The Most Common Causes of Shrinkage

Retailers understand that shrinkage which is when items are lost between being manufactured and being sold is a very real problem and cutting into their profits. The most common causes of shrinkage are:

Customer theft: When someone steals or shoplifts from a store – taking the item without paying.

Fraud: When someone obtains an item by deception – using a false delivery address or stolen credit card.

Employee theft: When an employee steals items or money from the store or warehouse that they work in.

Administrative errors: Inadvertent human errors when processes are not followed and items are over counted or under counted and recorded incorrectly.

There are a number of ways that retail shrinkage can be reduced.

• Employment – pre-screening and checking of references is incredibly important as this gives a truer picture of how a new employee has worked for other employers. Training on a regular basis to check employees have a full understanding of how to identify shoplifters.
• Communication – making staff aware of the shrinkage levels as a company and within their specific store or warehouse is imperative. It shows whether the shrinkage number is going up or down. Some companies give store or warehouse staff incentives – if the shrinkage is reduced they get a cut of the profits.
• Technology – investment in good stocktaking software can show where products are down to the SKU level and discrepancies can come to light much quicker. Analysing the data can also show if there are any patterns that management need to be concerned about. Investing in CCTV and RFID can also reduce shrinkage.
• Processes – fully training staff when there are any changes to processes and ensuring management understands them fully. Having a process in place that checks the stock levels on a regular basis.

Shrinkage will always remain a problem for retailers but it can be reduced if the stores own their shrinkage numbers and always implement the points above.