What is Shrinkage in Retail? Causes, Prevention, and Solutions

Customer theft occurs through concealment, altering or swapping price tags, or transfer from one container to another. Customers may also attempt to return stolen goods or imitation designer products to receive cash. The survey also indicated that the retail landscape is changing, with more online shoppers bringing new challenges and fraud risks. The trusted newsletter for loss prevention professionals, security and retail management. Get the latest news, best practices, technology updates, management tips, career opportunities and more.

• When it comes to securing and tracking items that need to be locked at all times, like electronics and jewelry, a key management system makes it more difficult for employee theft.
• Educating employees on the importance of preventing theft and the impact of shrinkage on the business is essential.
• When it comes to employee theft, you might imagine store workers pocketing merchandise for themselves.
• You can try an online course from an organization like the Loss Prevention Academy or Loss Prevention Foundation.
• Shrinkage is the difference between the recorded (book) inventory and the actual (physical) inventory.
• Shrinkage is the difference between recorded inventory on a company’s balance sheet and its actual inventory.
• Modern asset security technology, including the increasing use of RFID, has made it easier for retailers to prevent shoplifting and/or catch shoplifters.

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Stay up to date on the latest cash-handling information by signing up to receive the Loomis newsletter. Additionally, it acts as a deterrent, making it more challenging for potential thieves to execute their plans and ultimately contributing to a safer and more secure retail environment. Delivery Solutions is your answer to delivering the best customer delivery experiences under a single platform. The top retail categories targeted by ORC include apparel, health and beauty, electronics and appliances, and food and beverage.

Inadequate employee training

Retailers should invest in security systems, surveillance cameras, and trained personnel to deter shoplifting and employee theft. As organized retail crime continues to rise, along with challenges in inventory management, it’s critical for retail businesses to address shrinkage head-on. By investing in advanced security measures, robust inventory tracking systems and a culture of accountability, retailers can mitigate shrinkage and protect their bottom line. With the right approach, shrinkage can go from being an unavoidable expense to a manageable problem, allowing retailers to focus on growth and customer satisfaction. Conduct regular employee training sessions that cover loss prevention strategies, security protocols and how to identify and respond to suspicious activity. Make the training interactive with real-life scenarios and role-playing to reinforce best practices and empower your team to be vigilant.

What Is the Impact of Shrinkage?

Vendor fraud may occur from vendors adjusting their invoices, or actively stealing stock when they make deliveries. In this article, we will have a closer look at the causes of shrinkage. This is because it would not be possible to control shrinkage without truly understanding the root cause. This factor can significantly impact profitability for convenience stores, groceries, and even beer distributors. As an experienced retailer, you probably know first hand that traditional CCTV has its limitations. Clear return policies, combined with tools like electronic tagging and customer profiling, can help deter fraudulent behavior.

Once You Identify What Causes Shrinkage In Retail: Tactics for LP

Emphasize the importance of accurate inventory management, reducing errors and miscounts that can lead to shrinkage. Proper training equips staff members with effective loss-prevention strategies. Staff members will recognize suspicious behavior among customers or colleagues and adhere to security protocols.

Schedule a demo today to discover how Delivery Solutions can help you mitigate retail shrinkage. Using tactics like cross-channel tracking or multi-factor authentication can help minimize shrinkage originating from omnichannel fraud. The knowledge that regular inventory audits are conducted can act as a deterrent to employees who might be tempted to steal or mismanage inventory. If a large part of shrinkage is due to employee theft, employers will have to launch an investigation into internal shoplifting, which can also be costly and use up extra resources. In-store and e-commerce fraud is a major source of loss in the retail and e-commerce retail industry.

Retailers with high shrinkage rates can carry costs over to customers, who have to pay higher prices to make up for shrinkage losses. That’s about 1.33 percent of sales, on average according to a survey from the National Retail Federation (NRF). In retail, where margins are tight and sales volumes high, losing inventory directly eats into your ability to make money. When items disappear due to theft or other reasons, you can’t sell them to recoup costs. But the reality is that an effective loss prevention plan is your best bet to limit your retail store’s losses. It’s the only way to effectively fight problems like shoplifting and employee theft.

• This concept is a key problem for retailers, as it results in the loss of inventory, which ultimately means loss of profits.
• Well-organized retail floor plans reduce clutter and make it easier for employees to spot misplaced or missing items.
• According to the 2022 National Retail Federation Security Survey, 60.3% of stores are boosting their investment in retail technology to mitigate shrink.
• Retail shrinkage is when a retail company’s inventory has less inventory than recorded.
• Rampant theft of goods has a domino effect, creating issues in every step of the supply chain.
• Fraudsters can also make a purchase on one channel and initiate a fraudulent return on a different one to bypass some of the screening processes that would otherwise detect their scheme.

Goodwill needed a better way to manage its pricing strategy, streamline inventory tracking across all locations and get a modern point of sale that would help their staff feel supported. They had no visibility over inventory shrinkage, and so couldn’t pinpoint any theft or admin errors. While some level of shrinkage is common, proactive measures like regular audits, improved inventory tracking systems and employee training can help mitigate losses. While there isn’t an “ideal” shrink percentage in retail, the average shrinkage rate for most retailers is between 1–2% of total sales.

Types of inventory shrinkage

Whether it’s failing to provide as many units as invoiced, or stealing of other products, vendor fraud can what causes shrinkage in retail cut into a retailer’s bottom line. Get the free daily newsletter read by thousands of loss prevention professionals, security, and retail management from the store level to the c-suite. However, inventory is often lost due to any number of reasons, causing a discrepancy between the book inventory and the physical inventory. For example, if a retailer accepts $1 million of product, then the inventory account increases by $1 million.

For example, if you sell online, make sure products are photographed and described in great detail. For brick-and-mortar locations the best way to limit fraud is through top-tier customer assistance and a seamless in-store experience. Internally, it is important to implement checks and balances among employees tasked with managing inventory, money, invoices, and other sensitive documents.

Regularly reviewing and updating policies, such as return rules or bag checks, ensures that the store operates efficiently and minimizes risks. A recent survey found that only half of employers who have experienced employee fraud have done their due diligence. And out of those who did, 13% hired the perpetrator despite the initial red flag warning. Retailers can also quickly identify discrepancies between what’s on the shelf and what’s recorded in the inventory system.