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equipment, employee involvement and screening, prosecutions for
theft, security devices, training of security personnel, and
effective control systems for paperwork, bookkeeping, and
accounting. Shrinkage is particularly high around the holiday
seasons such as Christmas and Easter.
B. Wal-Mart's Response to Shrinkage
In the early 1980's, prior to the subject years, Wal-Mart
modified its computer system to improve the accuracy of its
inventory accounting. Wal-Mart employed various other techniques
to reduce shrinkage and overage during the subject years, such as
closed-circuit camera systems, burglar alarms, and close scrutiny
over the hiring and performance of employees.5 In the latter
regard, Wal-Mart tried not to hire applicants who might be
inclined to commit theft, and Wal-Mart focused on employee
training to reduce bookkeeping errors. Each store manager was
also evaluated in part on his or her ability to reduce shrinkage,
and employees at stores that reported excessive shrinkage or
overages were not eligible for a bonus. Store managers with
higher than expected shrinkage were required to attend internal
seminars on shrinkage, and they were subject to demotion or
termination if the high shrinkage continued.
Shrinkage reduces profits and was viewed by petitioners
during the subject years as reflecting poor management and
5 Sam's employed similar measures.
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