Small businesses today can leverage tools like CCTV and digital video recorders with ease. For example, Shopify partnered with Google and Nest to help merchants use high-tech security cameras at an affordable price. When someone steals or shoplifts from a store – taking the item without paying.
Shrink (or shrinkage) is a measurement of inventory loss as a percentage of sales during a specific inventory period. It is used to forecast or account for losses in a retail balance sheet. Shrink calculations include losses stemming from theft (by employees and non-employees), administrative or operational errors, mistakes and other identified inventory loss. It is the most common form of measurement and benchmarking regarding retail loss. RFID (Radio-Frequency Identification) tags, attached to individual products or packaging, allow for real-time store tracking and merchandise monitoring.
Learn about inventory management strategies that boost revenue and increase customer satisfaction. It is incredibly important for retail businesses to prevent shrinkage in order to avoid these extreme consequences. Video surveillance, mirrors, and signage are a great way to deter thieves and employees alike from stealing inventory.
One factor causing an unnecessary loss for suppliers and retailers is shrinkage. While shrinkage is usually unpredictable, it can be controlled when appropriate safeguards are put in place. Conduct regular training sessions on what to do in the case of a robbery or other emergency situations, as well as whistleblowing and procedures around reporting internal theft. Increase training around what to do if you think someone is acting suspiciously, or suspected of shoplifting or fraud. By conducting frequent inventory audits, your employees will understand the importance of that inventory to the business’ success and bottom line.
- It also includes the use of counterfeit receipts to return merchandise.
- Regularly auditing vendors is important for ensuring that the merchandise received matches the original order, reducing vendor-related shrinkage.
- One of the best ways to cut down on human entry error is to remove the human entry part.
- When it comes to employee theft, you might imagine store workers pocketing merchandise for themselves.
- Shopify automatically syncs stock quantities as you receive, sell, return, or exchange products online or in store—no manual reconciling necessary.
With up-to-date inventory, you won’t need to go back and count what’s in stock every week. You’ll have the data available to determine if there are any discrepancies when the time comes for monthly, quarterly, or yearly inventory counts. Reasonably enough, many companies pay more attention to the first two causal factors, but that often leads them to neglect the role of inefficiencies and other operational issues in driving shrinkage. That’s a problem, because operational factors are especially important when it comes to the indirect, knock-on impacts. During an inventory, a retailer reports $230,000 in merchandise on the shelf (cost value).
What is Inventory Shrinkage in Retail? 8 Ways to Prevent It
In addition, you need to have plans and procedures in place for your employees to follow if they suspect someone has stolen something. Businesses tend to focus on theft when addressing shrink, but more than a fifth of it arises from administrative errors and sloppy bookkeeping. A source of particular frustration, though, is the phenomenon known as “retail shrink” or “shrinkage”. Simply put, it’s loss of inventory by various means, sometimes by accident, and sometimes deliberate. According to a survey by the National Retail Federation, inventory shrink cost US businesses more than $45 Billion in 2015. Tighten Up Your Return Policy As previously reviewed, return fraud is skyrocketing, particularly among businesses that don’t have a clear, concise, and visible return policy.
Install Obvious Surveillance and Anti-Theft Signage
Foster a culture of accountability where employees understand the impact of shrinkage on the company’s profitability. Retail business owners who leverage the above strategies are likely to see a lower overall shrinkage percentage than retailers who do not. If you have additional questions about how Loomis can help your business reduce shrinkage, contact us here.
Use an all-in-one system for less admin errors
The majority of respondents questioned in the National Retail Sales Survey stated that their loss prevention initiatives were either staying flat or decreasing despite an increase in shrinkage impact in 2017. Though tight budgets and limited resources play a role, more than 20 percent of businesses are increasing their loss prevention efforts. Reducing retail shrinkage has to be a top priority, as research shows the amount of loss due to shrinkage increases annually. Learn about what is retail shrinkage, the causes of shrinkage in retail, and solutions to prevent it. Inefficient inventory management is also a direct cause of shrinkage, specifically for grocery retailers. Products that are left on shelves past expiration are ultimately wasted and revenue is lost, only contributing to the growing problem.
Employees should know the effects of shrinkage and the steps your business takes to ensure it happens less. Tell employees why they only have specific permissions and educate them on what to look for. The right POS system allows you to process returns and refunds easily, and the system should track all the data for you, down to why the items were returned. https://business-accounting.net/ A survey found that 49 percent of customers check for a return policy before buying anything, so having your policy on display might be good. Depending on the size of your store, the number of employees you have can be a deterrent to thieves. It’s essential to have an employee on each register, one or two on the shop floor, and security guards.
Loss prevention managers have the experience, training, and knowledge, and “they typically formulate plans regarding customer and employee safety, emergency procedures, difficult customers and lost children. Those who work for large retail chains might create plans for every store in the chain and modify policies based on location, store layout and history of loss”. We understand how overwhelming all these tasks can become for one business owner or retail store manager.
Vendors can be subject to the same administrative errors as retailers, which can contribute to shrinkage. Both you and your vendors can the risk of human entry error by using online B2B platforms like NuORDER. If you don’t train your staff on preventing shrinkage, you’re leaving your store open to employee theft, shoplifting, and unnecessary errors.
Retail shrinkage refers to the loss of inventory and/or revenue due to various factors such as theft, human errors, fraud, and administrative mistakes within the retail industry. Causes of shrinkage in retail include shoplifting by customers, employee theft, supplier fraud, waste, and paperwork errors. Shrinkage can have a significant impact on a retailer’s profitability and overall operations. By addressing the causes of shrinkage and implementing preventive measures, retailers can minimize losses and maintain a healthy bottom line.
The level of this problem is illustrated by the fact that 34.5 percent of shrinkage in 2014 was due to employee theft. Searching employees personal belongings before they leave the premises is slow, time consuming and, most damagingly, bad for staff morale. If you’re not keeping an eye what causes shrinkage in retail on your inventory levels, you’re vulnerable to being blindsided by shrinkage rates that you never even knew were a problem. However, full physical inventory counts are prohibitively time consuming—there’s a reason most retailers only count their entire stock once or twice a year.