Wednesday, April 11, 2007

The Case of the Shrinking Inventory

Loss or theft of products, commonly known as shrink, is always been a challenge in retail, regardless of what you sell. Here are a few tips that can help you reduce this loss.

First of all, it's important to recognize that there are three source of shrink: Suppliers, Customers, Employees.

Supplier Shrink
Very few ethical suppliers will intentionally short-ship products. However, some of your products may be of value to a less-than-honest driver and if you don't carefully check every delivery against the original order you could be losing money without realizing it. This can be challenging especially during a busy day. However, if your driver knows that you habitually don't check shipments for accuracy, you make it easy for him/her to "misplace" one or two items.

It is also critical to check invoices for accurate pricing. I once dealt with new supplier who "accidently" over-charged me for one particular item. Although the individual unit price was small, the cost in a year would have been significant due to the number of these items we used throughout the year.

Employee Shrink
I recently read that financial loss by employees averages $1350 compared to just $196 by shoplifters. How can you prevent your employees from stealing?

1. Track every shipment that you receive.
2. Conduct cycle counts on your high-cost items.
3. Keep your back door locked.
4. Limit the number of bags an employee can bring into your store. Conduct audits from time-to-time. This last point requires some finesse and employees MUST be told that a periodic search of their belongings is part of their employment contract.
5. Watch for an excessive number of "no-sale" transactions or refunds that do not have a receipt.
6. Read your reports. I once had an assistant manager who voided several transactions at the end of his shift then pocketed the money because he did not have enough money for rent. Fortunately, our POS system had a void report and we reviewed this report daily.

Customer Shrink
The easiest way to prevent shoplifting is to improve your customer service. Research has shown that most shoplifters will NOT steal if they know a store employee or manager is aware of their prescence in the store.

Greet your customers. Make eye contact. Check to see if they need help. Above all, approach them if you think they are behaving in a suspicious manner. If you work in a mall and are not comfortable approaching them for safety reasons, contact security and have them watch the individual's in question.

Lastly, watch the floor. Fact: most shoplifting is done within 6 feet of an employee. I have seen dozens of security video tapes that capture a customer stealing while a store employee is engaged with another customer or is engrossed in paperwork or tasks such as merchandising or talking on the telephone.

The Bottom Line
Most retailers don't understand the financial impact shrink has on their bottom line. If your profit margins are 10% then you need to generate $1000 in sales for every $100 in product that is stolen, lost, or taken from your store.


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