What Is Shrink In Retail? 6 Causes and 7 Prevention Strategies

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 what causes shrinkage in retail … 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. Whether due to theft or clerical errors, inventory shrinkage is a part of retail, but that doesn’t mean you shouldn’t try to prevent it.

Run rigorous background checks and know your employees

We all make mistakes, but in retail, even small errors can add up to significant shrinkage. Paperwork mishaps, incorrect pricing or data entry errors in inventory management systems can lead to discrepancies between recorded and actual stock levels. Visible robberies are the most dramatic form of shrinkage, but most theft by outsiders comes in the stealthier form of shoplifting.

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After all, happy employees are less likely to engage in harmful behaviour that hurts their workplace. Fostering a trustworthy and reliable workforce can initiate from the hiring process itself. To help minimize the risk of employee theft, one critical step is conducting comprehensive prescreening and background checks for new hires. It’s not about invading someone’s privacy, but rather ensuring they have the integrity, honesty, and trustworthiness that align with your organization’s values.

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• Later, we will look at some of the ways you can deter employee theft, from making a pleasant work environment to installing access controls.
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• On average, the dollar loss retailers suffer for a dishonest employee is about $1,200.
• Input your recorded inventory and actual inventory counts to see just how much shrinkage your business is experiencing.
• It’s not just a few pens or paper clips—they might be taking bigger stuff, like cash from the register or products off the shelves.
• These errors may occur during data entry, stock replenishment, or when merchandise gets moved within the store.

Among 26 major retailers, there were 44,834 dishonest employee apprehensions in 2022, up 18.0% over 2021, and these apprehensions allowed these retailers to recover over $50 million in revenue. Businesses that sell high-value, high-demand products are often targeted by shoplifters. Additionally, stores that sell small items, like decor or cosmetics, are also more vulnerable. Be sure to thoroughly inspect all deliveries for accuracy and quality before accepting them into inventory. It’s important to establish clear contracts with suppliers that outline expectations and penalties for discrepancies. Working with reliable suppliers minimizes the risk of fraud and ensures accurate deliveries.

ways shrinkage affects retailers

They ensure your organization’s strategies are up-to-date and effective, giving you peace of mind and enabling you to focus more on advancing your business. For example, invoice errors where vendors may bill for items never delivered or under quality. Over time, these incorrect charges add up and create a significant dent in your revenue, presenting itself as shrinkage.

• Regardless of the reason, the ultimate impact is on the profitability and viability of the store.
• It’s all about getting the right amounts of the right products onto the right shelves at the right time.
• When you do your physical inventory count, for example, you might generate a “tilt list” of discrepancies between what you expected and what you counted.
• The National Retail Federation estimates retail shrinkage costs businesses $94.5 billion globally annually.
• NRF survey participants reported they were planning on investing in shrink-prevention technologies such as RFID systems and AI-based point-of-sale (POS) or self-checkout video analytics.

Clerical errors, however, happen all the time, despite being the easiest inventory shrinkage issue to solve. It is typically a matter of fixing your receiving, counting, and tracking procedures, as well as automating your processes. Tag swapping is a version of shoplifting and another pervasive form of retail shrink that affects inventory numbers and profits directly. Tag swappers place a lower-priced item’s tag on a higher-priced product and then complete the purchase. This strategy hides the theft initially, but it throws inventory numbers off for both goods. Unfortunately, most retailers detect this during stock counts―long after the fact.

It involves instances where company employees purposefully take goods, and cash or misuse services without permission. In accounting, retailers must establish the cost basis of all inventory. Cost accounting is a less involved inventory valuation method based on costs.