Controlling Retail Shrinkage in the Specialty Environment

LP strategies must be applied differently to fight retail shrink according to the specific needs of the store model.

Retail shrinkage stems from a handful of causes that are rarely unique to a single retailer. Theft, whether internal or external, and operational error make up the majority of retail shrinkage. The level of severity is usually the primary difference; this can fluctuate due to product type, geography, and store traffic, among other factors.

However, addressing retail shrinkage can be a singular challenge for specialty retailers. Rather than using the cookie-cutter approach appropriate for big-box or department stores, specialty retailers must adapt their loss prevention strategies to a variety of store sizes and environments. Diverse team sizes, international locations, and other specialty factors can cause distinct challenges when developing a coherent retail shrinkage action plan.

Target Stores

One method that can be used to reduce retail shrink is the target store program method. Without using additional funding, this program relies on existing LP partnerships within a company to determine which stores have the highest retail shrink. The organization then focuses its resources on the 20 percent of stores that need the greatest amount of attention in order to swiftly reduce retail shortage.

Choosing Targets

Which stores should participate? The specialty retailer must review inventory audits and separate the top 20 percent of stores that have the highest amount of shrink loss. But that is not the only factor to consider. The loss should also be examined as a percent of sales to see which stores indicate a need for inventory control. Store-specific data, such as shrink history or safety issues, must also be looked at and used to decide whether a particular store ought to be added to the list.

Successful Teamwork

LP staff has always had to partner with other departments in order for inventory control programs to succeed in the field. It’s no different for an LP staff working for a specialty retailer. Working closely and communicating frequently with operations, inventory management services, and sales managers is critical.

Store visits ensure high visibility and heightened awareness among all employees as well. When the LP team and store managers dedicate time to reviewing retail shrinkage issues, employees begin to understand that it is a priority. Bonus payouts for achieving store-specific shrink goals couldn’t hurt.

More Inventory Review

Additional inventories make up a key component of progress monitoring. These interim inventories can be seen as a “mid-term grade” that shows how well the existing program is working. They can also help employees stay focused on the goal. Existing store staff can conduct less formal unit counts between the regularly scheduled inventory reviews, which will help keep costs to a minimum.

Implementation

Initial meetings with store management are crucial for bringing everyone on board with the program. Store managers can then delegate the top store requirements to the team; these will vary depending on the unique complexities of each locations, but can include things like:

  • Fitting room controls
  • Register audits
  • EAS training for staff

Subsequent meetings will keep everyone apprised of progress and help managers identify areas for improvement. Fun awareness training exercises for employees—quizzes, contests, etc.—will keep the retail shrinkage control message top of mind for the staff.

Accountability

The potential of bonuses and pay increases, as well as disciplinary actions for failed store audits, will help keep management staff on track and accountable for the success of the target store program. Ideally, stores must receive an 80 percent on a scale of 1-100 to pass an audit that reviews areas such as:

  • Whether alarm systems are properly tested
  • Whether employee files are up to date
  • Whether register procedures are adhered to

Looking at Retail Shrinkage Control Results

One year after implementing a target store program, specialty retailers should look at inventory results. If shrink has been reduced by 25 percent or more, it is safe to say that store can “graduate” from the program. However, even though a store graduates, loss prevention must remain part of the daily routine to maintain the improvement.

This article was adapted from “The Challenge of Using Target Store Programs to Control Retail Shrink in Specialty Retail” by Charlie Miller, which was originally published in 2003. This adaptation was updated January 2, 2017. 

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