What Is Inventory Shrinkage & How Do I Prevent It?

Inventory Shrinkage in Retail: 4 Tips to Prevent It

After all, you can’t know what’s missing if your inventory records aren’t accurate, secure, and accessible. Inventory shrinkage occurs when actual, physical inventory levels are lower than what’s noted on a company’s inventory list. In other words, inventory that’s accounted for on your company’s ledger can’t be located—or is so damaged it cannot be used or sold. On average, the dollar loss retailers suffer for a dishonest employee is about $1,200. Establish loss prevention awareness from day one and continue with policy refreshers for employees at all stages of their career.

By being insiders of the company, they may quickly cover up the theft of inventory. To combat human-led inventory shrinkage, make sure your employees receive training on any new processes. Take time to frequently review inventory logs, and discuss any discrepancies with employees. Automated inventory management solutions allow you to track products and identify expiring inventory — all of which help you limit inventory shrinkage. Some inventory automation platforms can also help you assess sales data to inform more successful operations. For example, the software might identify a recent uptick in the popularity of a particular product, helping you increase restock frequencies before you sell out. Automation platforms might also identify products frequently purchased together, or the items with the lowest margins.

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Make sure any employees know your security cameras are in working order and let them see you watching the tapes for Inventory Shrinkage in Retail: 4 Tips to Prevent It activity to deter employee theft. Compare these percentages over time to see if shrink is reducing or growing.

Inventory Shrinkage in Retail: 4 Tips to Prevent It

Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee. The fix may be simple, such as monitoring the movement of goods at multiple points instead of just one, or it may require a total overhaul.

Effects of Shrinkage On Small Retail Businesses

With video surveillance you will be fully “aware of what’s happening in your store. With the help of recorded footage, you can also identify who stole from your business and give authorities a starting point for their investigation”. By setting up video surveillance, your employees will also be less likely to steal as they are aware they are being watched and monitored. Consider your workplace culture – Every business is driven by workplace culture.

  • Comparing stock counts to sales numbers illuminates what’s being stolen.
  • With 56% of shops using it, POS analytics is still the most widely used loss prevention strategy.
  • Make sure you have an accurate inventory count and compare it to sales records to ensure you’re not overstocked or understocked.
  • Additionally, it is nearly hard to calculate and monitor the inventory shrinkage rate when a company is unable to swiftly assess the inventory that is on hand.
  • For example, to deter potential thieves by acknowledging them when they enter into stores and by recording their actions once inside.

When you want to reduce shrinkage in retail, it’s important to keep a close eye on inventory levels and reorder items when necessary. Make sure you have an accurate inventory count and compare https://business-accounting.net/ it to sales records to ensure you’re not overstocked or understocked. If you notice that a certain item is constantly being sold out, it may be time to increase your order quantity.

How to prevent inventory loss in a busy warehouse

In addition, you should have a system in place for tracking inventory. This will help you to keep track of what items are being sold and what items are being stolen. A well-run retail store takes a lot of hard work and dedication to every detail, including reducing shrinkage. Pay extra attention to in-store tech, like security cameras, POS, and inventory management software. Many tools can integrate with one another, or offer an open API so your development team can build custom integrations specific to your needs.

  • Getting a second person to verify the records helps prevent inaccuracy and omission of key details.
  • Whatever you decide to use, the important thing to do is to collect the right data.
  • The fix may be simple, such as monitoring the movement of goods at multiple points instead of just one, or it may require a total overhaul.
  • Employee theft accounts for 30% of the annual losses that retailers make, making it one of the biggest concerns.
  • While it’s nearly impossible to eradicate retail shrinkage completely, it is definitely possible to reduce it.

For example, when I managed retail spas, aestheticians locked away their products after finishing treatments and before leaving the room. Before we started that practice, it was common for customers to slip skincare products into their purses or pockets when redressing after a treatment. Brigitte is a retail specialist and staff writer with brick and mortar management experience. She is versed in retail sales analysis, merchandising, and buying with an emphasis in retail sales and marketing across platforms. Before hiring employees, a company should vet potential employees and do a background check to weed out those with a history of stealing inventory.

However, it may require a complete overhaul of your current inventory management processes. You’ll need to diagnose the problem before you solve it, so it’s important to approach the problem with care and deliberation.

One of the main culprits contributing to inventory shrinkage is warehouse theft. In fact, 42.7% of inventory shrinkage is attributed to employee theft. So, as much as we’d like to trust every employee, the truth of the matter is that warehouse theft can and will occur. Brands should familiarize themselves with what inventory shrinkage is, how to track it, and how to prevent it.

Emphasize that the tapes are checked daily so they understand they’re being monitored. Also discuss the implications of theft with them including limited pay increases, fewer promotions, and possible layoffs resulting from financial instability.

What are the 3 types of shrink?

  • 1.Shoplifting. This crime comes in many different forms, it includes both calculated frequent theft and opportunistic attacks on your profits that strike only once.
  • 2.Employee Theft.
  • 3.Return Fraud.

Start by determining the cost of products sold, then deduct that amount from your inventory. The amount that is documented can be found by deducting your COGS from it. Alix delights in finding ways to deliver actionable insights to retailers and restaurateurs. When not cooking up data-driven blogs with valuable tricks and tips, Alix is on the hunt for new ways Lightspeed can help entrepreneurs bring their cities to life. Clearly define how you’ll pick SKUs to count each week and write out the steps for cycle counting employees.

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