Peventing Retail Shrink from Becoming the American Way

On June 16, 2020, the U.S. economy was greeted with some surprisingly good news. Retail sales in the U.S. jumped a record 17.7 percent from April to May.

It’s just another indication that our depressed economy may be starting to inch its way back to health.retail shrink

Among reasons given for the good news was the fact that so many Americans, stuck at home for the past two or three months, wanted to get out of the house. What better reason to get out of the house than to go shopping.  It’s the American way!

Plus, some Americans have held on to their stimulus checks, waiting for the right time and the right opportunity to use them. Stores reopening in April was a perfect opportunity.

However, as positive as this news is, brick-and-mortar retailers want to make sure their inventory gets sold and in the hands of paying customers. What they do not want is what the industry calls shrinkage or “retail shrink.”

For those new to the term, retail shrink refers to the difference between the amount of merchandise (or inventory) a retail store has on its books and the results of a physical count of the merchandise.

Here is a simple example that should help clarify what retail shrink is all about:

  • In April, a retailer ordered 100 sweatshirts bearing the logo of a local sports team.
  • All the shirts were placed on racks in the store.
  • In May, the number of sweatshirts sold was 25. This would mean 75 should still be on the sales floor.
  • However, a physical count finds only 65 are on the floor.
  • What happened to the other 10? This is retail shrink. The shirts are gone, and there is, at least for now, no explanation.

As for explanations, there actually can be several, and many times identifying the justifications for the shrinkage can be an extremely complicated process. Especially when hundreds if not thousands of dollars are involved, it is typically at this point that an outside service is called in to investigate the situation and identify what is going on.

Plus, calling in an independent, third-party service can have another benefit as well. What if the losses are due to internal issues (which we will discuss in greater detail later)? Third-party evidence is typically more reliable, more transparent, and much more difficult to question.

As to the primary causes of retail shrink, they typically fall into the following three categories:

Operational Errors

Using our sweatshirt example earlier, what if we later found out that instead of 100 shirts being delivered to the store, only 90 were delivered. That would explain the shrinkage.

External Loss

This is invariably shoplifting. The retail shrink is the result of customers stealing merchandise from the store. It does not involve store vendors or staff working in the location.

Internal Loss

Unfortunately, a great deal of retail shrink is the result of store employees finding ways to steal merchandise. It was such a problem a few years back, that one mega-hardware retailer required all new employees to watch what was called an “internal loss video.” The video depicted actual instances of employees stealing from the store, how the store dealt with the situation (in almost all cases, the employees were arrested), and the aftermath. Interestingly, there were no videos about shoplifting.

Both external and internal losses cost stores tens of billions of dollars every year. But they cause other problems as well. For instance, they can skew inventories. Retailers may believe they have more or fewer items in stock than they actually do.

Further, the external and internal loss can make it hard for retailers to determine what brands and products are selling and which are not. And with so many brick-and-mortar retailers struggling to survive, knowing this information, and minimizing retail shrink, whether external and internal, might determine if they make it or not.

To help eliminate this loss, it’s time to talk to the experts.

As always, we value your feedback, which helps us shape our perspective on recent events, security, and the services we offer.

Stay safe,

 

Johnathan Tal
Chief Executive Officer
TAL Global
O: 1-408-993-1300
[email protected]

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