Every retailer understands that shrinkage, losing products somewhere between the point of manufacturing and being sold, is a real problem, one that means a sizable loss of profits every year. In fact, the latest Global Retail Theft Barometer reported a total loss of $42 billion. Unfortunately, what’s less obvious is how to stop it.
When you run a retail business, is there actually anything you can do to finally nip this chronic issue in the bud, or is it just inevitable that you’ll deal with some losses over time? How do you prevent shrinkage before it starts? What tools are most helpful? To help answer these questions and to set your business up for greater success in the coming months, here’s a look at three of the top causes of shrinkage, along with ideas for reducing your total loss for the year.
Top Causes of Shrinkage
Before you can effectively stop shrinkage, you have to know why it’s happening. You know you’re losing products, but you might not know how, so what’s going on? Where are your products going? What’s causing shrinkage for you? Consider these top causes of profit loss, which may be the issues affecting your company:
- Administrative Error: Simple inefficiencies in pricing, record keeping or paperwork can end up causing a great deal of loss for companies. These administrative errors may be made innocently, but nonetheless they add up over time.
- Employee Theft: The people running your location often have the easiest access and the least amount of monitoring, making it easy for someone to swipe a product. Likewise, they can easily abuse discounts, refunds or credit cards in a way that also causes business profit loss. This is why, according to The Small Business Chronicle, employee theft accounts for almost half of all retail shrinkage.
- Customer Theft: Another way shrinkage happens is through customer theft. Shoplifting accounts for $10 billion of shrinkage annually, according to About Money, as customers steal items, change price tags or otherwise steal from businesses.
How could administrative errors or theft — whether by employees or customers — be affecting your business’ bottom line? Which cause seems to be the most prevalent at your location? Knowing this will help you focus your efforts on reducing loss at your site.
How to Reduce Your Loss This Year
Finding a way to reduce shrinkage at your company comes down to finding a way to reduce theft and administrative errors. With that in mind, consider these options for protecting your business profits this year:
- Invest in Inventory Management: To gain a clear picture of what’s happening to your products and sales, you need an effective inventory management system. Good software will track your products reliably so that you know, in black and white, what’s being lost and how often. As you cross-reference your software records against manual counts/scanning, you’ll be able to see where discrepancies are at play. This might reveal a certain cash register/employee regularly having issues, for example, or that records don’t match every Tuesday on the second shift. Then, you may know which areas to investigate first.
- Train Employees Properly: Taking a strong stand against retail theft lets your employees know that you’re paying attention, and this alone creates a deterrent to employee theft. Run training and loss-prevention programs to help your team understand how you will punish theft and how they can identify theft when it occurs. When you take time to train your staff members about how to recognize shoplifters, you enlist their help in preventing customer theft.
- Use Cash Drawers and/or Boxes: To protect your cash and valuables, you need commercial equipment designed to house on-site money in a way that’s protected and secure.
- Install Security Solutions: From signs that warn against shoplifting to loss prevention video surveillance systems that monitor your store’s premises, install security solutions to protect your site. “Make sure the camera is obviously a camera and big enough to see clearly,” says Jason Rueger at First Small Business. This creates both a visual deterrent to would-be thieves and a better tracking solution to catch criminals after thefts occur.
When it comes to retail shrinkage, ignorance is no excuse. You can bank on the fact that if you aren’t paying attention and trying to prevent shrinkage, it will occur. That’s why it’s important to know what to protect against and what tools are most effective. With that in mind, use the tips above to reduce retail loss at your location this year.
Wes Wernette oversees marketing at FireKing Security Group in New Albany, Indiana. The company specializes in products and services to protect your important business assets, including commercial safes, cash management products and other products that help keep your business secure.