Retail Shrinkage

Four types of retail shrinkage, and how to beat them

A recent report which surveyed 11 countries including Belgium, Finland, France, Germany, Italy, the Netherlands, Poland, Russia, Spain, and Sweden, showed that shrinkage swallows up a total of 2.1% of retail sector turnover across all the countries, adding up to approx £44 billion per annum.

In the UK, retail shrinkage, the stock lost to theft, fraud, errors or damage, is costing retailers almost £11bn annually – the highest figure of any country in Europe,

And whilst the grocery sector is the biggest sufferer, department store and specialist fashion shops come next. In total, the shrinkage rate for apparel retailers across Europe was 1.4% of turnover with accessories, knitwear, trousers and blouses “the most attractive items to steal.”

The first step in reducing overall retail shrinkage is to identify the different types. Below are five types of shrinkage commonly found in stores:

Shoplifting is typically the largest contributor to retail shrinkage. Shoplifters can steal any product across the price spectrum so the impact can be highly variable.In addition theft can focus directly on the retailer’s cash assets – although more rare, this is also on the rise and poses significant risks to staff working at the store.

The recent pandemic crisis and ongoing cost of living challenges have certainly fuelled the rise of shoplifting and British Retail Consortium (BRC) Director of Business and Regulations Tom Ironside has recently commented: “Shoplifting has risen by 27% in the past year across ten of the largest UK cities. These high levels of theft cost retailers almost £1bn in 2021/22, money that would be better used to reduce prices and invest in a better customer experience”.

Return fraud is one of the more overlooked causes of shrinkage. It takes on many different forms, including the return of stolen merchandise without receipts in return for gift/credit vouchers or merchandise that has been used or purchased with counterfeit money or receipts.

Much more difficult to detect than shoplifting, return fraud can take various forms.

Mistakes happen, and administrative errors are sometimes unavoidable. This can include mislabelling merchandise for a lower price or refunding merchandise for more than it is worth. It can also include mis-counting or cashing-up incorrectly.

Obsolete technology is a significant contributor causing to this type of retail shrinkage and is an area retailers should focus on as part of the drive to remain competitive and profitable.

Employee theft makes up significant theft losses and can include staff stealing merchandise, ringing up fake returns, improperly using an employee discount, and most obviously, stealing cash at the point of sale or during the cashing-up stage.

Internal theft can take a number of forms. For example, a staff member turning a blind eye to relatives or friends, mis-scanning items for the purpose of giving a relative or friend a "freebie" or giving too much change back. It can also include staff stealing for themselves or to sell on.

How to Prevent Retail Shrinkage

The biggest concern when it comes to retail shrinkage is that the loss of inventory cannot be recovered. This directly impacts the bottom line.

Some businesses will attempt to reduce the cost of shrinkage to their bottom line by increasing prices for customers but ultimately this tactic will cause damage to customer relationships and overall sales, especially in a price-sensitive market.

However, there are additional strategies retailers can implement to reduce retail shrinkage.

Invest in Cash Automation Technology

Cash automation solutions that utilise cash recyclers, smart safes, and coin and note delivery services can help retailers reduce shrinkage in their stores. These solutions reduce human error while increasing visibility, accountability, and security around cash.

The need for employees/managers to go to the bank to make deposits or get change for their cash registers, leaving them unsupervised with cash, is eliminated, whilst usage of safes is automatically monitored, thus creating a record if any type of discrepancy arises

Loomis offers a comprehensive range of solutions for cash management and cash automation technology, allowing retailers to track and monitor the movement of cash in near-real time through their advanced reporting capabilities.

When Loomis Smart Safes do the counting, sorting, and reporting of end-of-day sales and reconciliation, retailers are limiting the opportunities for shrinkage to occur.

https://uk.loomis.com/en-gb/solutions/safepoint

Loomis Coin and Note Delivery can also help to keep a very close eye on cash coming into and going out of the business  https://uk.loomis.com/en-gb/solutions/note-and-coin-delivery

Properly Train Employees

The employees of the store are often the first line of defence in preventing shoplifting as well as return fraud. Therefore, regular employee training should not be taken for granted. Employee training should cover all forms of theft, including internal theft and return fraud, with procedural information on what to do in each scenario.

Employee safety should always be a priority since very often physical aggression or violent behaviour can accompany shoplifting.

Increase Physical Security

While the right cash management technology can reduce administrative error and employee theft shrinkage, retailers should not overlook the impact adding physical security has on shrinkage caused by shoplifting and vendor fraud. This can include strategically placing security cameras in visible locations, increasing lighting inside and outside the store, and keeping non-main entrance doors locked at all times.

Retail business owners who leverage the above strategies are likely to see a lower overall shrinkage percentage than retailers who do not.