Loss Prevention Tactics to Battle Inventory Shrinkage

Supply shrinkage (also known as inventory shrinkage) is something that many retailers battle on a regular basis. In accounting terms, inventory shrinkage refers to the loss of inventory from the point of purchase (inventory) to the point of sale. When shrinkage is high, profits are obviously lower.

Inventory shrinkage is something that all retailers should be concerned with, but how can you prevent it? Continue reading to learn some simple ways to battle supply shrinkage.

Understanding retail shrinkage

The Global Retail Theft Barometer is perhaps the most comprehensive study that has explored shrinkage in recent years, and the study’s findings are quite shocking:

  • Shrinkage costs global retailers $128.5 billion per year, or 1.29% of retail sales
  • The main causes of shrinkage are shoplifting (38%), dishonest employee theft (28%), administrative and non-crime losses (21%), and supplier fraud (13%)
  • In the U.S., the cost of retail crime to honest consumers is $403 per household
  • Shrinkage did decline in most countries that were studied, thanks to increased loss prevention tactics

Now that you understand how much inventory shrinkage can affect your business’s sales, it’s time to get to work. There are a number of methods you can use to prevent shrinkage, and many of them focus on best practices in loss prevention.

Preventing inventory shrinkage

Preventing supply/inventory shrinkage doesn’t have to be a complex process, and there are a number of relatively simple methods that you can use to ensure that your profits are protected.

  • Use SKU’s, or stockkeeping units. These alphanumeric identification codes allow products to be tracked for inventory purposes, and you can cross-reference your lists to determine which items sold, and which items were lost due to shrinkage. These values are sometimes called product numbers or part codes, but the important part is that your retail business has a system for tracking item numbers.
  • Invest in employee training to prevent inventory shrinkage. Your employees need to know how the company prevents losses, including shrinkage. Educate them on best practices so that they’re working with you, not against you.
  • Coordinate loss prevention across all departments. It’s important that every department, from the sales floor to finance to marketing, is aware of what loss prevention measures your retail environment is taking. A team that works together will be far more successful at preventing shrinkage.
  • External awareness is also important. Communicate clearly with shoppers so that they know what measures your company is taking to prevent losses.

Advanced loss prevention tactics may be necessary

In some cases, more complicated loss prevention measures are warranted. Retail experts do concede that the retail environment is changing rapidly, and old-school techniques like simple policing aren’t always enough. The loss prevention landscape has gotten far more advanced, making more advanced methods, like analysis and video surveillance, extremely helpful for retailers.