Shrinkage: Are You Too Accepting Of Losses?
The processes that have historically been employed to control retail shrinkage losses are, to a great degree, consistent between companies. These include basic controls over the receiving and handling of merchandise, theft deterrent measures, and aggressive internal audit and loss prevention programs that verify compliance with policies and react quickly to exceptions.
If there is a fair amount of consistency between approaches taken to reduce shrinkage, why are the results achieved by various retailers so different? This year is no exception, with trends ranging from .50% to 3.00% and above. In today’s competitive environment, a retailer’s shrinkage performance can mean the difference between a good year and one that fails to meet expectations.
What causes similar approaches to generate such different results?
I believe the answer lies within the culture of each company. If asked, every retailer would state that keeping shrinkage losses low is a priority and that they are doing everything possible to achieve that goal. While I believe that no company would purposely ignore significant losses from any source, I also believe that the threshold of “acceptable losses” due to shrinkage varies greatly. It is within this area that I think the greatest opportunity for improvement exists.
As Loss Prevention and Auditing Professionals, our job in some respects is to be the conscience of the company:
- To raise issues that may not appear on the radar screen every week but still require constant attention.
- To talk about things that make people uncomfortable but must be addressed.
- To gain acceptance of, and adherence to, processes we know will give us the shrinkage result we need and deserve.
Approaches to loss prevention
Let me illustrate my point by looking at the thought processes of two imaginary retailers.
It’s OK With Me, Inc. believes most shrinkage relates to theft, which is typically unavoidable and simply represents a cost of doing business. Their Store Managers have shrinkage goals but are not held accountable for achieving them. The theft issues become Loss Prevention’s to deal with. Inventory results are not analyzed and reviewed in detail because that makes people uncomfortable.
High Expectations International, on the other hand, sees shrinkage losses as no different from any other P & L line item that must be closely scrutinized. Store Managers establish challenging, yet achievable, shrinkage goals and are expected to achieve them. Issues that impact shrinkage performance receive regular management follow-up throughout the year. Individual store results are analyzed and communicated broadly. Shrinkage programs are visited and re-visited to ensure that everything possible is being done.
Which approach best describes the culture of your company? Create a culture of high expectations and enjoy the shrinkage improvements that occur.