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How to Reduce Shrinkage in Retail

There are plenty of ways to lose money in retail, but few are as damaging as shrink. Shrink is the outright loss of inventory or money, an inexplicable disappearing act that leaves you with nothing to show for it.

It’s a growing problem too, as retail shrinkage in 2019 accounted for 1.62% of retail sales, an increase of 0.25% from the year before. That small percentage jump may not sound like much, but it’s an $11 billion increase that pushed 2019’s total to over $60 billion in shrinkage.

Making an effort to reduce shrinkage can have a significant bearing on your bottom line. But with all the ways that you can expose yourself to loss, it’s often difficult to find the right way to address your particular problems. We’ll help you get started with sensible strategies for reducing shrinkage in your retail store.

Train Staff on How to Reduce Shrinkage

Shrinkage begins and ends with the people you have in place. Your staff is responsible for cash, inventory management, and customer service. These are three substantial sources of retail shrink.

You need to hold each person accountable to certain security standards. Their role in reducing shrinkage must be clear, so you can identify any weaknesses and opportunities among your team.

To enable your team, you need to provide the technology and training on effective shrinkage reduction steps. Set specific expectations and goals to make it part of the culture around the store. Let’s look at the role that various team members may play.

Warehouse

Your warehouse team is the first contact for new products coming into the store, so they play an essential role in maintaining inventory. That entails proper handling to reduce damage, as well as accurate counting and proper organization.

It’s critical that an assigned warehouse lead confirms inventory counts against a bill of lading, the receipt of goods from the vendor. Any damaged merchandise needs to be photographed, documented, and submitted immediately to prevent write-offs.

More importantly, any issues in product counts need to be immediately reported and have the inventory adjusted. Missed shipping errors are extremely difficult to investigate, so you need a responsible warehouse team.

Sales

Sales and customer service go hand-in-hand in smaller retail stores, but they are two distinct functions.

In the salesperson role, an employee handles fulfillment and great customer service. They need to be detail-oriented when ringing out purchases, making sure to verify stock items, quantities, and prices.

Sales team members are also at the front lines of shoplifting prevention. Shoplifting happens everywhere, and it’s the number one cause of shrink for retail businesses. As the one facing the customer, the salesperson can be a significant factor in reducing shrinkage.

As customers enter the store and shop around, make it standard practice to greet customers and stay in proximity as they shop. You can give customers space while still being present. It’s a two-fold benefit, as it improves your customer service image and it dissuades would-be shoplifters.

Customer Service

The customer service team behind the desk performs critical administrative and inventory-related duties to control loss. These tasks can include:

  • Checking return items for damage
  • Verifying receipts
  • Adjusting prices and ticket items
  • Handling cash and keys

Customer service roles provide many opportunities for employee theft, but they’re also one of your biggest assets in preventing external theft. You can positively affect both with point-of-sale (POS) and key management systems.

Point-of-sale systems can make it easier to stop fraudulent returns, erroneous price adjustments, and inventory miscounts. Meanwhile, it holds your team accountable by giving you the option to assign specific roles and capabilities. You have a record of who did what, so you can identify patterns among team members and correct behaviors.

Do Regular Cycle Counts

Shrinkage reduction in retail is part prevention and part reaction. If you find that you’re missing inventory, you can take steps to find and fix the mistake. And you can make the investigation a lot less labor-intensive by doing frequent cycle counts.

Divide your inventory into different sections based on product type. Do counts as often as possible, making daily, weekly, or monthly counts part of your SOP.

By doing frequent counts, you have shorter paper trails to find any mistakes since the last count. You’re more likely to find something that went missing in the last week than something that went missing in the last quarter.

It takes solid merchandising and thoughtful warehouse work to organize products and make them accessible. Counts will be much quicker, and there will be fewer variances to research.

Cycle counts don’t require an enormous investment in inventory software and scanning hardware anymore. Business apps are empowering even small retail stores to own their inventory counts. You can now have connected barcode scanner capabilities on your smartphones and other devices.

Keep It in Sight

The store layout can be a substantial help in deterring theft and reducing shrinkage. You want a well-lit, open floor that gives you visibility on as many product paths as possible. If there are any hidden corners that you can’t figure out, a strategic security camera can make potential shoplifters think twice.

The position of your people is crucial here too. Customer service desks should have a clear view of the entrance, while salespeople should have eyes on all shoppers.

Make Shrinkage Reduction Part of Your System

Shrinkage has been a persistent problem for all types of storefronts. It’s unlikely that you’ll be able to prevent it every time. But when minor percentage points equal thousands of dollars, small steps go a long way toward protecting your profits.

With these tips, any retail operation can effect change to reduce shrinkage. Follow us for more incredible insights on getting the most out of your business!

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