On the other hand, if the retailer decides to reduce profit margins, they are looking at potentially serious damage to their bottom line and cash flow. Some vendors might even supply counterfeit or subpar merchandise, which retailers can lead to customer complaints and returns. Thorough training should include a crash course on shoplifting prevention. Discuss best practices of greeting every customer; watching for customers who avoid eye contact, seem nervous, leave and return repeatedly, or linger; and asking customers if they can be of assistance. While these security tags don’t alert staff in the same way RFID tags do, they effectively spoil the fruits of a thief’s labor.
- During every new hire’s training, show them where all cameras are located and the live recordings.
- She has started an ecommerce business in 2019, after working in corporate retail and real estate as a senior managing director and former consultant.
- Shoplifters employ various tactics to conceal their actions, making it challenging for retailers to detect and prevent these losses.
- Ensuring there are people and eyes in places where shoplifting most often occurs, such as in changing rooms and far corners will improve your customer experience and your shrinkage reduction.
- Thieves aren’t necessarily looking for items, often they prefer to launder money through your store.
By having specific terms and conditions on how to return or exchange products, it will be easier for you to filter the reals away from the fake ones. Approximately one in every 11 people in the United States have reportedly shoplifted in their lifetime, meaning there are estimated 27 million shoplifters across the entire country. It costs businesses $13 billion in losses annually solely due to shopping robbers. Empty shelves, inaccurate product information, and out-of-stock items will frustrate customers, potentially driving them to competitors.
Employee theft, also known as internal theft, is a significant contributor to shrinkage. The NRF’s survey found it was the source of 28.5% of inventory shrinkage, second only to shoplifting (external theft). If your inventory management system says you have 10 pairs of shoes in stock, but you actually have 9 on hand, and you can’t account for that lost pair through sales, your inventory has experienced shrinkage. POS Nation’s retail software includes these safeguards and more to protect your retail business from all forms of shrinkage. We also help with team training and onboarding to prevent admin and internal errors.
Hire a Loss Prevention Manager
Good employees want to prevent inventory losses, but it’s your job to give them the tools and training they need to make it happen. Employee training to identify and stop shoplifting can make a big difference in your shrinkage. Mistakes like mislabeling, incorrect markdowns, and accounting errors can lead to merchandise being sold for less than it should be or refunded for more than it should be. Jack L. Hayes International’s 33rd Annual Retail Theft Survey found shoplifting case value increased 13% in 2020. Shoplifting represents the largest single share of retail shrinkage, accounting for over 35% of annual losses. For example, if a retailer accepts $1 million of product, then the inventory account increases by $1 million.
It is simply the loss of inventory due to different factors including employee theft, shoplifting, administrative error, return fraud, and operation loss. Knowing what causes retail shrinkage is half the battle on loss prevention. Shrinkage leads to incorrect records, which results in what causes shrinkage in retail inaccurate stock levels and potential over or under-ordering. This can lead to lost sales opportunities for businesses as they struggle to meet customer demand. As businesses try tomake up for losses caused by shrinkage, they are forced to raise prices on their products or services.
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There is nothing wrong with requesting a receipt no older than 30 days to return an item for a refund. Continue to provide excellent customer service by offering store credit instead of a cash refund if the requirements of your return policy are not met. If you clearly print the return policy on all receipts and post it in-store for customers to browse, there should be minimal complaints about how you choose to operate returns.
Establish loss prevention awareness from day one and continue with policy refreshers for employees at all stages of their career. When discussing loss prevention with employees, provide specific examples of what is and isn’t employee theft, reiterating the zero-tolerance policy. Incidents occur when company workers steal or misappropriate funds or goods. Types of employee theft include fraudulent use of discounts, refunds, and credit cards. In order to offset the financial impact of shrinkage, businesses may need to increase their prices. This can be a difficult decision, as raising prices can deter potential customers and drive existing ones to seek more affordable options.
A simple way to mitigate skimming cash is to reconcile each register at the end of each shift, not just the end of the day. You can also leverage technology to combat this long-standing issue by embracing the assistance of a point-of-sale (POS) system. Inventory management should be a priority for your business if you want to improve loss prevention. With proper inventory control, you can account for items and prevent shrinkage. Simple pricing mistakes due to markups or markdowns can cost retailers quite a bit, so it’s crucial to have good protections in place, and use simple, easy-to-understand accounting systems and programs. The survey also indicated that the retail landscape is changing, with more online shoppers bringing new challenges and fraud risks.
What does shrinkage mean for retailers?
As your retail business grows and inventory becomes more challenging to manage, inventory shrinkage will likely rise. Consider investing in the right tools to help you understand potential vulnerabilities and mitigate risk so you can turn a higher profit for your business. Organized retail crime (ORC) continues to be a serious problem for retailers, with average losses topping $700,000 per $1 billion in sales. Relaxed law enforcement guidelines and decreased penalties have caused an increase in ORC activity, according to the NRF 2020 Organized Retail Crime survey. Some businesses will try to cover the cost of shrinkage by increasing prices for the customer. If your customers are price sensitive, shrinkage can also damage your customer relationships and sales.
It also provides management with peace of mind, as they know their store is being monitored 24/7. Frequent inventory audits keep employees on their toes and should be done on a daily basis to reduce shrinkage and inventory loss. While it’s nearly impossible to eradicate retail shrinkage completely, it is definitely possible to reduce it. With daily checklists, your employees will know exactly what needs to be done when arriving at work. Additionally, after completing all checklists and tasks, you can require employees to submit an “end of day report”.
The sheer number of employee theft issues has prompted businesses to tighten their hiring practices and conduct in-depth pre-employment screenings like background checks. The RILA notes that, historically, retail shrinkage has been defined as a discrepancy between actual physical inventory and what the books say stock should be. As pointed out in the report, shrinkage may include crime-related loss, pricing errors, administrative errors, and damaged or expired goods. In retail, the term “shrink,” or “shrinkage,” refers to the loss of inventory or revenue due to theft, fraud, damage, errors, or other causes.
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An example of shrinkage in retail is when a store experiences theft of merchandise by customers or employees. For instance, if a cashier intentionally under-rings items to give unauthorized discounts to friends, it results in a loss of revenue and merchandise for the store. https://business-accounting.net/ Another example of shrinkage is receiving damaged merchandise from a wholesaler. To reduce employee theft, retailers must look beyond loss prevention measures put in place for customer shoplifting. In some cases, employees can take product before it reaches the sales floor.
The effects of shrinkage are far-reaching and lead to money coming straight out of your pocket. The other half is implementing anti-shrinking actions and policies in your retail store. While important year-round, these actions are even more important during high-traffic periods like the holidays. 8th & Walton consists of retail industry experts with a combined 200+ years of Walmart and Walmart supplier experience. This is done by counting existing inventory then comparing it to the value of the inventory reported on the balance sheet (or “what’s on the shelf vs. what’s in the books”). Frequent inventory auditing gives managers a better understanding of how much actual inventory is there versus what has been reported.
These factors result in a discrepancy between the recorded and actual inventory on hand. Retailers often closely monitor and implement strategies to reduce shrinkage to protect their profitability and assets. Inventory management software reduces retail shrinkage by providing greater visibility and control over a store’s inventory. Such software more readily identifies shrinkage patterns and trends, enabling retailers to implement targeted strategies for loss prevention. Some businesses will attempt to reduce the cost of shrinkage to their bottom line by increasing prices for customers. However, this tactic will typically cause damage to customer relationships and overall sales, especially in a price-sensitive market.
The national retail federation, which is the world’s widest retail trade association with almost everyone in the retail industry, needs to be more aware of all possibilities resulting in business losses. Implementation of rules and regulations should be continued and improved moving forward as that is among the ways that will help reduce retail shrinkage. Hiring and training to reduce retail shrinkage gives you a headstart in the fight against losses. For many stores, it’s easy to push crafting and enacting a loss prevention strategy off of one person’s plate … and onto no one’s. So what preventive measures can you put in place to reduce loss and protect your profits? This guide will walk you through different types of inventory shrinkage, plus strategies and examples to help mitigate risk in your retail business.
