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What Are The Main Causes Of Shrinkage In Retail And What Can Be Done About It?

What Are The Main Causes Of Shrinkage In Retail And What Can Be Done About It?

Retail shrinkage is a sad fact of life for every retailer and is in fact the proportion of your inventory that gets lost, stolen, or damaged. The rate of shrinkage is usually based on the value of the lost inventory divided by the total amount of sales during that same period. This is then expressed as a percentage. While shrinkage rates can’t be eradicated altogether, keeping them low is crucial to any type of business success.

As an example, let’s say that the value of the inventory that a business lost during a particular period amounted to $20,000 and sales during that same period were nearer $500,000. Then your shrinkage rate would be $20,000 divided by £50,000. This equates to 0.4 or 4%. So essentially for every $100 in sales the amount lost would be $4 in retail shrinkage.

So what are the main causes?

While retail shrinkage can be caused by a number of factors, employee theft was and still is the number one reason. This is closely followed by shoplifting. In fact employee theft made up a staggering 47% of all retail shrinkage reported in 2015. This was closely followed by shoplifting at 32.6%. Combined, that’s a smidgeon under 80% of the total value of retail shrinkage (some $2.7 billion dollars). Finally accounting errors and vendor fraud made up 18.3% of the remaining total.

So what can retailers do about it?

One of the best deterrents for shoplifting in particular is deploying good customer service. The elements of friendly helpful staff naturally conflicts with the type of accessible environment shoplifters usually operate in. So making shoppers aware of your presence by greeting them, approaching them to ask if they need help, and having a well-lit open floor plan will all help to deter shoplifters.

Perhaps more challenging is eliminating employee theft. Building a trusting environment with a motivated workforce is one way to go. The idea being that if employees are motivated, enjoy their work, and are well paid, they’re far less likely to steal from you. You might also want to initiate bag and locker checks to further prevent internal theft and have the relevant background checking processes in place when looking to hire. Further more, to prevent accounting errors employees should be trained in best stock accounting practices, by carrying out regular physical stock checks and ensuring this mirrors system accounting records.

The key takeaway

When stock losses are at a minimum it allows business owners to focus more on running their business and growing profit. Effective customer service and motivated employees are vital to ensuring this happens. However when shrinkage becomes a problem retail owners face a difficult decision in implementing security measures that don’t alienate both employees and repeat customers.

If you have a problem with unacceptable stock losses then you should come and talk to MA Security. As well as providing the very best security personnel to event’s, businesses and high net worth individuals, we also help to develop and implement best security practices for small businesses. Why not contact us on 1300 020 406 and book a security risk assessment with us.

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