- 25 -
Dr. Bates is of the opinion that the correlation between
sales and shrinkage is strong. Dr. Bates is also of the opinion
that the “business level” is the appropriate level to test the
relationship of sales to shrinkage. Dr. Bates uses the term
“business level” to refer, individually, to the aggregate
operations of the KFS division, the aggregate operations of
Florida Choice, and the aggregate operations of Superx. Dr.
Bates acknowledges that correlation can be tested at other
levels, e.g., the department level within a store, the store
level, or, even, at the level of the “entire Kroger corporate
entity”. Dr. Bates believes that the business level is
appropriate because that is the level at which taxable income is
computed.
Dr. Bates bases his opinions of strong correlation on the
application of two methods to measure the correlation between
sales and shrinkage at the business level. The first method
derives the correlation between sales and shrinkage from
aggregate data at the business level. The second method derives
the correlation between sales and shrinkage from individual
inventory records at the store level. Dr. Bates is of the
opinion that, for the years he examined, the correlation between
sales and shrinkage is (1) at least 0.91 for the KFS division,
(2) at least 0.89 for Florida Choice, and (3) at least 0.94 for
Superx.
Page: Previous 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 NextLast modified: May 25, 2011