7 Steps to Reducing Retail Shrinkage (Updated 2020)

    Sep 24 2020

    Topics: Retail Shrinkage

    Shrinkage is a significant issue for retailers. It results in billions in losses every year. The higher your shrinkage rate, the lower your profits. Contrary to popular belief, however, retail shrinkage isn’t an inevitability in business. You can take steps to reduce it, like the ones detailed below.

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    1. Know What Causes Retail Shrinkage

    Before you can reduce retail shrinkage, you have to know what’s happening. You might realize that your products or money are disappearing, but you might not know exactly why.

    There are three top causes of retail shrinkage:

    1. Administrative errors, such as errors in pricing, bad record-keeping, or cash counting mistakes can all add up over time and cause a great deal of loss. 
    2. Employee theft is another common cause. In fact, it accounts for almost half of all retail shrinkage. You might think your employees are trustworthy, but many can steal from you given the opportunity—they might steal products, abuse their discounts, skim cash out of the register, or abuse refunds. 
    3. Customer theft, or shoplifting, is another cause of retail shrinkage that leads to billions in losses annually for retailers. In fact, losses neared $62 billion in 2019 alone. Customers may steal items, switch price tags, provide fake returns, or otherwise steal from the store.

    Taking these three top causes into consideration, you first need to know why you’re taking on heavy losses. Take a closer look at your finances and your inventory and try to understand where you’re losing out.

    2. Hire Thoughtfully

    Because employee theft is such a significant cause of retail shrinkage, it pays to do your due diligence when hiring. Check references and hire people you know or that were referred by trusted colleagues. Although these steps won’t completely eliminate the chances of employee theft, they can help reduce them.

    3. Rotate Employee Assignments

    If you look at the instances of cash shortages or missing inventory, and match them with your employee schedules, you might see patterns. Perhaps money and products always go missing when two certain employees are scheduled to work together. Perhaps your shrinkage rate is higher right before closing. 

    Make an effort to rotate employee assignments. Team different workers together or with you. Try to always have two people on the shift at all times. Rotating assignments can reduce your chances of theft and allow for insights into patterns.

    4. Have a Witness for Discounts, Refunds, and Voids

    Many employees can take advantage of discounts, refunds, or voids. It’s prudent to ensure that a manager is present for all such situations at the cash register. This can reduce losses.

    5. Install Cameras

    Installing security cameras is a good way to deter theft. If people know a camera may provide proof of misdeeds, they’ll be less likely to steal. Storage rooms, the cash room, loading areas, and cash register areas should all have cameras to monitor the goings on in your store. Monitor trash removal as well, as employees may steal merchandise concealed in outgoing trash bags to be retrieved later.

    6. Create a Tip Line

    Set up a tip line to give your workers a confidential way to communicate any suspicious behaviour that they see or suspect at work without the fear of retribution. Even if no one calls, just the fact that dishonest employees know that their coworkers are diligently watching out for theft might be enough to reduce your shrinkage rate.

    7. Automate Your Systems

    Integrating cash management technology as well as an automated inventory system can allow you to have greater insights, better reporting, more accurate counts, and increased accountability. Cash counters and banknote sorters, for example, can take manual cash handling out of the cash management process to reduce the risk of losses. 

    Further, coin and banknote recyclers and smart safes can help you better track, manage, and report on your cash. This can boost accountability and reduce the risk of administrative errors during cash handling.

    Don’t let shrinkage ruin your business—be proactive.

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    Andrea Lombardi

    Andrea Lombardi

    Andrea joined the CashTech team upon its inception in 2003. Learning the business from the ground up, she now utilizes her expertise in account management, planning, and negotiation while managing the daily operations of CashTech’s sales, marketing, and logistics departments. Andrea holds a bachelor’s degree from the University of Western Ontario. She enjoys travelling and has a passion for personal fitness, including obtaining her kettlebell certification. Andrea lives in Toronto with her husband and two young sons.

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