Retail is a cut-throat industry. The margins are thin, competition is intense, and the barrier to entry are nearly non-existent. To top it off, retailers of all sizes are facing the looming threat of e-commerce giants like Amazon chewing away market share. Some problems affect small retailers disproportionately. Shrinkage is one of them.
Shrinkage is an accounting term used for the ‘shrinking’ of inventory at retail businesses. The cause is generally thought to be theft, employee negligence, or human error. The most common misconception is that businesses account and prepare for a certain degree of shrinkage. While big retail heavyweights can simply write off shrinkage as a cost of doing business, smaller retailers can’t afford to do so and face tremendous loss because of this.
The statistics are jaw-dropping. In 2015, retail crime cost UK retailers approximately £613 million.Fraud accounted for more than 36 per cent of the total loss and employee theft accounted for nearly 6 per cent. Commercial losses due to theft is a key issue for small retailers across the country and protection is a necessity.
Common causes
The most common causes of shrinkage are shoplifting, internal theft, errors or vendor fraud. Shoplifting is, of course, the biggest reason. Customers walking into a store can easily replace price tags, remove security tags, and steal individual items from packages without the owner or store manager noticing.
Small retailers generally hire more staff to deal with these issues, but a better way to mitigate the risk of theft is to install an integrated camera and alarm system. These security systems can alert staff at your store if there’s an attempted robbery and the rate of success with affordable systems is relatively high.
Alarm systems can also prevent internal theft by employees, which is another common cause of shrinkage. While strict policies and regular checks can reduce the risk of employee theft, it isn’t the best way to deal with the problem. Regular checks of employee belongings creates a negative work environment and has a drastic effect on staff morale. Better technology, in the form of alarm systems, surveillance, and smart tills can help effectively reduce the rate of employee theft.
Better technology and smarter accounting software can also reduce the risk of human error. Shrinkage due to human error is notoriously difficult to monitor and reduce if you don’t install the right system. Automating much of the inventory management will help you reduce the chances of human error, and you can also improve efficiency by implementing a cycle counting program along with a a better POS system at the store.
Vendors also pose a threat to inventory when they fail to supply the right quantity of products. Closely monitoring transactions, monitoring deliveries, and working with trusted partners is the easiest way to clamp down on this menace.
To sum up
Shrinkage is a common problem in the retail sector but smaller stores are more adversely affected by it. Your small business cannot afford to ignore inventory security. Invest in better systems, alarms, cameras, and software to boost efficiency and mitigate loss due to theft.
Further reading on shrinkage
