Business scenario: Reducing shrinkage

September 20, 2017

It’s time to talk about shrinkage. No, not that kind of shrinkage—we’re talking about shrinkage in the business sense. “Shrinkage” is a retail term for stealing, by random shoppers, actual customers, or your own staff. And while it’s common in the retail industry, it happens to small businesses everywhere.

Whenever you lose product without earning any revenue from selling it, that’s shrinkage. It can hit your bottom line more than you may realize. In the retail industry, the average shrink percentage is estimated to be about 2% of sales. All that added up to more than $49 billion in losses in 2016, according to the National Retail Security Survey on retail theft.

Luckily, there are some easy things you can do to better understand business shrinkage and protect yourself accordingly. Here’s what you need to know to reduce shrinkage.

What is shrinkage?

There are four common sources of shrinkage in a business. Employee theft, shoplifting, paperwork errors, and supplier fraud are all the major reasons why your balance sheet might not match inventory. There’s also a fifth category of shrinkage, which encompasses all the unknown reasons for loss. This is the black hole that things seem to disappear into for no reason.

It’s important to realize just how big an impact shrinkage can have on your bottom line. Not only are you losing inventory, but you’re losing the opportunity to make a sale if something goes missing. Paying for the same inventory twice over can have implications on pricing for your customers. In addition, shrinkage can increase company costs in other areas: security, for example, can be a big budget item to defend yourself against shoplifting.

What are some ways to reduce shrinkage?

There are some key things you can do to reduce business shrinkage without making a big investment. The first step is knowing where it’s impacting you most: which products go missing, and who is most likely the guilty party. One way to do that is to invest in an inventory management tool. Clover POS comes with a powerful inventory tracking system, and you can add an app from the Clover App Market to customize your system to your needs.

Then, prioritize: it might not be a huge deal if customers take unauthorized seconds from your soda fountain. It’s a different story if your wait staff takes open bottles of wine home after a late shift. High-revenue or high-cost products that have a significant impact on your ROI should be your focus. Resist the temptation for people to lift things by storing valuable items in secure areas that require higher authorization levels for access.

Of course, your employees might not be the culprits of your shrinkage problem. While tightening up your policies and training your staff can certainly help improve inventory management, it may be a problem outside their control. If it’s too difficult or awkward to lock up a given product, consider alternate solutions that work with the situation more gracefully. Shift your thinking toward a loss-prevention strategy to find ways to recoup costs. For instance, making free seconds on sodas part of what you’re marketing (and charging more per soda to account for the added cost).

Finally, consider how the layout of your store can impact shoplifters. Is there a way to reorganize your displays to give your employees space to observe? Simply moving things around may be enough to prevent needing a security system.

How can I see if my plan works?

Are you certain you know where your inventory is going? Get a clear picture of whether or not your strategy is working with a few simple apps. Clover integrations like Ping Me If, Bottle Keeper, and Cash Track can trigger alerts when certain events happen. Monitor cash in and cash out, keep an eye on a certain item, and even track your liquid stock so you don’t have to count bottles each day.

Keep an eye on your accounting with a clear picture of your payments and receipts. Clover Payments Plus elevates your business metrics to show you cash in and cash out, sales, employee management and scheduling, and inventory tracking, all in one dashboard. Unearth insights you might not usually see each day to make sure that your business is growing—not shrinking.

[image: IMG_1257 by Jason Tester Guerilla Futures on flickr]

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