Inventory shrink costs retailers across the globe tens of billions of dollars each and every year. That’s billions—with a “B”. Losses amount to around $50 billion in the United States alone, climbing from there as the scourge makes its way across the globe. This is a serious problem that goes well beyond a missing sweater or shoplifting bubble gum. It’s a real and growing threat to profit margins and company survival.
So, what does that mean to the average store manager? In a business driven by the power of sales, often too little attention is given to the kryptonite that is retail shrink. In fact, many fail to recognize the direct relationship between retail shrink and the most destructive traits to retail success. Critical steps can be seen as a nuisance or distraction rather than a path towards solutions.
Shrink isn’t a cause—it’s an effect. It’s an outcome that goes well beyond the concept of bad guys coming in and stealing from our stores. And taking action to build awareness and understanding is essential to the success of your business.
Of course, theft, fraud, and other crimes lead to retail shrink. But that’s the easy answer, and one that lacks depth, and most importantly—accountability. While we may not be able to control criminal intent, we are also not helpless victims falling prey to a nemesis beyond our control. There are some very simple and very manageable steps that can be taken to limit theft and other retail crimes while putting a tremendous dent in the ultimate outcome—lost profits.
We don’t have to put ourselves, our teams, or our customers at risk. We don’t have to look beyond the legitimate expectations of our everyday roles and responsibilities. We just have to be smart, organized, open-minded, and diligent. What shouldn’t come as a surprise is that all of these same steps will also have a direct and immediate impact on the sales performance of the store.
10 High-Shrink Indicators
Below are 10 of the characteristics common to high-shrink retail stores. While not every characteristic needs to be present to indicate a potential shrink problem, multiple concerns are quite customary as high-shrink indicators in the retail environment.
1. Poor Customer Service. This one should come as no surprise—good customer service practices are a core value for any retail business. In fact, good customer service doesn’t go out of style no matter what you’re selling. But approaching and greeting customers, making eye contact, offering assistance, and other practices that help to effectively manage the customer visit will also deter dishonest activities. Dishonest customers wish to conceal their activities and mask their intentions, and an alert and conscientious sales associate is a thief’s worst enemy. By the same respect, if your business becomes known for poor customer service, you can expect several things to happen—and none of them are good for your business. Loyal customers can leave, new customers stay away, the reputation of the business suffers, sales decline, and thieves thrive.
2. Poor Operational Controls. Following company procedures and adhering to operational guidelines keeps our stores running smoothly and efficiently. But by following these same operational controls we also demonstrate command and order, eliminating many mistakes—and opportunities that result in retail losses. A store atmosphere that illustrates such control will limit errors, provide checks and balances that may correct missteps before they become an issue, and can also be intimidating to those that might otherwise engage in dishonest activity.
3. A General Lack of Store Cleanliness. A largely unappreciated aspect of maintaining a retail business, good housekeeping practices send a clear message to our customers regarding our service and our commitment to excellence. A clean, neat, well maintained store eliminates many areas where merchandise can be damaged, lost or stolen, avoids many potential safety hazards, and also establishes an attitude of caring, respect and control that can be intimidating to the potential dishonest individual. In contrast, research shows that customers firmly believe that dirty floors, spills or stains, unpleasant odors, dirty shopping carts, unclean restrooms and other cleanliness issues have a direct and negative influence on their shopping decisions. These factors speak volumes about store leadership and overall employee performance, practically inviting many of the influences that lead to shrink concerns.
4. Poor Merchandising Practices. One of the most effective and proactive tools on retail selling floors is strong merchandising. A strong presentation coupled with proper and effective use of store fixtures and displays will increase merchandise sales, draw in more customers thus eliminating many opportunities for dishonest customers to conceal their activities, increase associate exposure to the area, and offer improved visual indicators when product is missing. Conversely, areas that are poorly merchandised and appear in disarray provide additional opportunities for theft, damage, and other losses.
5. Poor Hiring Practices. Hiring the right people is a key component in the success of any organization. When our management teams practice their due diligence during the hiring process, we can eliminate many potential issues and reinforce the positive aspects of our work force. However, when we don’t follow through or skip important steps, when we don’t properly recognize or interpret information provided on an application or resume, and when we don’t ask the right questions during the interview process, it can lead to bad hires that can have lasting effects on the health of the store and the entire team.
6. Cluttered and Unkempt Stockrooms. There are many different hazards associated with cluttered and unkempt stockrooms. Improper storage can lead to safety concerns such as unsafe or top-heavy stacking, tripping hazards, chemical hazards, damaged merchandise, broken equipment, obstructed aisles and fire exits, inadequate lighting, inadequate storage space, and other dangerous or improper conditions. From a loss prevention perspective, this can also result in poor merchandise accountability, product availability concerns, and increased opportunities for theft and other unwanted employee-related issues.
7. Unattended and Untidy Fitting Rooms. The fitting room is a very important part of the clothing purchase process and should never be an afterthought in a retail store. In fact, statistics show that most final decisions on apparel purchases are made as customers try on various clothing options in the fitting room. Fitting rooms should be comfortable for our customers and have plenty of mirrors that are properly secured and sealed around the frame. Fitting rooms that are poorly lit, cluttered, and generally lacking employee attention with discourage our honest customers while opening doors for theft and other issues.
8. Poor Attention to Details. In retail, seeing the big picture is clearly important—but our attention to detail is what ultimately keeps us successful. Attention to detail is the level of care, accuracy, and thoroughness applied to a particular task. It will include traits such as focus, preparation, planning, practice, communication and listening, refinement, and diligence. When we skip steps and overlook important details, bad things will eventually result. Overlooking details, failing to complete tasks on time, providing document approvals without seeing the appropriate steps (pencil-whipping), and similar issues will quickly lead to poor performance.
9. Unmotivated and/or Uninspired Employees. Rewarding our employees for stellar performance and providing progressive counseling for those that aren’t performing to expectations can help us maintain a strong, efficient and satisfied business team. We want all of our employees to have a sense of pride in their jobs, their company, and their performance. By the same respect, behavioral issues, poor performance and lack of motivation will not only disrupt the work setting—it lowers the bar for other employees. Bad habits can spread like a virus through the workforce, leading to multiple workplace concerns to include shrink issues.
10. Closed Minds. Closed minds close doors. Effective loss prevention efforts require an interactive perspective that searches for the most effective ways to maximize profits while keeping our stores safe and secure. Changing our perspective and our approach, understanding how these concepts complement the business model, and effectively communicating those ideals throughout our stores will help us build partnerships and teamwork; creating an atmosphere of cooperation that helps improve sales, lower shrink, and enhance profits. The fact is, none of us are as smart as all of us and it takes open minds and collective efforts to put it all together.
Take a Closer Look
When it comes to identifying the primary causes of shrink in every retail store, it’s easy to point a finger at shoplifting, fraud, and other retail crimes that contribute to retail losses. Without question these are real and serious threats. However, this only tells part of a much more complicated story, and every retail leader has an obligation to their business to take a closer look.
A simple overview of our 10 characteristics points to a clear and impactful trend that has a direct impact on both retail shrink and overall retail success—poor management practices. We can’t control the aspirations of those with criminal intentions, but there are many contributors where we have very direct and meaningful influence that can limit the opportunities for these events to occur in our stores.
True leaders are willing to tell the whole story, look at how they can make improvements to the plot, and come up with a better ending. How many of these characteristics exist in your stores? Maybe it’s time to take a closer look.
This article was first published in February of 2020 and updated September 23, 2021.