests that Target likewise accurately predicts shrinkage at
the department level.
Dr. Seago also presents a sales percentage shrinkage
analysis for Target at the aggregate division level. He states
that, from 1979 through 1988, verified shrinkage has averaged
2.102 percent of sales, with a range of 1.90 percent to 2.30
percent. Dr. Seago states that Target's estimates of shrinkage
as a percentage of sales, when compared to the verified
percentage, showed that the estimates deviated from the actual
figures by no more than 25 percent.
6 That analysis of the relationship between sales and
shrinkage at the individual store level appears in Dr. Seago's
rebuttal report and is distinct from the 10-year correlation
analysis.
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