Profit shrinkage – whether it be due to employee theft, shoplifting, or vendor theft, etc. – is a very great challenge for retailers – both big and small. IT can take away hard-earned profits even to the extent it becomes impossible for you to stay in business. If your shrinkage is too high you may be tempted to increase the prices of your product or services, which may lead to damaging your relationships with existing customers. You may also find it difficult to pay your employees, purchase inventory, and pay off your building lease. There is a high risk especially for businesses that run on low-profit margins, for example, grocery and liquor stores. That is why it is vital to invest some money into retail loss prevention to eventually lead to higher profit margins and business growth. Addressing loss or prevention can have substantial benefits apart from saving money, like identifying and eliminating gaps in security and surveillance issues, or outdated operation issues.
If you have implemented loss prevention strategies and still incur a high percentage of loss, then it may indicate that the business model isn’t working. You may consider employing new sales or marketing statics depending upon the needs or requirements of your business.
What is Loss Prevention in Retail?
Retail loss prevention refers to the strategies or methods adopted by a retail business to reduce the risk of merchandise theft and minimize fraudulent returns.
There are two kinds of loss associated with shrinkage –
1. The loss is associated with the capital invested in procuring the product
2. The loss is related to the potential revenue that could be generated with a sale.
Retail loss can adversely affect your business in many other ways – like a negative impact on customer perception of your brand, ultimately pushing your customers to your competition. Retail loss comprises a wide range of circumstances that eventually lead to a loss in business profit. Some of the most common citations include – shoplifting, return fraud, and employee theft. Let’s look at some of the classified reasons for retail loss:
Shoplifting is when a person steals posing as a customer, it can be planned or spontaneous. It could also be more complex theft schemes like returning stolen items from the store for store credit or cash. Another type of external theft is organized retail crime – which is a planned form of theft involving two or more individuals.
Internal theft is cited when the employee is involved in fraud or steals money from the employer. These could also involve processing fake returns, giving off fake gift cards, leaving items off an order, or even stealing cash from the till.
These are also known as vendor management or procurement fraud. This happens in situations when an employee of the authorized vendor either inflates the prices of goods to be sold and pockets the difference. Sometimes vendor employees also accept bribes to get an unfair advantage over the client. This can also happen when someone poses to be a fake vendor, and pockets the payment, and disappears.
This involves loss due to outdated systems and software crashes. Admin errors could be caused due to improper training, carelessness, or overwork – like mislabeling, overpaying vendors, mispricing, etc. Manual systems and processes contribute to a huge portion of such errors.
To lessen the chances of any of these shrinkages happening in your store, you need to take necessary precautions at various levels across the store to prevent multi-unit loss prevention in retail. Even though loss interventions across the retail units are unavoidable to a large extent, following some loss prevention tips can help make a huge difference in how much it affects your bottom line.
Minimize Shoplifting with an organized store
Properly laid out store shelves would make it easier for thieves to escape the security camera or an employee while lifting anything. Organizing your store in a way that makes it easy for employers to keep an eye on shoppers can make a huge difference in terms of shoplifting scenarios. Make sure that store encompasses maximum visibility around all corners and has displays that aren’t too tall or crowded to see over and through. Installing mirrors in strategic locations can help employees keep an eye around without hovering over the customer or being too rude.
Locked displays are essentials for higher valued or priced items where they are displayed close to where staff members are densely situated.
Make your Customer feel “Seen”
Train sales associates to drive attention to every customer by greeting, making eye contact, and engaging shoppers in conversations. It is less likely for the customer to turn into a thief if they are acknowledged and feel seen inside the store as they would be assured that someone is actively keeping tabs on them while on the sales floor.
Make sure your employees have an eye for suspicious behavior
Apart from training employees on sales tactics and products, it is also important to teach sales associates to spot suspicious behavior that is likely to lead to theft or fraud. Red flags such as repeatedly picking up items and replacing them, moving far from store employees, swapping price tags should be documented and communicated with employees. In addition to red flags, protocols need to be established and communicated on how to respond to such scenarios. This could include training on how to handle the security alarm, safety phrases for communication with other fellow workers, etc.
Track stock using POS
Inefficient inventory tracking can lead to stock loss and make it even more difficult to spot theft, fraud when they occur. Utilizing a POS system can help keep an accurate count of inventory is an effective way for stock loss prevention in retail. In addition to this, any damage to the product that is stocked that renders it unsaleable can add in as a stock loss. Your POS system should be well-connected across different units of your store and should enable you to follow the motion of each item at the click of a button. An effective POS system is a great weapon for stock loss prevention in retail.
Minimize Cash Payments
Cash draws are an easy target for third-party thieves and employees, especially if you are not operating 24/7. By encouraging shoppers to use card payments, digital wallets, and more secure forms of currency you can reduce the volatility of liquid cash. In addition to increasing security, it also streamlines the checkout and payment process for shoppers and employees.
A thorough understanding of retail loss prevention is necessary to lessen the impact of shrinkage in the retail business. Once you start implementing the loss prevention measures to safeguard your profits you will notice a huge shift in your profit margin.
If you would like to work towards preventing retail loss/shrinkage on your business but are unsure of how to achieve it, YRC can help guide you through the process and set your business on the right track. By choosing to work with the experts at YRC, you would enable the financial growth of your business as well as your growth as an entrepreneur. As we help you unleash the true potential of your business by outlining the most viable strategic business model to ensure zero retail loss or shrinkage, that would guarantee the success of your business.