Shrinkage remains one of the largest pain points for retailers.
Whether you find yourself in front of the counter or behind the counter, shrinkage is an issue that directly affects you. Prior to working in the retail industry, I had no idea what shrinkage entailed or that it costs retailers globally $100 billion USD in annual losses. Reduction in inventory can happen in many ways and differs for every retailer. However, shrinkage is not strictly related to inventory, it’s also about how cash is managed in the store. After investigating this issue in-depth, the two biggest culprits of such losses are shoplifting and employee theft.
When I worked behind the counter for an international fashion retailer, I encountered my fair share of shoplifters. Today, I’m in front of the counter as an everyday consumer. But even beforehand, I would be lying if I said I didn’t personally know anyone who has stolen from a retailer before. One of the most common misconceptions I’ve heard from said individuals is “stealing isn’t hurting the store in any way”. Now, these individuals meant this in the context of stealing something small – like a pack of gum or pair of sunglasses. Even if the merchandise is less than a dollar, any shoplifting directly impacts the retailer and consumers that purchase their products.
Shoplifting accounts for 37% of inventory shrinkage and according to HG.org, retailers lose about $35 million worth of goods per day in the United States. Not only is this issue present in the US, it’s happening globally. To name just two, the UK loses about $14.7 million USD worth of goods each day and Germany loses about $8.7 million USD.
Shoplifting not only raises expenses for the retailer, it ultimately makes shopping more expensive for consumers. When merchandise gets stolen, the prices of current goods increases to make up for the losses. The average shopper in the UK pays approximately an additional $200 USD a year – just to make up for the cost of stolen goods!
Along with shoplifting, employee theft equally contributes to shrinkage.
Before working in the retail industry, I didn’t realize how often employee theft occurred. During one of my shifts at the store, the manager held a brief meeting with all the sales associates to inform us that a long-time employee of another store was let go for employee theft.
Employee theft accounts for 30% of inventory shrinkage and can occur in 4 ways: blatantly stealing from the store, fake returns & fraudulent gift cards, skimming off the cash register and abusing employee discount privileges. It’s important to note that three out of these four types of theft occur at the point of sale (POS).
Alongside these losses occurring at POS, I was surprised by how much retailers lost from employees skimming the cash register. Ranging from as little as five to thousands of dollars, cash is frequently stolen by employees. In fact, skimming the drawer accounts for 40% of all employee theft in the retail industry. Although employee theft has a significant impact on overall retail shrinkage, it is important to remember that this behavior is not consistent with all employees. With best practices in place at most retailers, it’s merely the “bad apples” that cause the greatest harm.
In addition to shoplifting and employee theft, shrinkage can also occur as a result of return fraud, administrative errors and other errors that may cause such losses. With this in mind, it’s essential for retailer to evaluate their own shrinkage and explore potential options for reduction.
Luckily, one of better proven methods is cash automation.
In retail, many customers still choose to pay in cash, which paves the way for more shrinkage issues outside of shoplifting and employee theft. If you are to implement cash automation technology into your store’s shrinkage reduction plan not only do you combat this issue, but you can improve overall employee efficiency and customer service.
This will enhance your employees’ ability to connect with customers. From my previous experience, it’s harder to stay engaged with a customer while you’re counting out their change. It’s crucial that those few moments of connection at the checkout are taken seriously (this determines how frequently a customer will shop at your store). By using cash automation, you enable your employees to deliver intrinsic value to the customers that is memorable and priceless.
So how do you get started?
Shrinkage is a part of life in the retail industry, but that doesn’t mean you have to settle for a standard annual shrinkage goal each year. If you take the steps to understand how and why retail shrinkage occurs, you can create a reduction strategy that is effective and will provide immense value in the future.
Trust me, taking the time to implement cash automation into your stores is a step in the right direction.
Bankers Equipment offers cash automation solutions that optimize your cash management processes during checkout and enable your staff to focus on providing superb customer service. Ultimately, helping you progress you as a retailer forward.