An Alabama judge's unusual efforts to discourage store theft highlight the retail giant's struggle with "shrinkage"
Earlier this year, Lisa King Fithian entered the self-checkout lane at the Wal-Mart store in her hometown of Attalla, Ala., with a lava lamp and a pet playpen. According to court documents, she then failed to scan the two items, worth $26.97, to add them to her bill and tried to leave the store. Fithian, 46, later pleaded guilty to theft in court, although she maintained the entire incident was a misunderstanding.
Fithian's sentence was unusual. The local judge, Kenneth Robertson, had been thinking about shoplifting penalties that would be different from the fines and brief jail terms, which tend to be ineffective. He talked with the local Wal-Mart Stores manager about having Fithian go out in public with a sign around her neck declaring her crime. The manager, Neil Hawkins, gave the green light. So one Saturday Fithian wore two sandwich-board signs that declared, "I am a thief; I stole from Wal-Mart."
Since then, this town of 6,859 has become a real-life experiment in whether shaming can reduce shoplifting. More than 20 people have endured the modern-day version of The Scarlet Letter in recent months. Angela Bates wore a sign in the streets after pleading guilty to taking five tank tops, two skirts, and a pair of shorts from the Attalla Wal-Mart. Billy Williams did, too, after allegedly trying to take a fishing reel, lures, and hooks from the store. And Paula Regina Cox had to face her neighbors with a shoplifting sign when the police arrested her for allegedly taking six CDs worth $99 from Wal-Mart. Fithian, Bates, and Williams could not be reached for comment; Cox did not return phone calls seeking comment.
The placards are a sign of how much retailers such as Wal-Mart (WMT) are struggling with theft these days. The retail industry lost $41.6 billion to shoplifting and other fraud last year, up 11% from the previous year. The judicial system is also looking for alternative approaches because of the ineffectiveness of traditional punishments and the overcrowding of U.S. jails. "The conventional form of punishments, where shoplifting offenders pay a fine or go to jail, don't work to the extent of the embarrassment of standing in front of a store," says Robertson.
Shaming punishments have been used in other states, including California, Georgia, Tennessee, and Texas, and have been applied to a variety of crimes. But Attalla's is one of the most aggressive efforts to use shaming to deter shoplifting. Robertson says that the problem required some creative thinking. "We have mechanisms in place that allow a judge to send offenders to court referral programs for DUI and offer treatments for other sorts of crimes," he says. "But there's nothing in place for a thief, so I decided to do my own therapy."
The problem is particularly acute for Wal-Mart. As the world's largest retailer, with $350 billion in annual revenues, it has the most to lose from shoplifting. Its rate of shrinkage, the industry's term of art for shoplifting and employee theft, has long been below the industry average of roughly 1.6% of sales. But the company has acknowledged that theft is having an increasingly negative impact on sales and warned that its second-quarter profit would fall at the low end of analyst expectations in part because of the losses. Analysts estimate that Wal-Mart's shrinkage has risen from half the industry average and is approaching 1%, with losses at about $3 billion a year. "We are concerned about shrinkage and are investigating the cause and are taking steps to correct it," said Eduardo Castro-Wright, CEO of Wal-Mart Stores USA earlier this year.
Wal-Mart executives have been debating the optimal shoplifting policies for its stores. Last year, the company decided to give store managers the option of not prosecuting first-time shoplifters under 18 or those who steal items valued at $25 or less. But earlier this month, it decided to get more aggressive. The company authorized its store managers to prosecute first-time shoplifters as young as 16, compared with the previous limit of 18. A company spokesman, David Tovar, says, "We [lowered our prosecution guideline] in response to suggestions from our associates."
The challenge is in striking the right balance between making stores welcoming and making them secure. By its very nature, the retail business is one where companies try to create a warm environment where shoppers can touch, feel, and try out merchandise. Stopping customers from getting too close could end up driving them away. "To keep shrinkage low with metal detectors and security might be a draconian environment, like going to the airport vs. going to the mall, which encourages shopping with its fountains and music," says Richard Hollinger, professor of criminology at the University of Florida, who conducted a recent survey on retail shoplifting with the National Retail Federation.
The retail industry, from Wal-Mart and Target (TGT) to Sears Holdings (SHLD) and J.C. Penney (JCP), has tried fighting back. In recent years, retailers have upgraded their technology and joined a shared database with law enforcement agencies to reduce shrinkage. But the rate of loss remains consistent. According to the National Retail Federation/University of Florida study, shrinkage as a percentage of sales ticked up to 1.61% last year, from 1.60% the year before. "Despite our best efforts we haven't managed to reduce the rate of crime—and that's because we are in the business of opening our doors to people," says Joseph LaRocca, vice-president of loss prevention at the National Retail Federation.
Another Progressive Move?
Attalla is a microcosm of the challenges. The town lies 60 miles northeast of Birmingham, Ala., and has a reputation as one of the state's more progressive towns. It claims to have been the first U.S. city with electric streetlights. Once a large railroad hub, Attalla has struggled in recent years. The median household income is $28,600, about $8,000 less than the state average and $18,000 less than the national average.
And shoplifting has been on the rise. Judge Robertson says that in the last 15 years, the number of incidents in his municipal court has tripled. Wal-Mart, a longtime local presence, is bearing the brunt of that. "Out of the 10 cases or so that we handle every week, 80% takes place at Wal-Mart," says Robertson.
Since Robertson took action, he has had the whole-hearted support of local politicians. "Shoplifting is an epidemic in large stores and there's got to be some deterrent to the offenders and to others," says Charles O'Rear, Attalla's mayor. "Our judge found an innovative and effective way to make public spectacle of these thieves, and when they decided to use this form, I endorsed it."
The approach is not without controversy, though. Some critics say that wearing an embarrassing sign amounts to cruel and unusual punishment, although the accused in Attalla typically have the choice of wearing a sign or serving time in jail. Other legal experts question whether the punishment is even effective. "Judges are in a poor place to measure general deterrence, and it is purely speculative to suggest that shaming is a marginally more effective general deterrent than other available alternatives," says Dan Markel, assistant professor at Florida State University College of Law. Markel points out that in one well-known case, an offender went back to stealing mail after having to wear a sign board that read "I stole mail. This is my punishment."
Even Wal-Mart has tried to put some distance between itself and the practice. Although Hawkins, the local store manager, had approved of Fithian's punishment and agreed to have her stand outside his Wal-Mart store, headquarters wasn't sure that was such a good idea. Immediately after Fithian's first day of shaming, Wal-Mart said shoplifters would no longer be allowed to wear the signs on store property. Spokesman Tovar says in a statement: "While the punishment is likely a deterrent to shoplifting, we have communicated with the judge that moving forward, we would prefer that these actions not be completed on store property. We do not oppose the use of wearing the signs, but we think it should take place on public property—like at the Courthouse—and not on our property. We also feel that the sentence should be supervised by law enforcement. Our associates should not be involved in that process."
Judge Robertson is convinced that the shaming punishments are beginning to take effect. "My job as judge is to cause a change and try to deter such crimes from happening in the future," he says. "When I offer them the sign in lieu of the fines, the person always drops their head in shame and I've always felt that it's a sign that they acknowledge something. If you pay a fine, you don't really accept your guilt."