Managing Shrink

Retail Systems Research (RSR) embarked on its Loss Prevention study with the assumption that the sources of shrink have changed. We thought organized crime had become a more serious driver of theft. We also felt it was time to quantify what has been until now, popular opinion.

As it turns out, popular opinion is not an accurate representation of reality. While organized crime is a growing concern for the largest retailers (particularly those selling general merchandise and apparel), overall the sources of shrink remain the same: Customers and employees steal both merchandise and money; employees provide sweetheart deals for their friends and family, and missed markdowns and other clerical errors create “paper shrink.”

What’s the Problem? 

Our retail respondents are adamant. They believe employees and customers are stealing merchandise and cash from them, especially at checkout.

While 56% of retail winners believe employee theft of merchandise is one of the top-three sources of shrink, a stunning 80% of average performers and 70% of laggards believe their employees are stealing from them. This trumped customers as a source of shrink by a wide margin.

Winners Win at Shrink Management, Too 

RSR identifies retail winners as those that outperform their peer group. Winners do more than just sell more goods and services—they tend to think differently. They have distinct ways of running their business, and those methods lead to better results.

We asked our retail respondents to compare their results with the 2006 University of Florida Loss Prevention survey average. The answer highlights our belief in the better methodologies used by retail winners.

Retail winners don’t only outperform their competitors in comparable-store sales. These companies have also found the time and methods to improve shrink to deliver a better bottom line. While 59% of retail winners enjoy a better shrink percentage than the industry average, 80% of self-reporting laggards have a worse shrink percentage than the industry average.

The Top Opportunities 

Ninety-one percent of respondents see at least some opportunity available at checkout. The loading docks of retailers selling fast-moving consumer goods are also considered critical areas for shrink reduction. More specifically, 65% of these retailers identified docks as a “very important” opportunity vs. 41% of all respondents.

RSR Recommendations 

The Winning Trends in Loss Prevention Benchmark Study: December 2007 reveals how retail winners outperform their peers. Based on these findings, RSR recommends the following:

To obtain a copy of Winning Trends in Loss Prevention Benchmark Study: December 2007, please visit the RSR Web site, www.rsrresearch.com.