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How Can Retailers Manage the High Cost of Shrink?

July 27, 2018 ByCatherineWalsh

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Regardless of where retail operations are located, shrink is a universal foe. Retailers worldwide face the stark reality that as their business expands, so does shrink. They cannot afford to overlook the losses they incur daily in pursuit of growth. A costly problem for many stores, retail shrink is defined as the loss of inventory that can be attributed to factors such as employee theft, shoplifting, 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, to poor inventory management and inefficient operations.

In the age of constantly changing consumer needs and desires, retailers face increased business complexity. Debit, electronic gift cards, self-checkout systems, e-commerce order pick-up, omni-channel returns, and loyalty programs all contribute to the increased volume and variety of transactions. To effectively combat shrink, retailers like you need to understand the whole picture. Across the globe retail business models are being transformed by engaged and digitally connected consumers. Best-of-breed retailers are enhancing their physical stores by ensuring that operational controls are in place to handle growing problems such as retail shrink.

Global Shrink – the $100B Problem

But how big of 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 globally –a sizable 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 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 the state of retail shrink, the study helps retailers better assess the challenges and technology solutions for making merchandise secure yet accessible to satisfy today’s shoppers.

Practical Strategies to Managing Shrink

It’s a common misconception that you can absorb shrink as part of the cost of doing business. While you have to factor loss into your bottom line, there are some practical steps you can take to help reduce the high cost of shrink:

  • Make smart technology investments – When deploying an effective LP solution, you should consider an integrated approach, which includes: Electronic Article Surveillance (EAS) 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; and 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 for better understanding loss events; as well as in-store monitoring to help modify store traffic and give the store more intelligence about what is going on in their operation.
  • Pinpoint the origin of your losses – Reducing shrink involves closely monitoring the daily operations of your business to increase awareness of where things are going wrong. You can’t fix what you don’t know is broken. Identify if your stock losses are coming from your employees, your customers and/or your suppliers so that you can leverage the right merchandise protection solutions to help reduce shrink.
  • Train 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. They need to understand that a vital part of effective LP strategies is balancing protection, customer service and sales performance. 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.
  • Arrange your store – Having the right deterrents in place makes it far less likely for shoplifters to carry out their crime. You can organize 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 a clear sightline of the store floor while they’re checking out customers; install adequate lighting to eliminate dimly lit areas for intruders to hide; and display shoplifting signage and security mirrors as a great low-cost deterrence option.
  • Install intelligent video systems – Deploying both intelligent video surveillance systems and strategically positioning 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 behaviors, 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 as easily from a remote location as from within the store. Deploying analytics within the camera or video management platform enables your store personnel to more 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.

 

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About the Author

In her role, Catherine drives the vision for the Loss Prevention business around the globe, leveraging her extensive experience building and leading global technology organizations and ensuring high trust customer/partner relationships.

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