Retail Shrinkage

Presented by; Vikram Singh (46)

Topic to be covered
 What is retail Shrinkage?
 How to Calculate Shrinkage
 How it affects the Bottom Line
 What Causes Shrinkage -&-
 How to Control retail Shrinkage
Retail shrinkage is……….
Retail shrinkage is the difference in the value of stock
as per the books and the actual stock available in the
shop.
Retail Shrinkage is defined as: Inventory
losses occurring from employee theft,
shoplifting, organized retail crime,
administrative error and vendor fraud
 Physical Inventory Count vs. Book
Inventory Balance.
Results/Effect of Shrinkage
Direct loss to bottom line
. Increase in Cost of Sales
. Decrease in Gross Profit
 Loss of Retail Sales
 Loss of Sales Taxes
 Safety of innocent employees
 Popular merchandise not available
 Raise in consumer prices
Calculating Shrinkage
Shrinkage is typically expressed as a
Percent of Sales
 Calculation:
Shrinkage %=Shrinkage Dollars ÷ Retail Sales
Example: Retail Sales: $500,000
Shrinkage Dollars: $12,000
shrinkage%= $12,000 ÷ $500,000
= 2.4% Shrinkage
¢ Retail Industry Considers over 2% High
Cost of Sales & Gross Profit
The Plan:
Retail Sales: $500,000
Cost of Sales: 70% or $350,000
Gross Profit: 30% or $150,000
With Shrinkage of 2.4% or $12,000
Cost of Sales: 72.4% or $362,000
Gross Profit: 27.6% or $138,000
Net Profit
The Plan:
Retail Sales: $500,000
Net Profit: 10% or $50,000
With Shrinkage of 2.4% or $12,000
Net Profit: 7.6% or $38,000
 Profit Plan was missed by 24%
 Sales of $620,000 needed to make
$50,000 profit after shrinkage
Gross profit
Those Missing Shirts
100 Shirts: units Dollars extension

Sales at Retail 45 48 2160

Sales at 30% off 35 33 1155

Sales at 50% off 15 24 360

Total 95 3675

Cost of I shirt $23.

Total Cost $2300.00
 Gross Profit: 37.4% or $1375.00
 Shrinkage of $115.00
 If had sold 5 shirts at cost:
Gross Profit is 40.5% or $1490.00
Reason of shrinkage
Administrative Errors
POS Errors
Paperwork Errors
Poor Inventory Controls
Theft
Internal - Employee
External
Vendor Fraud
Shoplifting
Retail shrinkage
Retail shrinkage in %
Reason of shrinkage
Administrative Errors
Last Year 15.4% of National Loss
Self-Inflicted Shrinkage
Causes
I. POS Errors
II. Paperwork Errors
III. Poor Inventory Controls
. Receiving
. Handling Merchandise
. Demo Clubs
POS Errors
Incorrect retail price
 Incorrect SKU
 Incorrect discount
 Markdowns not recorded
 Wrong Button on POS Screen
 Incorrect Member Account Charged
 Employee Theft
Controlling POS Errors
 Accountability of each employee for their
own transactions
 Periodic test scans of merchandise
 Challenge POS Screen Buttons
 Ticket “self-service” merchandise
 Verify ticketed price matches POS Price
for each item on transaction
 Enlist help of all employees to catch and
report errors
Paperwork Errors
 Invoice Coding
 Office: Invoice Posting & Payment
 Merchandise Transfers
 General Ledger Adjustments
 Member Charges / Adjustment
 Physical Inventory
 Inaccurate count and adjustments
Controlling Paperwork Errors

 Double entry bookkeeping systems

Clearing Accounts
 Monthly reconciliation of ledgers
 Inventory
 Careful review of financial statements
Cost of Sales
Discounts
 Physical Inventory Controls
Poor Inventory Controls

 No merchandise should leave your shop

without a WRITTEN record or POS
transaction – memory doesn’t count!!!
 Receiving:
 Ideally one person doing all receiving
inventory entries and invoice coding
 Match every shipment against packing slip
and packing slip against invoice.
 Verify all tickets are correct
Controlling Inventory

 Log Books to track:

.Special Orders
.Returns to Vendors
.Do not remove from inventory until credit
received
.Repairs
.Try-ons
 Monitor activities of Sales Reps
 Physical Inventory
Theft
Last Year 78.3% of National Loss
Internal – Employees
External – Shoplifting
 Dishonest employees steal almost 5 times
more than shoplifters
 Shoplifting: $549.90 per incident
 Employee Theft: $2672.95 per incident
Internal Theft
 Internal – Employee
 Last Year 42.7% of National Loss
 High Turnover in employees major factor
Theft increases as number part time
employees increases
Employee theft
Improper Cash Handling
. Cash sales never rung through POS – cash
taken
. Fraudulent cash refunds
. Cash theft
 Outright Stealing
. Merchandise
. Supplies
Controlling Employee Theft

Utilize pre-employment screening

 Empower but monitor ALL employees
. Make sure all employees have a complete
understanding of Shrinkage

 Thorough POS training

Controlling Employee Theft

Each Employee Accountable for own POS

transactions
 Procedures in place for:
Handling Cash
Handling Credit Cards
Voiding transactions
 Reconciling POS transactions daily
Cash
Credit Card
Controlling Employee Theft

Management Challenge / Spot Check:

 Daily sales
 Chits
 Discounts
 Refunds
 Voids
 Cash Drawer
 Inventory suspected theft items frequently,
at odd times, and in front of employees
External Theft
External – Shoplifting
Last Year 35.6% of National Loss
 98% of shoplifters are repeat offenders
 Middle Aged: Women steal more than men
 Organized Retail Crime major factor
Ease of reselling on Internet blamed for increase in
ORC and Shoplifting
Controlling External Theft
Customer Service:
 Be aware of ALL customers in shop
 Make Eye Contact with customers
 Nametags on right – leads to eye contact
 Appropriate Staffing
 Ticket merchandise correctly
 Neat and Clean Counter area
 High theft items behind counter
Controlling External Theft
Shop Layout:
 Keep line of sight above 5 feet open from
counter area to entire shop
 Merchandise shoulder to knees to keep
people standing
 Keep shop neat and clean
 Fitting Rooms in Shop
 Challenge lighting and fixture placement
. Avoid creating areas in shop where customers
are not easily visible
Vendor Fraud
Last Year 3.7% of National Loss
Causes:
. Items invoiced but never shipped
. Item or items missing from multiple quantity
boxes or shipments
. Incorrect or no credit for returns
.Log Book to track
.Drop Shipments never ordered
.Company reps in shop not monitored
Controlling Vendor Fraud

Receiving Practices
. Count ALL Merchandise – verify against
packing slip
. Open all boxes of gloves, socks, etc.
. Match packing slip to invoice
. Monitor Sales Reps
. Especially when “trading” product
. Create paper trail for all sales reps
transactions
Controlling shrinkage: Shrinking Shrinkage
 Monitoring Shrinkage is first step to
reducing
. Know your shrinkage number
. Have a shrinkage goal
 Awareness is biggest deterrent to
shrinkage
. Measure – measure – measure
. Know most vulnerable products / areas
. Make entire staff “aware”
Shrinking Shrinkage
Develop a loss prevention culture
. Accountability of ALL personnel is vital to
Shrinkage awareness / reduction programs
being effective
. Make sure employees know what is and isn’t
acceptable
. Be sure all understand POS system and what
it tracks
New technologies to curtail shrinkage:
There are two kinds of RFID tags.  
Passive RFID tags which operate without onboard power source, and
use radio wave energy to turn the microchip attached with the product.
 
Active tags that operate on battery power and send information
through a transmitter to the database.
 
Conclusion:
In todays retail technology security is the chief concern. Reducing
shrinkage is a profit growth strategy for retailers. Retail shrinkage
requires utmost attention and care of the retailers beyond the festive
discounts and promotional tactics.
Some video of retail shrinkage
India tops in retail theft
http://www.youtube.com/watch?v=cnlnBdN1AaQ
Shoplifting by a customer (Pro Shoplifter
Showing hows it's done)
http://www.youtube.com/watch?v=KAhD08P6kU4
• The Stop Shop - Shoplifting & Shrinkage
Prevention Training Video
http://www.youtube.com/watch?v=5AGkewH0lgQ