Statistics

Businesses lose billions; consumers end up paying

By Tang Zhihao (China Daily)
Updated: 2011-05-12 10:24

A supermarket in Fuzhou, Fujian province. A total of 188.5 billion yuan in commercial loss, including from theft, was reported in China in 2010. [Photo / China Daily]

SHANGHAI - Businesses in China suffered losses of 128.4 billion yuan ($19.78 billion) from theft in 2010 and industry experts said that suppliers and consumers will end up footing some of the bill.

According to a report released by the China General Chamber of Commerce (CGCC) in May, a total of 188.5 billion yuan in commercial losses, including those from theft, were reported in China in 2010. That amount is close to the cost of building the Three Gorges Dam. Theft accounted for 68 percent of commercial losses in 2010.

Cao Xiaonin, from CGCC, said the huge loss works against efforts to contain rising prices in China. "Theft loss will be calculated into retail prices," Cao said.

According to the report, the average loss from employee theft was higher than that caused by external theft.

Related readings:  Vegetable price slump hurts Chinese farmers  Soaring coal prices set to hit power generators  Pearl River fishing ban may reduce net loss  Zhenhua Heavy may report loss

Industry sources say most of the cost would be transferred to suppliers and ultimately to end users. The effect of theft is much higher on suppliers compared with retailers. The CGCC report said that 42 percent of suppliers consider it a "hidden rule" of the industry.

"Retailers might ask suppliers to provide extra products for free or require discounts during the negotiation stage to cover the potential loss," said Peng Jianzhen, vice-secretary general of the China Chain Store and Franchise Association. "Suppliers are forced to pay. They factor theft loss into wholesale prices. Ultimately, consumers will end up paying," Peng added.

According to Peng, some famous international companies are spared from sharing the costs. "The companies with strong market presence ask the stores to buy their products, and the stores sell them," said Peng. Some chain stores deny transferring their loss to suppliers.

Vincent Ying, a spokesman for RT-Mart, said losses from theft are a part of the operating costs of the company. Theft loss accounted for 0.07 percent of RT-Mart's revenue in 2010.

To reduce the loss from theft, Peng said Chinese companies should adopt a Western-style business model, which would make stores take theft loss more seriously. Unlike chain stores in foreign countries, most Chinese stores do not buy goods from suppliers.

Suppliers send promotions representatives to stores and sell products directly to consumers. Peng said stores make a profit from this business method by charging suppliers 20 to 30 percent of the sales revenue generated in stores.

"Under the current method, retail stores will not take theft loss seriously because it does not cost them," said Peng. "Companies will pay more attention to preventing shoplifters if they buy products from suppliers. They know that they will pay for the loss."