How Retailers Can Manage the High Cost of Shrink

July 18, 2019 ByStaff


Regardless of location, shrink is a universal problem for retailers across the globe. Too often retailers face the stark reality that as their business grows, so does shrink. A costly problem for many, shrink is defined as the loss of stock that can be attributed to factors such as employee theft, shoplifting, organised retail crime, administrative error and vendor or supplier fraud.

Quantifying the financial impact of shrink is complicated since it affects profitability in different ways – loss resulting from in-store theft by customers and staff, poor stock management and chronic operational inefficiencies.

In an age where consumer needs and desires are changing rapidly, retailers face increased business complexity.

The use of debit, electronic gift cards, self-checkout systems, online order pick-up, omni-channel returns, same day delivery and loyalty programmes all contribute to increased stock volume and a variety of problematic payment options that can further complicate a security breach at the point of sale.

To effectively combat shrink, retailers need to understand the whole picture. Across the globe business models are being tested and transformed by engaged and digitally connected consumers. Leading retailers are enhancing their physical stores by ensuring that operational controls are in place to handle the growing problems of retail shrink.

Global Shrink – the $100 bn (£82.3 bn) Problem

But how big an impact does shrink have on retailers’ net income? While there have been several retail theft studies carried out over the years, few have examined how retailers tackle the challenge of shrink, as well as its impact on the bottom line. According to the new Sensormatic® Global Shrink Index conducted by global retail market intelligence provider PlanetRetail RNG, shrink cost retailers nearly $100 billion (£82.3 bn) globally –a sizeable and systemic problem. This report is a culmination of research that benchmarks retailer performance globally and sheds light on other factors effecting loss prevention (LP).

The Sensormatic® Global Shrink Index provides insights on the sources and impact of global shrink rates. A total of 1,120 respondents representing a mix of retailers across 13 verticals in 14 countries participated in the study. They operate over 229,000 stores and generated $1.56 trillion (£1.28 tn) in sales during 2017-2018. The retailers conduct business in the world’s leading economies, which account for 73 percent of global GDP and 80 percent of total retail sales. By highlighting this pervasive problem, the study helps retailers better assess the unique challenges they face when trying to secure merchandise while still making it accessible to meet customer demand.

Practical Strategies for Managing Shrink

It’s a common misconception that you can absorb shrink as part of the cost of doing business. While loss has to be factored into your bottom line, there are some practical steps you can take to help reduce the high cost of shrink. Making smart technology investments is the very first option to consider when deploying an effective LP solution, you should also consider an integrated approach, which includes or is a combination of:

  • Electronic Article Surveillance (EAS) systems to prevent external theft.
  • IP video surveillance to control internal theft and vendor fraud.
  • The use of RFID to track products throughout the supply chain from production to point-of-sale.
  • Business intelligence for monitoring point-of-sale employee theft.
  • Video analytics to highlight events for LP staff to improve surveillance efforts.
  • Shrink management services to manage your LP systems in addition to real-time data analytics to better understand loss events.
  • In-store monitoring to help modify store traffic and give the store more intelligence about what is going on in their operation.

Other theft deterrent strategies include:

  • Closely monitoring daily operations - Increase awareness into where things are going wrong. When you can pinpoint the origin of your store losses, you can quickly identify if these losses are coming from your employees, your customers or your suppliers so that you can leverage the right merchandise protection solutions to help control and reduce shrink.
  • Training your staff – Educating your employees on LP objectives is critical to managing shrink. For instance, if your employees understand the causes and impact of losses to them personally in terms of reduced hours and limited pay increases, they might be more motivated to help in controlling loss. Train them on methods they can use such as attentiveness, service and customer courtesy (the greatest weapons against theft and shrink); EAS tagging of high-theft products; and more visible product placement – all of which can help protect your merchandise and profitability.
  • Reorganising the layout of your store – having the right deterrents in place makes it far less likely that shoplifters will carry out their crime. You can organise your store using a variety of methods to better deter theft, such as: leverage open floor plans for increased visibility in your store; keep more easily stolen merchandise closer to the point-of-sale (POS); design POS areas to give staff clear sight of the store floor while they’re checking out customers; install adequate lighting to eliminate dimly lit areas where intruders can hide; and display shoplifting signage and security mirrors as a low-cost deterrent option.
  • Installing intelligent video systems – Deploying both intelligent video surveillance systems and strategically positioned highly efficient IP cameras allows LP teams to more easily identify and track would-be thieves throughout your store. Superior high-resolution images and fast camera response time increases the chance of positively identifying suspects. IP video can help address costly internal theft by linking cameras with POS data as well, enabling store staff to view suspicious behaviours, such as excessive returns or no-sales on the POS, in real-time or with recorded video.

The advances in network IP video allow you to manage events remotely or from inside the store. Deploying analytics within the camera or video management platform enables your store personnel to easily pinpoint important footage while ignoring hours of irrelevant video. Events with time and date stamp features help deliver better forensic evidence to build a strong case against a suspect with local authorities.

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