Posted By Optimum Security
Inventory shrinkage accounts for about 1.5% of lost revenue in the retail industry, with some sectors such as accessories and fashion retailers suffering a higher shrinkage rate of 2.4%. This amounts to an estimated $100 billion in an annual loss for retailers across the world from employee theft, shoplifting, supplier fraud, and paperwork errors.
A well-implemented loss prevention strategy can help to reduce the risk of merchandise losses and fraud. However, this is not easy considering the growing complexity of the retail environment as new sales channels emerge and consumer shopping behaviours change. In addition, the tight global economy has shrunk operating budgets, forcing retailers to seek more for less. Yet, retail loss prevention is a major issue that must be addressed for businesses to reduce losses and achieve their bottom line.
As such, retailers have to re-evaluate their approach in fighting against loss by adjusting how they monitor their business operations, making use of relevant business data to address problems, and leveraging emerging loss prevention technologies that require fewer resources to deliver greater results.
These are some of the steps that retailers may take when planning a loss prevention strategy:
To create an effective loss prevention strategy, you must first understand the scale of the problem in your business. To do this, you might ask yourself these questions:
To calculate your retail shrinkage, you only need to work out the difference between the amount of stock indicated in your inventory records and the actual amount of stock in your store or warehouse. So, if the records indicate that you have $1,000 worth of stock in inventory, but can only find physical merchandise worth $950, then it means that your shrinkage is $50. Dividing the shrinkage by the total sales within the same period, like one month, will give you the inventory shrinkage percentage. With this information, you can now set goals for your loss prevention strategy and track the progress.
Any successful loss prevention strategy should start with strong leadership from top management, with the same level of commitment trickling down the company. One of the best ways to get your team invested in preventing shrinkage is by being transparent about the issue. This means communicating the shrinkage figures you obtained across the organization and helping them to conceptualize how the business benefits by tackling shrinkage.
You can get them to take shrinkage seriously by:
One of the biggest challenges for loss prevention specialists is getting other company workers to take the problem seriously and develop a sense of ownership of the shrinkage issue. This is partly because they may believe that retail losses are an inevitable part of doing business. As a result, they may not perceive shrinkage as a core part of the business that requires their participation compared to other functions like marketing, sales, and distribution. But without the support of all parts of the organization, developing solutions for loss prevention will only be piecemeal.
It’s important to explain and share your shrinkage prevention goals with your management and loss prevention team, as well as your store workers, while making it clear that they also have a role to play in preventing losses. However, while the numbers may mean something to your management team because improving the company’s performance also benefits them, your store workers need other incentives to take responsibility for reducing shrinkage. This may require you to establish a reward system for employees who achieve and surpass the loss prevention benchmarks.
While it’s important to get your entire organization, from senior management to the store workers, to “think shrink,” it is just as important to ensure that shrinkage prevention is embedded in the company structure and culture. It will become difficult to ignore shrinkage when it is integrated into your everyday functions, thinking, and strategic development.
There are different ways to achieve this, such as:
It’s about hiring good workers, having a clear loss prevention strategy, providing the tools to fight shrinkage, and incentivizing employees to develop ownership of the project because losses will have a direct impact on their bonus.
Once you start implementing various loss prevention measures, such as video surveillance and point of sale (POS) monitoring and inventory management, your company needs to start collecting meaningful data and use it to monitor the performance of the business and inform their loss prevention strategy. For instance, data mining on electronic point of sale (EPOS) data can help to identify incidents of employee deviance while acting as a viable deterrence to workers.
These elements can be considered as part of the foundation of a successful loss prevention strategy. However, it’s best to create a dedicated loss prevention team to implement the strategies, collect and analyze data, monitor video surveillance, and innovate around your shrinkage plan. This team can be created in-house with proper training and guidance from a professional loss prevention manager. Hiring a loss prevention team can give you a headstart in reducing shrinkage, to aid in implementing loss prevention strategies, tracking them, and training your employees as you integrate the concept into your work culture.