Retail shrinkage is not necessarily a good thing with retailers. Shrinking in retail can significantly impact your business, especially considering if you already have a smaller area to work with. Read on for more on how Specialty Store Services can help you know what works for you and your retail space, how shrink in retail can either help or hurt your business, other insights, and more!
What Is Retail Shrinkage?
The term is pretty self-explanatory, but retail shrinkage is the loss of inventory that cannot be accounted for due to multiple factors. The types of shrinkage at play are many, but here are what we think are the most common:
Internal Shrinkage
Internal shrinkage occurs when inventory is lost because of someone inside the organization. This could be dishonest employees or unauthorized discounts. Whatever mistake happens inside the retail store is considered internal shrink in retail. A lot of times, it can be an administrative error with invoicing or inventory counting, but once discovered, it should be fixed immediately so it doesn’t cause too much damage.
External Shrinkage
External shrinkage happens when inventory is lost on the outside of your retail circle. This could be shoplifting, vendor fraud, or other external factors. External shrinkage is more common than internal, so be on the lookout as much as you can to prevent it from happening.
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The Impact of Shrinkage on Retailers
Shrinkage isn’t just about the loss of products or inventory. It can take a massive shape of impacting profitability, revenue, pricing, and even customer satisfaction. If customers are looking for specific products that you’re consistently unavailable to purchase, they’ll get upset and go somewhere else. According to the National Retail Federation (NRF), shrink in retail accounts for an average loss of 1.4% of global retail sales annually, which translates to billions of dollars in lost revenue. Small businesses experience even worse shrinkage because they have tighter profit margins. Whenever you feel internal or external shrink in retail going on, try to stop it as soon as possible.
Common Indicators of Retail Shrinkage
So, what does retail shrinkage look like? It could be a multitude of ways, but some that we’ve found are most common with retailers are inventory discrepancies, where there are missing items and the sales aren’t adding up. Also, unusual sales patterns or trends. There could be voided transactions or higher-than-average returns and discounts you’re not aware of. Finding these can be early signs of retail shrinkage. By consistently monitoring these red flags, retailers can identify and address shrink sooner rather than later.
How to Prevent and Reduce Retail Shrinkage
So, what are the ways in which you can prevent retail shrinkage? The good news is that there are tons of ways to reduce retail shrinkage in your store. Make sure to train your employees well so that they know what to look out for. Also, invest in security measures. With external shrinkage, shoplifters come in almost every day. Security cameras or storefront security gates are small ways to protect your inventory. Another big thing to prevent shrink in retail is keeping aware of your inventory. If this means hiring someone specifically for inventory management, do so. Keeping stock of your products in real-time is extremely important. Regular stock counts and audits are non-negotiable to keep detection proactive.
Don’t Let Retail Shrinkage Be Your Downfall
Shrink in retail is a scary situation, but it can often be avoided if you take the right steps to protect your inventory. Make sure you follow all of our insights and tips, and check out our online store. Specialty Store Services has everything to keep your store safe, including security cameras, mirrors, gates, and more. Taking action now will result in more substantial profits and peace of mind for years to come.