How to Prevent Shrinkage in Retail: Stock Loss Prevention Strategies

Retail Shrinkage
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Shrinkage in supermarket stores is a major issue for many retailers, in 2019 alone, UK retail shrinkage accounted for almost £5.5 billion worth of goods. There are various reasons why shrinkage can occur; theft, administrative error or those puzzles that just can’t be solved, referred to as unknown cases.  

Managing retail shrinkage is a complex art that needs to be strategically planned. Although it may seem simple to limit loss by theft by creating stricter store regulations, particularly on self-scanning tills where theft is at its highest but by doing so it would jeopardise the convenient shopping experience of other customers. So, a stock loss prevention strategy needs careful consideration, comparing the loss of value with customer experience.  

Collation  

The first point of call when planning a loss prevention strategy is to collate all of the information surrounding any type of loss and break this down via location and product to see if there are any correlations to understand which products are the most highly targeted for theft, but also those that are frequently wasted.  

For many high street retailers, the main cause of shrinkage is theft, however over 64% of supermarket shrink is directly caused by the absence of effective operations, such as incorrect inventory checks or inaccurate forecasts. Inaccurate figures can lead to a surplus of goods, resulting in markdowns or complete waste, especially those with a short shelf life.  

This information helps to give a clearer view of acceptable levels of shrinkage in comparison to industry standards, which according to a 2019 study is 2%. Once they are able to view this information on a granular level, retailers will be able to better inform their prevention strategies and the most effective course of action.   

Choose Your Path 

Once the information has been analysed and assessed, a retailer can focus on their main cause of shrinkage and determine a systematic approach to tackle the problem, finding the root cause of the issue, so it can be rectified long-term.   

Say for example a major shrinkage in a store was caused due to damaged goods during restocking. Looking at the root-cause would investigate the reason behind this, such as inadequate training of staff, rushed restocks due to staffing shortage, or poor forecasting leading to restocks during peak periods. Once the underlying issue has been identified, retailers can deliberate options to rectify the problem. Here are a couple of prevention strategy examples: 

Poor Forecasting – Implementing analytical methods into forecasting can produce more accurate forecasting figures to reduce surplus stocks and subsequent markdowns. If inventory and markdown information was analysed, it would be able to predict more accurate stock amounts. 

Inventory Management – Many stores have an automatic reorder system that automatically places an order when a stock reaches its lower limit. However, many of these stores still have staff counting the inventory and inputting the data into a system, leading to frequent human error in the figures. However, automating this process and using data-driven processes can drastically reduce errors.  

Prevention shrinkage always has to keep in mind that customer experience comes first; whether that be stock availability, ease of movement around a store or a seamless and convenient experience. So, limiting stock of a particular product to avoid wastage should not be done if it means customers can’t access the product they want.  

Data is the key to the puzzle; in-depth loss data gives retailers the insight they need to perform this juggling act.