Across the retail industry, shrink rose from $93.9 billion in 2021 to $112 billion in 2022. Identifying and addressing the underlying causes of shrink presents challenges due to its multifaceted nature. Factors such as theft, fraud, errors, and damaged goods all play a role and if not properly managed, shrink can significantly affect a retailer’s profitability, consumer trust, and brand reputation.
With so many contributing factors, collaboration among stakeholders in various departments is crucial to control retail shrink. This initiative requires proactive strategies, innovative technology, and a culture of accountability within the retail organization.
So, whose responsibility is it to control retail shrink?
The main contributors to retail shrink
- Employee Caused Shrink: Employees have access to product, control transactions, and perform processes, giving them an outsized impact on shrink. Employee theft can be as simple as taking unpaid merchandise to engaging in transaction fraud. Process failures are a significant shrink contributor as well— it’s not all fraud.
- Shoplifting: A significant contributor to retail shrink, shoplifting has garnered recent attention because of organized retail crime (Professional Shoplifting). Retailers have responded by implementing measures such as locking products, reducing operating hours, eliminating unmanned checkout options, and even closing stores.
- Supplier Issues: Supplier Shrink can come from packaging errors, excessive billing for unshipped inventory, or DSD drivers failing to deliver all billed items.
- Administrative Errors: Along with the issues listed above under employee shrink, inventory and accounting mistakes also contribute to shrinkage.
- Online: Online is more complex because a lot depends on how the order is fulfilled. So, shrink will impact the digital or physical store. Sources of online shrink are harder to detect due to wider variables and the ability of bad actors to use varied information to perpetrate scams.
But no matter what causes shrink, it can be devastating to a retailer’s business.
What happens when a retailer experiences high shrinkage?
Listening to recent retail earnings calls is a clear illustration of the impact shrink can have on profits. Locally, if not controlled, retailers are forced to exit markets leaving voids in many communities that are already underserved. Retailers will resort to additional physical security measures, make policy changes to items such as returns, and implement loss prevention technologies to stop the margin erosion created by shrink increases. The best-in-class retailers have comprehensive programs focused on shrink control (Loss Prevention Programs). These typically begin with the team.
What does a cross-functional shrink task force look like?
- Loss Prevention Teams – These teams own the design and implementation of loss prevention programs, including but not limited to physical security measures, technology selection, policy design, and investigations.
- Store Managers – In-store leadership are on the front lines and, therefore, critical to a great Loss Prevention program. Store teams inform on what is happening on the ground and are also responsible for implementing core components of a well-designed program.
- Supply Chain Teams – Understanding the full inventory life cycle is critical to identifying where shrink is taking place to apply the right corrective measures.
- Third-Party Technology Providers – Good technology partners will provide insights into how emerging issues are being solved and can create tailored solutions for the individual retailer.
- Human Resources – When shrink occurs at the employee level, HR (Human Resources) teams strive to determine which individuals need to be re-trained to protect profits.
- Finance and Accounting – Shrink erodes margins and ruins financial quarters; partnering with finance and accounting teams is critical to identifying the highest return opportunities.
The most effective programs to control retail shrink leverage the skills each team brings to the table to deliver industry-leading results. Every organization in a retail organization owns shrink and needs to contribute to the success of a comprehensive Loss Prevention program.
It is time to control retail shrink
To effectively manage retail shrink, fostering collaboration among departments and individuals is paramount. This necessitates the implementation of proactive strategies, leveraging technology, and fostering a culture of accountability to minimize losses and safeguard profits.
Appriss Retail offers innovative AI-powered loss prevention solutions aimed at promoting collaboration. Our technology streamlines data consolidation, helping ensure that team members possess a comprehensive understanding of incidents and potential threats that could impact shrinkage. By detecting anomalies, personnel inefficiencies, and operational issues, our advanced analytics driven by artificial intelligence deliver immediate insights into risk factors, theft, organized retail crime, and other activities that may diminish sales.
Contact us today to learn how to protect your profits and stop shrink in its tracks.
