By developing a solid understanding of why and how retail shrinkage happens, you can devise a pragmatic and effective loss prevention strategy for your stores. Pierhouse Business Solutions is a global trusted partner, helping retailers discover new ways to control loss and leverage it as an opportunity to increase profitability. Let’s look a little closer.

If you are looking to run a successful business, keeping track of shrinkage is crucial. Even if you are not in an industry with a relatively low profit margin, like grocery stores, it doesn’t take much shrinkage to significantly cut into your profitability and potentially threaten the health of your business.

Where Shrinkage Comes From

UK retail suffers from a £6billion (USD7.45billion) shrinkage bill. Not surprisingly, shoplifting and external loss are key factors. Between them they account for fractionally over 50% of all shrinkage. But this is where it gets much more interesting; other factors affect shrinkage as well. Administrator or paperwork errors, vendor fraud and unknown losses make up the other half.

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Loss prevention professionals sight the old adage “rubbish in, rubbish out” as one of the fundamental issues. Weak controls, which go into the calculation of the book inventory on hand, is the primary problem (assuming physical counts are correct). There are a number of weaknesses with any given system and procedures that can cause this including (but not limited to and in no particular order):

  1. (merchandise) receiving errors
  2. ticketing errors with incorrect pricing shown
  3. not accounting inter-store transfers in transit
  4. not accounting for inventory in transit
  5. not sequentially numbering documents
  6. misaligned promotional pricing being out of sync with EPOS system
  7. not analysing which documents are sequentially missing
  8. data entry errors (100 units received are erroneously keyed into the system as 1,000 units — now all of a sudden, 900 units ‘appear’ to be have been stolen)
  9. point of sale errors (bar codes not scanning properly, ringing up sales with generic SKUs and not relieving your perpetual inventory system properly)
  10. price tagging errors (putting incorrect SKUs/bar codes on products)
  11. store managers independently marking down products
  12. not investigating the causes for ‘negative’ quantities on hand (an impossibility)
  13. inability to roll inventory forward (i.e. beginning inventory, plus purchases, minus sales equals ending inventory)
  14. data corruption
  15. unprocessed paperwork
  16. damaged packaging
  17. merchandise mis-picked at a distribution centre and scanned into the store
  18. cashier error, such as scanning one UPC multiple times for different items (i.e., scanning strawberry yogurt twice for a strawberry and a raspberry one)
  19. inventory management error, such as when a department manager zeroes out an item that is stocked out on the shelf rather than restocking from the backroom.
  20. vendor error, such as a direct-to-store delivery (such as chips and soft drinks) billing a store for higher priced merchandise than what was stocked.

In the retail world, shrinkage is a part of life — but that doesn’t mean you have to settle for throwing away 2% of your sales each year. By developing a solid understanding of why and how retail shrinkage happens, you can devise a pragmatic and effective loss prevention strategy for your stores. Ultimately, the best solution is the one that’s tailored to your business – so talking to Pierhouse Business Solutions is a great next step. We can help you make significant savings across many of these areas of shrinkage. Our NetTickIT platform is deployed in a number of UK retailers doing just that. To learn more and look at the case studies click here.

Source: NRF & PlanetRetail  RNG

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