Inventory shrink costs retailers millions of dollars annually – in 2023 alone, shrink accounted for $142 billion in losses. Even with retailers becoming more adept at tracking the insidious operations of organized retail crime (ORC) and digitally-savvy fraudsters, the best in retail can still benefit from monitoring the latest retail loss prevention tips.
In the search for cutting-edge loss prevention tips, retailers will undoubtedly come across the topic of developing a shrink action plan. A shrink action plan example, in most cases, will start with the concept of catching bad actors who are stealing goods from a retail location or taking advantage of a generous retail return policy. Additionally, shrink includes operational issues like misdirected shipments, unstocked inventory, Return to Vendor (RTV) challenges, excessively damaged products, vendor issues, and mismatched items.
A retail shrink action plan example will broaden the scope of a generic retail loss prevention strategy and instead focus on holistic methods to ingrain a culture of loss prevention within an entire organization.
Retail loss prevention tips are only as good as their source material. Luckily, Appriss Retail has gathered seven loss prevention tips to build an effective shrink action plan using examples from actual retailers worldwide.
Understanding the importance of loss prevention
In the 1960s, retail loss prevention was called ‘security.’ However, as the retail landscape evolved, financial officers realized that a reactive approach was not enough to combat loss. They needed to develop proactive strategies to prevent it. This shift in mindset led to the transformation of retail loss prevention from a reactive security measure to a proactive approach, aimed at improving overall profit by reducing shrink and margin erosion across the business.
Today, retail shrink can fall into multiple categories, such as employee theft, shoplifting, online return fraud, administrative or cashier error, damage, or vendor fraud, just to name a few. Because of this variety, the best loss prevention tips now must identify shrink to reflect losses across the entire retail environment.
7 loss prevention tips for the best shrink action plan
1. KEEP THE PLAN IN MOTION: PROMOTING A CULTURE OF LOSS PREVENTION
The foundation of a successful shrink action plan lies in a beachhead strategy, a military tactic that involves securing a small area and expanding from there. In the battle against shrink, retailers must first secure a beachhead with their employees. No technology or equipment can replace the vigilance of employees committed to reporting and preventing shrink.
Encouraging the reporting of suspicious activity among colleagues can prevent situations where a cashier has pocketed $20,000 in fraudulent transactions. In addition to a ‘see something, say something’ approach, it’s crucial to reward and recognize employees who are integrating loss prevention into their daily routines.
2. ESTABLISH ORGANIZATIONAL BUY-IN THROUGH A CROSS-FUNCTIONAL SHRINK TASK FORCE
Accountability and consistent advocacy are crucial for a culture of loss prevention. A well-managed retail shrink task force, supported by a robust shrink action plan, should break the notion that loss prevention is the sole responsibility of one team.
Loss prevention leaders must create and support a cross-functional shrink task force. To gain internal support, they can use data analytics to demonstrate quick wins, such as uncovering thousands of cases of employee fraud with fewer resources. This approach shows how focused efforts on shrink can improve margins and address operational and HR issues, highlighting the value of analytics in enhancing loss prevention efforts.
3. IDENTIFY THE TRUE SOURCES OF SHRINK AND MARGIN EROSION ACROSS THE ENTERPRISE
The best loss prevention tips start with identifying retail shrink through numbers, not intuition. Pinpointing problematic trends across the business using data sends a clear message – loss prevention is looking out for every individual and every SKU. An example of a data-backed shrink action plan delivering results would be a sporting goods retailer who discovered that post-order adjustments to their ecommerce orders cost them $50 million in losses.
By leveraging enterprise-wide data in a retail shrink action plan, there is a better chance of identifying total retail loss (TRL).
Total retail loss is the concept that loss happens across all of a retailer’s business units, including store operations, ecommerce, supply chain operations, IT, and more. By identifying wide-scale sources of shrink across the business, loss prevention leaders can ensure that the rest of the company continues to view the loss prevention function as both relevant and valuable.
4. INVEST IN THE RIGHT PEOPLE AND TECHNOLOGY
Retail loss prevention can be a dangerous (and sometimes deadly) business. Use technology as the arbiter of truth. Your corporate, regional, and store employees must be given the data, training, and support they need to reduce retail shrink while keeping themselves safe. Instead of waiting until a problem or crime has occurred and requires immediate intervention, invest in technology that employs predictive analytics to help reduce retail fraud and abusive returns in real-time.
5. INCREASE VENDOR VISIBILITY WITH IN-STORE INVENTORY TRACKING
While security cameras and transactional analytics can help catch cases of shoplifting and return fraud, keeping tabs on your vendors is not always as easy. Just as you strive for compliance with your employees, you also want to keep tabs on your vendors.
Having complete inventory visibility at the store level is crucial to maintaining on-shelf availability for customers. Without a view into your vendors’ interactions with your stores, key issues in accuracy, availability, and shrink identification may be overlooked, eroding margin and impacting retail loss.
Loss prevention teams must be aligned and integrated with inventory management systems to eliminate store irregularities brought on by suspicious vendors.
6. PROMOTE YOUR WINS: BUILD AN INTERNAL COMMUNICATION PLAN
While press relations isn’t a core competency for most loss prevention professionals, it is vital that everyone is informed internally of how a shrink action plan affects the business. By providing statistical evidence via scheduled advanced dashboards and various functions, including store operations, merchandising, and logistics, loss prevention teams can adjust their approach to processes, procedures, and products. Therefore, the institutional embedding of shrink is a vital part of how they run their day-to-day operations.
7. ESTABLISH A SHRINK OPERATIONAL AUDIT PROGRAM
Implement an audit program to regularly check inventory processes and ensure compliance with loss prevention procedures. This program helps maintain consistency and adherence to protocols, ultimately reducing shrink and supporting the overall effectiveness of your action plan.
Stopping retail shrink before it starts
In the retail industry, shrink is a problem that must be taken seriously. With the right shrink action plan, shrink reduction can be elevated throughout your organization. In turn, your retail empire could also discover millions in savings by stopping shrink at the source.
