The retail industry has always been a challenging market. As well as remaining competitive, it is crucial to maximize margins, which are typically very thin in this sector. It is also essential to make sure that you retain as much as your income as possible – this includes managing shrinkage and minimizing loss prevention. So, Volumatic asks: why is shrinkage such a problem, and how can businesses reduce shrinkage within their processes?
What is Shrinkage?
Shrinkage is a term used to cover a ‘shrinking’ inventory or loss for the business. This comprises of a vast range of losses from issues such as shoplifting, return fraud, employee negligence or employee theft, as well as administrative and cash handling errors.
Shrinkage could also encompass aspects such as wastage, expired goods, damage and non-compliant goods. Shrinkage is a considerable concern for retailers. Globally, $100 billion is lost every year through shrinkage. This shows how essential it is for every business to manage and minimize loss as much as possible. It only takes a small increase in shrinkage to spell the end of a business.
Fortunately, many businesses are aware of the impact shrinkage can have on their organization. Consequently, as many as 80% of retailers invest in a loss prevention strategy. But how can retailers reduce their shrinkage bill even further?
Writing Shrinkage Off
For many big retailers, shrinkage is simply part of the business. Many large organizations write off a percentage of their revenue to prepare for a degree of shrinkage. However, many smaller organizations simply cannot afford to do so. As a result, shrinkage could lead to a tremendous loss to the business and may even make the future of the retailer completely unviable.
The Cost of Shrinkage in the U.S.
- The U.S. has the highest shrinkage rate in the world, closely followed by Mexico and Italy
- Shrinkage accounts for $95 billion annually in the U.S.
- There is an average of 177 shoplifting incidents a day in every store in the U.S.
- U.S. grocery retailers have an average shrinkage of 1.6%
How to Slash Shrinkage
Businesses don’t need to accept that they will lose 2% of their total revenue through shrinkage. There are lots of ways that organisations can slash their shrinkage and improve their loss prevention measures. Here are just some of the ways you can help to slash shrinkage in your organisation:
Monitor your Inventory Electronically
Inventory audits and manual processing of sales and returns can easily lead to human error and employee mistakes. All of which can significantly add to the shrinkage bill. POS cash solutions can be vital in monitoring inventory ‘as it happens’. This can not only help with stock management and ordering, but can also reduce human error too.
Promote Good Leadership
Positive leadership and role models within the organization can lead to happier staff. Happy employees lead to lower staff turnover. All of which can help to reduce shrinkage through internal theft. Strong leadership can help to embed a really positive workplace culture too. This can help to ensure a buy-in from employees, where everyone works together for the good of the business.
Hire Great Employees
It can also help to put in place measures during the hiring stage too. Remember, your frontline workers will be integral to your loss prevention practices. Look specifically for employees that are conscientious and show integrity. These model employees are far less likely to take advantage of their employers.
Attentive frontline workers that deliver excellent customer service can also help to reduce theft. These employees will show shoplifters that they are aware of their presence. By being on hand to help, shoplifters know that they’re being monitored by staff.
Improve Store Layout
Disorganization and overflowing merchandise can make it easy for shoplifters to steal items that can go undetected. A clean, tidy layout can reduce the impulse of theft. Make sure aisles a clear, spacious, well-lit and easily observable. Unmonitored corners and darker areas of the store are particularly vulnerable to theft.
Create a Culture of Loss Prevention
Many organizations have a loss prevention policy and procedures to reduce theft. However, these policies must be embedded in the everyday work culture. Regular staff training can help your employees to truly understand how shrinkage can affect every single member of staff. By fully understanding the implications of shrinkage and what they can do to prevent it, you’ll have a team committed to reducing loss for the right reasons, not simply because they are told to.
Invest in Cash Management Technology
Counterfeit notes, fraudsters, employee theft, or human error shrinkage at the till point can account for a large proportion of your losses. You can minimize this by reducing the amount of cash handling your employees have to do.
For example, Volumatic’s CounterCache intelligent (CCi) is a one-touch solution that virtually eliminates physical cash counting while also detecting forgeries and removing customer disputes. All of which can help to significantly reduce shrink while saving time and expense.
