A recent report from the Retail Industry Leaders Association advocates a radical new way to think about how to understand and measure retail loss.
Shrink No Longer Cutting the Mustard
- There is no agreed-upon definition of what constitutes “shrinkage.”
- Most estimates are based only upon measures of merchandise losses where the cause is unknown.
- Estimates usually only cover stores – losses in the supply chain or e-commerce are rarely included.
- There is little standardization on how it should be measured – cost or retail?
- Its categorization is confusing and often relies upon catch-all phrases that lack clarity.
- Definitional ambiguity has led to some types of loss being ‘hard baked’ into retail businesses.
Times, They Are A-Changing
- Since shrinkage was first used, more than a hundred years ago, retailing has gone through profound change.
- New technologies, formats and ways of shopping have generated new opportunities and risks.
- New data sources now make it possible to understand a broader range of losses across retail businesses.
Getting to Grips with Total Retail Loss
- Offers a new definition of loss: “events and outcomes that negatively impact retail profitability and make no positive, identifiable and intrinsic contribution to generating income.”
- Encompasses not just the loss of merchandise but also cash and margin.
- Covers the entire retail business – physical stores, supply chain, e-commerce, and corporate activities.
- Recognizes the key difference between known and unknown losses.
- Made up of 31 categories of known losses and two categories of unknown loss.
The Value of Implementing Total Retail Loss
- Helping to better manage retail complexity: shrinkage no longer reflects and properly conveys the scale, nature and impact of retail losses, particularly as the retail environment becomes more dynamic and fast-changing.
- Generating greater transparency and accountability: all forms of loss are captured, reducing opportunities for some to be hidden within the business.
- Creating opportunities – unlocking baked-in losses: by adopting a more systematic approach to defining “loss” under a single typology, new profit-enhancing opportunities will be created.
- Maximizing the potential of the loss prevention team: LP teams have developed impressive problem-solving skills. See what a difference they can make when they are given a broader palette of losses to address.
- Helping to make good business choices: evaluating retail investments needs high-quality data on both sales and all possible losses to avoid unprofitable cross-functional trade-offs. Total retail loss can help your business make good choices.
Read more about this new way of thinking about retail loss in “Beyond Shrinkage: Introducing Total Retail Loss,” which was originally published in the November-December 2016 issue of LP Magazine. This post was updated June 26, 2018.