Industry Perspectives

The most common causes of shrinkage are when items are lost between being manufactured and being sold which can reduce profits.

The most common causes of shrinkage are:

• Customer theft: When items are stolen or shoplifted from a store without being paid for.
• Fraud: When items are obtained through deception, such as using a false delivery address or stolen credit card.
• Employee theft: When employees steal items or money from the store or warehouse.
• Administrative errors: Inadvertent human errors occur when processes are not followed, leading to items being over-counted, under-counted, or recorded incorrectly.

There are several ways to reduce retail shrinkage:

• Employment: Pre-screening and checking references are crucial, as they provide a clearer picture of how a new employee has performed for other employers. Regular training ensures employees fully understand how to identify shoplifters.
• Communication: Staff must be aware of the company’s shrinkage levels and those within their specific store or warehouse. This shows whether shrinkage is increasing or decreasing. Some companies incentivise staff by offering a share of the profits if shrinkage is reduced.
• Technology: Investing in reliable stocktaking software helps identify discrepancies down to the SKU level, allowing issues to be detected much quicker. Data analysis can reveal patterns that may concern management. Investing in CCTV and RFID can also reduce shrinkage.
• Processes: Staff must be fully trained on any changes to processes, and management must fully understand them. Regular stock-level checks should be implemented.

Shrinkage will always be a challenge for retailers, but it can be reduced if stores take ownership of their shrinkage numbers and consistently implement the measures outlined above.