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Quick ways retail can reduce inventory shrinkage

Inventory shrinkage can occur anywhere along the supply chain, from warehouses to sales floors in retail shops—but it’s not a foregone conclusion. There are steps any business can take if it finds itself struggling with this challenge, including adopting better training protocols, investing in technology and improving mindfulness in the workplace when it comes to overlooked errors and sources of fraud.



inventory check

If you’re involved in the management of a retail chain, or even just a single retail store, you know only too well how much of a financial burden inventory shrinkage can be—not to mention just how much of a nuisance it is.

What sorts of events constitute inventory shrinkage? It’s things like:

  • Customer and employee theft
  • Administrative errors
  • Errors or fraud among vendors
  • Improper inventory or cash management

Your store doesn’t have to accept these events as unavoidable or as another cost of doing business. Here are some straightforward steps you can take to insulate yourself against this kind of loss—or in some cases, to eliminate it entirely.

1. Revisit your store layout to prevent theft

Shoplifting is probably one of the simplest forms of inventory shrinkage to protect yourself against. Suffice it to say, not every store out there is equally susceptible to shoplifting. However, if this problem has plagued your store for some time now, putting a stop to it might require a hard look at your store layout.

What you want to look for are things like high shelving, poorly lit areas or tucked-away nooks where customers can stuff their pockets or tamper with theft-protection packaging without drawing suspicion. Rearrange your store with the goal of improving visibility throughout the space, no matter where the manager or sales floor employees might be standing.

2. Engage in more thorough employee training

If your employees aren’t being prepared through proper training exercises to prevent, spot and react to potential shoplifting and other types of fraud, you won’t be able to rely on them as your eyes and ears when you can’t be there personally. Shoplifting prevention requires attention to a number of signs and variables, some of which edge into social psychology territory. We’re talking things like:

  • Greeting every customer to ensure they feel visible
  • Being on the lookout for shoppers who make fleeting or no eye contact
  • Asking shoppers who’ve been browsing for a while whether they would like assistance

Engaging your employees in more thorough loss prevention techniques goes a long way toward creating a “trust but verify” atmosphere in your store.

3. Upgrade to more advanced cash management systems

Shoplifting might be the most obvious source of inventory shrinkage, but it’s not even necessarily the most financially burdensome. Some of the biggest losses in retail occur because of poor cash handling policies or even outdated point-of-sale technology.

The ultimate goal when it comes to cash management is limiting the number of times employees have to handle currency. Reducing “touches” is a surefire way to reduce the number and type of errors that might occur in a given day. It also sends the message to your employees that you’re aware of the points along the sales process where cash can go missing and that you’re learning to leave less to chance.

cash register

Retail losses could be due to poor cash handling policies and outdated point-of-sale technology. (Source)

Increasingly, retail managers are turning toward automated—or at least more advanced—cash management systems. Such offerings currently include things like smart safes with identity verification and automatic counting machines.

4. Become more proactive about inventory management

As we mentioned above, inventory management—and even possible underhandedness among your vendors or freight partners—is a most unwelcome source of inventory shrinkage. Managing your inventory more proactively, oftentimes with the help of new tools and technologies, can go a long way toward shoring up your inventory supply chain against unexpected and unnecessary losses.

Admittedly, inventory management is a big job. It’s even more challenging when you have to contend with multiple physical retail locations and warehouses. In fact, since shoplifting is one of the most visible kinds of inventory loss, you might be turning a blind eye to problems in your warehouses. The shrinkage rate for the average warehouse is .2 percent, but industry groups indicate a rate of just .46 percent is enough to put a dent in your earnings.

So what can you do?

Among other solutions, there’s automated inventory management. Such technology has become a massive industry unto itself, and it represents what is oftentimes an extremely favorable return on investment for interested retail managers. Adopting automated inventory systems has reportedly delivered significant savings for businesses that made the leap:

  • A potential 3 percent improvement in revenue
  • A potential 44 percent return on investment in the first year of use
  • A potential 200 percent return on investment by the third year of use

What kinds of technology are involved? RFID is a top choice for certain products because it offers a way to scan incoming inventory far more efficiently and accurately, and oftentimes reduces handling requirements for your employees and vendors.

Of course, we’d be remiss if we didn’t also deliver a reminder to not stock more inventory than you need at any given time.

Ready to make these changes?

In 2016, the total cost of inventory shrinkage for retailers was an estimated $48.9 billion. If you think your own business location is somehow out of reach, the benefits of adopting these strategies and technologies might surprise you. Theft, miscounts, mishandling and other forms of inventory loss don’t have to eat into your profits any longer when you take a few proactive steps.

(Featured image by DepositPhotos)

DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.

Megan Ray Nichols is a freelance technical writer and the editor of Schooled By Science, a blog dedicated to discussing the latest scientific news and discoveries. She regularly contributes to IMPO Magazine, American Machinist and Cerasis. When she isn't writing, Megan enjoys going to the gym, watching MARVEL movies or curling up with a good book.