In search of Canada's 'hidden crime tax'
No, households don't pay $824 in stores each year due to retail crime
Be forewarned, this is one of my longer posts.
Did you know that every time you shop you pay a “hidden crime tax”? No, it’s not the Big Cop Budget. And no, it’s not money going to any kind of government.
Ahead of he provincial budget, Jess Ketchum, founder of the retail lobby group Save Our Streets, went on a press tour in late February to push the message of a “hidden crime tax” — described as the extra cost paid in retail due to crime. Ketchum landed spots on CFAX and on Global News Morning BC, as well as stories in CKPG Today and My Cariboo Now.
In interviews, Ketchum placed the “hidden crime tax” at $824 per household.
“It’s very credible numbers based on Stats Canada, BC stats, and research done by our working group, which is made up of loss prevention professionals from BC,” Ketchum, who is also president of Ketchum Communications, said on CFAX.
The media was entirely credulous.
Global’s host helpfully rounded the number up to “nearly $1,000,” saying it’s “significant.”
But are the numbers credible? Does retail theft cost households an average of $824 per year?
No. The press release published in late February didn’t include the report, but Save Our Streets sent it to me when I asked for it, and you can find it here.
The report relies effectively on napkin math, uses shaky data to back their claims, and makes dubious assumptions.
But even relying on their data and calculations, calling the $824 figure a “hidden crime tax” is wildly misleading.
I sent Save Our Streets a series of questions about the report and was told they would be sent to Tony Hunt, chair of their research committee and general manager of loss prevention at London Drugs, to review.
I never got a response.
Honey, I shrink the RFIDs
The Save Our Streets report is pretty clear that the “hidden crime tax” isn’t $824. While the report does use the phrase “theft tax,” it uses it to refer to something else entirely, which I’ll get to. But the report overall is about the cost of retail shrink “including theft and ORC.”
Shrink is, in short, the difference between products sold or still on the shelves and the amount of products in the official inventory. On top of the 36.5% attributed to shoplifting and robbery, it also includes employee theft, products that are damaged or spoiled, vendor fraud, and administrative errors.
The report also references “ORC,” or “organized retail crime,” but never defines it. I can’t speak much to this, but the podcast If Books Could Kill did a premium episode about this issue. (That episode is what inspired/cursed me to read the report put out by Save Our Streets for this newsletter, and it’s worth giving them a few bucks to listen to it.)
The $824-per-household figure is the cost of all shrink, including external theft. But in media appearances, Ketchum reduces the entire thing down to a “hidden crime tax.”
It’s hard to believe he isn’t aware of this error, mind you — in earlier reports, Save Our Streets claims instead that crime costs households $500 annually.
Their calculations
In general, the report uses four main data points: retail sales ($606 billion annually), rates of shrink (1.6% of total sales), spending on loss prevention (0.33% of total sales), and an assumed average sales tax rate of 11.24375%. Their math goes like this:
$606 billion annual sales * 1.6% shrink rate = $9.696 B in lost products
$606B * 0.33% = $1.9998 B in security spending
$9.696 B * 11.24375% = $1.09 B in lost tax revenue
Taken together, you get $12.79 billion.
Dividing that by an estimated 15.5 million households yields $824 plus change per household.
I’m actually not sure where the earlier $500-per-household claim comes from, as it isn’t mentioned anywhere in the report.
Using only external theft, the figures provided add up to $383 per household. You could make a case that employee theft should be included, and that would add up to $585, but their own report’s “theft tax” doesn’t include employee theft. Plus, I don’t know if employers want to get into an argument about who’s stealing from whom.
Weird data and strange assumptions
There are a number of numbers and calculations that I either don’t know where they got their numbers from, and for which I found rather different numbers, or where the math doesn’t add up:
I can’t tell where they get the 15.5 million households estimate from. The report simply cites StatCan but doesn’t provide a link. The 2021 census puts the figure just shy of 15 million, and none of the annual population estimates is 15.5 million.
The link they provide to support their $606-billion retail sales adds up to $608 billion.
I don’t know why they’re using 2020 statistics for retail sales. The table they cite included figures for 2021 and 2022.
The report also makes some dubious assumptions to back up its claims:
It implicitly assumes 100% of costs are passed through to consumers without any justification (such as cost pass-through or demand elasticity analysis) for this assumption.
It applies global estimates of retail spending on security (0.33% of total sales) from 2008 to the Canadian context. (The reality is actually likely higher — the global estimates increased to 0.8% by 2013-14, while the US estimate that year was 0.42%.)
The 1.6% shrink rate assumed in Canadian retail is a US figure. We know this is problematic because in 2017, it was 1.44% in Canada and 1.33% in the US, and in 2008, it was 1.04% and 1.42% respectively. US data isn’t Canadian data.
I might not have cared if Ketchum told the media that there’s uncertainty because of a dearth of Canadian data collection and availability. But he didn’t — he just called them “very credible numbers.”
The shrinking cost of shrink
The report’s claims of lost taxes on products lost to shrink don’t actually make sense.
People don’t buy less of a product because some other people stole some of that product unless it’s a rare item that’s hard to get. Similarly, if people are stealing because they don’t have money, stopping them from stealing isn’t going to make them pay for things with the money they don’t have.
There are no lost taxes on products that wouldn’t have otherwise been sold.
This similarly impacts the value of products lost to shrink. Shrink is calculated using the retail value of lost products, but the store hasn’t lost the retail value — it’s lost the amount it paid to the supplier.
That means you need to subtract the gross retail margin, which accounts for 26.9% of total sales, according to StatCan.
‘Theft tax’
The report claims that Canadians paid an extra 2.25% in stores to cover the cost of theft, what the report calls the “theft tax.” And you may be wondering: why is the “theft tax,” which covers only the cost of external theft, higher than the total cost of shrink?
It comes to this conclusion by multiplying 1.6% of total sales by the 36.5% attributable to external theft, to arrive at 0.584%.
(It’s worth noting here that retail profit margins rose 0.9 percentage points over two years, from 4.6% in 2019 to 4.9% in 2020 and then to 5.5% in 2021. The increase in 2021 alone, 0.6% of total income, is equivalent to the entire retail value of products stolen.)
The report takes it a step further: it divides 0.584% by the 26% gross retail margin to arrive at 2.25% and calls that the tax.
To be clear, this is not a tax — it’s a portion of the gross retail margin.
Jim Stanford, director of the Centre for Future Work, adds that calling it a “tax” makes the cost of theft out to be caused by and benefitting government.
“Theft is a cost of doing retail business. It is a problem, a costly one. But it is not a ‘tax’,” Stanford said in an email to me.
Stanford also points out that some portion of theft is attributable to cost-cutting by retailers — specifically, retailers open themselves up to more theft by replacing human cashiers with self-checkout machines.
“I am not opposed to automated check-outs. But retailers who use them because they are cheaper than people can’t complain too much if they encounter higher theft as a result. They have to take that offsetting impact into account in their technology choices,” Stanford said.
“And they certainly can’t demand that the state provide extra services (paid for by society), like more intense policing, to reduce a problem made worse by their own cost-cutting.”
Why it matters
Save Our Streets calls itself a non-partisan group, and says it doesn’t prescribe policy, but this claim is tenuous.
The report is riding the crime wave narrative that has been spreading all around North America, banking in particular on the current political moment reactionaries have grabbed ahold of in BC.
Primed by fear-mongering media like Aaron Gunn’s “…is Dying” duology, a broader media landscape that takes police at their word, and police who use their communications channels to stoke fear (including amping up their crime press releases ahead of the 2022 local election), the Save Our Streets report expects the public to take for granted claims of skyrocketing crime in Canada.
It correctly states that police-reported shoplifting under $5,000 increased 31% in 2022, but conveniently ignores the even greater decrease in 2020, leaving 2022’s per-capita rate still lower than in 2018 and 2019.
It’s true that rates of reporting crime change over time. But the rate hasn’t dropped considerably, according to the most recent StatCan surveys, with property crime reporting holding fairly steady over the years. (Of course, we all know that the vibes are the real data.)
All of that being said, police-reported property crime in Vancouver had been rising prior to the pandemic.
The point here isn’t to claim that there isn’t any rise in crime — it’s to note that, as in many other places, claims around shoplifting are exaggerated, untrue, or wrongly attributed to a specific left-leaning cities and politicians that ~defunded the police~ or whatever.
Ketchum’s prescription for crime
Ketchum is clear about his policy prescriptions when he talks to the media on behalf of Save Our Streets.
“This is a very over-simplistic way of looking at it, but if you were able to take the people who were mentally challenged, who had real mental problems, and took them off the street, and if you took the people who were addicted to illicit drugs and took them off the street, your crime and violence would dissipate something incredible. It would go down so very much,” Ketchum told the host of Conversations That Matter, decrying the lack of institutionalization.
To be clear, institutionalization is inhumane and ineffective, and involuntary care for drug users is associated with a greater risk of death with little, if any, benefit.
Ketchum lashes out against safe supply, confusing correlation for causation as he seems to blame safe supply for increasing overdose deaths. Never mind that unregulated drug deaths were skyrocketing long before it was implemented, and that only a few thousand people have accessed the program out of an estimated 225,000 drug users in BC, as the drug supply has only gotten more toxic.
The evidence, meanwhile, is pretty unambiguous that safe supply saves and stabilizes lives and improves drug users’ health.
Crime is real, but…
Too frequently, the discourse over crime is dominated by people who think the only solution is more police and institutionalization.
They mischaracterize how bail works and insist on locking up legally innocent people as a default. They push stricter sentencing, even though there’s ample evidence that prison doesn’t reduce recidivism, and in fact can increase re-offending rates.
Ketchum suggests substance use disorders cause crime, but those are arguably crimes of poverty — a lawyer or doctor doesn’t have to steal or engage in survival sex work or go binning to support their drug use. In fact, safe supply is shown to reduce crime.
The right is adamant that “soft on crime” policies have created many of the issues in Vancouver. But they ignore the worsening housing crisis and a 32% increase in homelessness over the past few years, despite the fact that crime, while a complicated phenomenon, has deep roots in poverty and inequality.
Instead of strong evidence, they offer anecdotes, cherry-picked data, and vibes. In TV news, those vibes are backed by shocking CCTV footage of crime or B-roll of flashing red and blue lights, as in the Global interview with Ketchum. The “global retail theft barometer” stopped after its 2014-15 publication, but in the archive of its website, the “press materials” don’t include a link to the report or data or any kind of useful information.
Instead, they offer an array of “theft videos,” footage of people shoplifting that are “only to be downloaded if being used exclusively by the press for a publication related with the Global Retail Theft Barometer.”
It’s true that perceptions of crime are high (driven in no small part by sensational media and social media). But at the same time, in Vancouver’s 2024 budget consultations, the most popular answer among individuals and businesses alike for how to manage property tax increases was reducing police funding.
Save Our Streets is a natural coalition between business interests and those of police.
And while Save Our Streets purports not to prescribe any policies and to be non-partisan, the subtext is hardly even subtext. When you blame a supposedly lax legal system and harm reduction for all of the issues you’re talking about, you’re at the very least implicitly making policy prescriptions.
And in his policy prescriptions, Ketchum’s past with the BC Liberal and BC Social Credit parties shines through.