As a savvy Costco shopper and retail industry expert, I‘ve always been fascinated by the company‘s strict policies against shoplifting. While most retailers take theft seriously, Costco seems to go above and beyond, leveraging both high-tech solutions and the threat of membership cancellation to keep would-be thieves at bay. I wanted to dig deeper into why Costco is so aggressive in this area and whether their approach is truly effective.
The High Cost of Retail Theft
First, it‘s important to understand the massive financial impact that shoplifting and employee theft have on the retail industry as a whole. According to the National Retail Federation, inventory shrinkage cost retailers $61.7 billion in 2019, or about 1.62% of total sales.[^1] For a low-margin business like Costco, even a small amount of shrinkage can eat into profits.
Research firm Loss Prevention Media estimates that the average shoplifter steals $559 per incident and is caught only once out of every 48 times they steal.[^2] This means a single uncaught shoplifter could cost a retailer over $26,000! And with organized retail crime on the rise, the losses can quickly add up.
| Category | Shrinkage % of Sales |
|---|---|
| Supermarket/Grocery | 2.99% |
| Specialty Men‘s & Women‘s Apparel | 2.43% |
| Pharmacies/Drug Stores | 2.23% |
| Home Improvement | 2.00% |
| Convenience Stores | 1.91% |
| Total Retail Industry | 1.62% |
Source: National Retail Federation[^1]
Costco, however, boasts a shrinkage rate of just 0.12%, or about $127 million out of $105 billion in merchandise sales.[^3] That‘s incredibly low for such a high-volume retailer. So how do they do it? A big part of the answer lies in Costco‘s membership model and shoplifting deterrents.
Members Only: Your Card or Your Membership
One of Costco‘s key advantages in loss prevention is that it‘s a membership club, not an open-access retailer. Every shopper must show their membership card to enter the warehouse, and again when leaving to verify their receipt. This allows Costco to easily track and identify people, making it much harder to steal anonymously.
If a member does shoplift, Costco has the ultimate consequence at its disposal: membership cancellation. And they don‘t hesitate to use it. Getting caught stealing means your membership will be permanently revoked, not just for you but for your entire household.[^4] For avid Costco shoppers, that‘s a steep price to pay.
This policy seems to be an effective deterrent. Costco members spend an average of $2,700 per year at the store.[^5] Losing access to those savings and benefits is a big deal. In fact, a survey by loss prevention firm Hayes International found that 73% of admitted shoplifters said they would never steal from a store that required a membership.[^6]
Eyes in the Sky and on the Ground
Of course, Costco doesn‘t rely solely on the threat of cancellation to prevent theft. The company employs an array of technological tools and manpower to keep a close watch on its inventory.
Like most retailers, Costco makes extensive use of security cameras. But their system is particularly advanced, using high-definition cameras and video analytics software to flag suspicious activity and track suspects across multiple cameras.[^7] Some Costco locations are even experimenting with AI-powered cameras that can automatically detect potential theft in real-time.[^8]
On the human side, Costco employs a dedicated staff of plainclothes loss prevention officers who patrol the warehouse floor. These officers are specially trained to spot the signs of shoplifting and safely apprehend suspects. Costco is known for pursuing prosecution aggressively, even for minor offenses.[^9]
"Costco is definitely one of the more challenging retailers for shoplifters," said Read Hayes, a criminology professor and director of the Loss Prevention Research Council. "Between the cameras, the door checks, and the LP officers, there are a lot of eyes on you. And they don‘t tolerate theft at all. It‘s just not worth the risk."[^6]
Carrots and Sticks for Employees
Costco‘s loss prevention efforts don‘t stop with external thieves. The company also takes a proactive approach to preventing internal theft and fraud by employees. This is crucial since employee theft accounts for over 30% of total inventory shrinkage industry-wide.[^1]
Costco combats this in two key ways. First, they focus on creating a positive work environment and treating employees well. The company is known for paying its workers significantly above market rates, offering good benefits, and promoting from within.[^10] Studies have shown that employees who feel valued and fairly compensated are less likely to steal from their employer.[^11]
Second, Costco has strict policies and oversight in place to detect and punish employee theft. Workers are subject to bag checks and regular audits. Cash registers track which employee processed each transaction. And the penalties for stealing are severe, including immediate termination and possible legal action.[^12]
The combination of competitive pay, good management practices, and zero tolerance for theft helps Costco maintain a low rate of internal shrinkage. In an industry where every dollar counts, that can make a big difference.
The Downsides of Zero Tolerance
While Costco‘s aggressive anti-shoplifting stance is undoubtedly effective, it‘s not without controversy. Some critics argue that the company‘s policies can lead to false accusations and negative experiences for law-abiding customers.
There have been cases of Costco members being wrongly detained or even arrested for shoplifting due to misunderstandings or errors. In 2013, a California man was awarded $415,000 after being wrongfully accused of stealing and held in a Costco interrogation room for several hours.[^13]
Such incidents, while rare, can damage Costco‘s reputation and member relations. The company walks a fine line between protecting its assets and alienating its customers. It‘s a difficult balance that requires constant training and vigilance.
Another potential downside is that Costco‘s strict policies may deter some people from shopping there altogether. Those with a criminal history or concerns about profiling may feel unwelcome or anxious in an environment with such heavy surveillance. Costco seems willing to accept this as the cost of doing business.
Lessons for Shoppers and Retailers
As a retail analyst and Costco member myself, I believe there are valuable takeaways here for both shoppers and store managers. For consumers, the lesson is clear: don‘t mess with Costco. Shoplifting simply isn‘t worth the risk of losing your membership and facing legal troubles. Be extra careful at self-checkout to scan everything properly.
For retailers, Costco offers a compelling case study in how to use a membership model and cutting-edge technology to minimize losses. While not every store can be a club, all retailers can benefit from tactics like:
- Requiring shoppers to show ID/receipts at exits
- Leveraging video analytics to detect theft in real-time
- Providing competitive pay and focusing on employee retention
- Having dedicated, well-trained loss prevention staff
- Partnering closely with law enforcement to prosecute shoplifters
No anti-theft system is perfect, but Costco has developed a formidable reputation in the industry. Their ability to keep shrinkage rates far below average is a testament to the effectiveness of their multi-layered strategies.
The Future of Loss Prevention at Costco
As organized retail crime becomes more sophisticated and technologies like self-checkout introduce new vulnerabilities, Costco will need to continually adapt and strengthen its loss prevention approach. Some experts predict that in the coming years, retailers like Costco will invest heavily in AI-driven security systems that can analyze massive amounts of surveillance footage and transaction records to identify theft patterns.[^14]
We may also see Costco expand its use of RFID tags and other inventory tracking tools to monitor products from the warehouse to the checkout counter.[^15] And as cybersecurity becomes a greater concern, Costco will need to focus on safeguarding its computer systems and customer data against hacks and breaches.
But one thing I don‘t expect Costco to compromise on is its core philosophy of zero tolerance for theft. The company‘s success is built on the trust and loyalty of its members. Letting shoplifters take advantage of that relationship would undermine everything Costco stands for. As long as there are sticky-fingered customers and dishonest employees, Costco will be there to stop them.
The Bottom Line
Love it or hate it, there‘s no denying that Costco‘s hardline approach to shoplifting is a major factor in the company‘s industry-leading shrinkage rates and ability to offer rock-bottom prices. By making full use of its membership model, investing heavily in prevention tools and staff, and being willing to make examples of thieves, Costco sends a clear message that stealing is never tolerated.
For honest members who follow the rules and show their receipt at the door, this aggressive stance creates a safer and more affordable shopping experience. And for retail professionals, it offers valuable lessons in how to stay profitable in a challenging loss prevention landscape.
The next time you‘re at Costco, take a moment to appreciate all the seen and unseen measures that go into protecting your membership privileges. Just make sure you don‘t accidentally walk out with any unpaid merchandise – or you might become another statistic in Costco‘s shoplifting crackdown.
[^1]: National Retail Federation. (2020). 2020 National Retail Security Survey. https://cdn.nrf.com/sites/default/files/2020-07/RS-105905_2020_NationalRetailSecuritySurvey.pdf[^2]: Loss Prevention Media. (2017). Shoplifting Statistics. https://losspreventionmedia.com/shoplifting-statistics/
[^3]: Costco Wholesale Corporation. (2020). Annual Report 2019. https://investor.costco.com/static-files/7ef7bed6-c48f-4687-9c82-eb104b4823a5
[^4]: Costco Wholesale Corporation. (n.d.). Membership Conditions. https://www.costco.com/member-privileges-conditions.html
[^5]: Zumbach, L. (2018, May 26). Costco‘s Secret Weapon: Food Courts and $1.50 Hot Dogs. The Wall Street Journal. https://www.wsj.com/articles/costcos-secret-weapon-food-courts-and-1-50-hot-dogs-1527338401
[^6]: Hayes, R. (2019). Costco: A Minor‘s Conundrum. Loss Prevention Magazine. https://losspreventionmedia.com/costco-a-minors-conundrum/
[^7]: Axis Communications. (2019). Costco Wholesale: Protecting Profitability with Network Video. https://www.axis.com/files/success_stories/ss_retail_costco_wholesale_en_1910_lo.pdf
[^8]: Banjo, S. (2019, November 6). Walmart, Target, Costco Embracing AI to Keep Brick-and-Mortar Relevant. Insurance Journal. https://www.insurancejournal.com/news/national/2019/11/06/547374.htm
[^9]: Kuglin, T. (2019, June 23). In Era of Online Retail, Black Friday Still Lures a Crowd. USA Today. https://www.usatoday.com/story/money/2019/06/23/shoplifting-how-walmart-other-retailers-track-stolen-goods/1429232001/
[^10]: McGregor, J. (2013, June 6). Why Costco Pays Its Retail Employees $20 An Hour. The Washington Post. https://www.washingtonpost.com/business/economy/why-costco-pays-its-retail-employees-20-an-hour/2013/06/06/a8353276-cc9f-11e2-8845-d970ccb04497_story.html
[^11]: Speights, K. (2017, July 2). How Costco Outperforms Wal-Mart and Target. The Motley Fool. https://www.fool.com/investing/2017/07/02/how-costco-outperforms-wal-mart-and-target.aspx
[^12]: Smith, A. D. (2016, September 20). Costco Has Spoken: Employees Will Be Terminated for Theft. HuffPost. https://www.huffpost.com/entry/costco-employees-will-be-_b_12092272
[^13]: Reyes, K. A. (2015, February 24). Man Wins $415,000 Settlement After Shopping At Costco. CBS Sacramento. https://sacramento.cbslocal.com/2015/02/24/man-wins-415000-settlement-after-shopping-at-costco/
[^14]: Marr, B. (2019, July 19). The Future Of Loss Prevention – Artificial Intelligence. Forbes. https://www.forbes.com/sites/bernardmarr/2019/07/19/the-future-of-loss-prevention-artificial-intelligence/
[^15]: RFID Journal. (2018, June 15). Tracking Clothing from Manufacturing to Stores. https://www.rfidjournal.com/tracking-clothing-from-manufacturing-to-stores
