Of all the issues affecting retail stores, retail shrinkage is the one most likely to affect the bottom line; it’s the difference between the optimal sales profit from stock and the actual profit earned from sales - and sometimes the disparity can be significant.

It’s measured by the amount of money spent on inventory that is lost or unsaleable.

So what can cause retail shrinkage, and what can we do to guard against it?

The loss of inventory can be caused by a number of things; employee theft, employee error and damage, administrative errors, shoplifting, vendor fraud…

Learning how to detect it and putting in place preventative measures can make a big difference to profitability. Because shrinkage isn’t just the cost of the lost profit, it’s also the cost of replacing missing or damaged stock.

How does shrinkage occur?

The causes of shrink vary from outlet to outlet but inevitably a high percentage is linked to shoplifting. Some sources place that percentage as high as about 37% and course many stores have a whole raft of security measures in place to try to prevent theft.

But one cause of shrinkage that warrants close scrutiny is that linked to employees - whether that be error at point of sale, other administrative error , or intentional or unintentional damage or loss. Combined, these factors account for an estimated 51.3%. And that might come as a shock to some business owners and managers!

The hidden effects of shrinkage

The bottom line is clearly the first place to look to see the effects of shrinkage but there are other, more subtle effects.

If it’s discovered that an employee is causing retail shrink, either by stealing, by intentionally damaging inventory with the hopes of buying it for a lower price, or by facilitating shoplifting in collaboration with someone else, this can be extremely costly for businesses. 

So business owners, facing the challenge to keep their business viable, may resort to cost cutting measures - reducing employee hours or wages to try to bridge the gap, even making redundancies. Innocent employees are impacted - but so too are customer service and relationships.

For example, a business owner may decide to increase prices in an effort to compensate, which in turn impacts negatively upon customer loyalty, whilst staffing reductions can lead to customer dissatisfaction with service levels, efficiency and store presentation. 

In addition, business owners may have to launch an investigation into the theft, as well as invest in loss prevention equipment and training for other employees. It’s all adding up…

Loss Prevention

For the best protection, businesses should explore and  take on as many loss prevention measures as possible, with multiple focus points.

Employees should be a priority. Here, it’s important to switch focus and see them as an an asset to business security, not a threat. 

From day one, employees should understand that shrinkage is an issue constantly under the spotlight.

Anti-shrinkage training should start at the beginning of employment but it’s never too late to embed new protocols with established employees. 

Regular training sessions should cover 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 employees should do if they think someone is acting suspiciously, or suspected of shoplifting or fraud. 

Proper training on all workplace procedures will prevent shrinkage too. For example, employees should be taught how to complete thorough inventory counts so there is less room for error.

Customers

Sadly, it’s a fact that some customers have bad intentions when engaging with retail businesses.  From shoplifting to passing fake notes to card fraud, there are so many things to look out for when accepting payments

• If you accept cash, do you check for fake notes?
• If you take card payments, are your payment terminals PCI (Payment Card Industry Data Security Standard) compliant?
• Does your merchant services provider offer any security measures?
• Do you have insurance against customer fraud?

Risk assessments

Carry out a risk assessment to discover any potential threats to security. However unlikely you may think it is, it’s never impossible for a crime to be committed against a business. 

Things to consider are - loss prevention equipment, technology, employee training, stock storage and auditing, operational risks, monetary risks, and fraud opportunities. 

Talk to Loomis

Whilst you’re doing your risk assessment and operational reviews, can we suggest a chat to Loomis too?

The Loomis range of SafePoint smart safes provides an impressive range of benefits which can help to significantly reduce your retail shrinkage.

Loomis SafePoint safes offer:

• Scanning and identification of fake notes
• Under the counter deposit, ensuring earlier deposit and less opportunity for theft
• Reduction of number of cash touch points
• Automatic reconciliation
• Personalised cashier logins, with reports to show how much each cashier has deposited
• Cash flow management information
• Safe contents indemnified
• No more trips to the bank to deposit cash, secure collection by Loomis
• Streamline daily cash management operations and enhance security with bespoke solutions suitable for retailers of all sizes

So, in the fight against shrinkage. Loomis can provide valuable tools to tackle the problem.