Running a retail business has many challenges, some of which you won’t find quite so much in many other kinds of work. One thing that all retail businesses need to learn how to get in control of is the shrinkage, as it is such an important part of keeping the business in shape. Shrinkage is simply the unexpected loss of stock or inventory which could have otherwise been prevented in usual circumstances.

If you want to keep shrinkage as low as possible – and that is certainly a wise thing to do for all businesses – you will want to make sure that you understand it as fully as possible so that you can work on keeping it low. In this post, we are going to take a look at just some of the ways in which you can do this. First, we will look at what the different causes of shrinkage are. Then we will discuss how you can inventorize in such a way that you can calculate your shrinkage. Finally, we will find out what you can actively do to reduce your shrinkage in the future.

What Causes Shrinkage?

Part of the problem with this kind of loss is that it is by its nature hard to determine how it happened. Because of that, you will generally need to focus on it in a way which means you are approaching it from as many known angles as possible. You need to know first the many ways in which shrinkage occurs, so that you can then focus on improving as many of those as you possibly can. This is the only real way to make any difference to your shrinkage levels, so it’s something that you will want to look into in some detail at first. Let’s take a look now at what might prove to be some of the more common causes of shrinkage in any retail business.

One of the most common causes of shrinkage is theft. There are two main types of theft – those committed by customers and those committed by staff. You need to make sure that you are tackling both of these if you are to keep this particular kind of shrinkage down – and if you can manage this kind of shrinkage, you will find that you can keep it down considerably more on the whole, so it is absolutely worth paying some attention to. In order to reduce customer theft, you will need to make it clear that there are security measures in place, and have signs indicating such and saying that you will prosecute shoplifters. These measures generally work pretty well, but if you find you still have a lot of theft then you might want to assign a security officer to the premises where you are experiencing a high proportion of theft. This usually helps considerably.

In terms of theft carried out by employees, the best way to deter this is to train them well, and to make it clear that your business focuses on shrinkage and takes it very seriously indeed. Generally, this will stop most staff members from stealing stock, although some always will regardless of what you do. Having cameras installed in the warehouse is absolutely a great idea for this.

Another hugely common cause of shrinkage is damage. Damage can happen for many reasons, and usually these are just the normal mistakes we all make from time to time while working somewhere. You shouldn’t punish people for these kinds of errors, but you should ensure that you are training them in such a way that they will hopefully not cause too much damage on the whole while working for you. You don’t want all of your stock to disappear this way.

Finally, the other very common cause of shrinkage is basic administrative error. If your stock control routines are not tight, then you will inevitably have some stock slip through the net, and this will show up as shrinkage. To keep this as low as possible, you will need to focus on having a stock control procedure which is as detailed as possible, so that you can ensure you keep shrinkage of this kind to an absolute minimum. This kind of proper inventorization is one of the main things you can do overall to ensure that you both understand how much shrinkage you have, and that you are doing whatever you can to keep it low. It will also mean you have a better sense of how exactly you are losing stock, which in turn helps you hugely to keep that shrinkage as low as you can.

Top-Down Management Approaches

While these causes each have their specific ways of being managed, there are also a number of ways in which you might want to manage your stock from the top-down in order to ensure that you are keeping shrinkage to an absolute low. Many of these methods are going to prove especially useful, and if you are just starting out in business in particular you might want to make sure that you are adopting these as soon as you possibly can. So what kind of top-down management approaches can we take on board to manage shrinkage fully?

One of the best things you can do is find a way to secure the stock that you have on-site, whether it is in a warehouse or wherever else it might happen to be. This can be as simple as contacting a tarpaulin manufacturer and ensuring that sensitive goods are covered with such a material before being locked away – or it might be a case of making sure that you have someone in charge of your wearhouse who you can trust who can keep an eye on the goings-on there. It is often beneficial for many reasons to have someone watching over the warehouse, and the management of shrinkage is just one of those ways in which your business might benefit, so if you haven’t already got such a member of staff, consider finding one as soon as possible.

Another practical concern you might want to take on board is ensuring that any administrative staff you have are well-trained in their work, so that those kinds of admin errors can be kept to an absolute minimum. You will find that the more you can trust this individual, the lower your shrinkage will be, as a large proportion of the shrinkage is always going to be that basic human error made at the keyboard or while counting stock. A good stock controller is absolutely one of the most important staff you can possibly have in a retail setting. Seek out someone who is diligent and who really cares about the work; you will find that alone makes a huge difference.

Finally, consider the value of having a decent punishment system, so that the people who work for you know that they can’t get away with stealing stock. There are many reasons people might want to steal stock – it could even be that they are in desperate need of it as they are going through a tough time – and you should aim to be compassionate in those circumstances while also doing whatever is necessary to keep your retail business going strong. Striking a balance there is important, and to do that you need to make sure you have a fair and strong punishment routine if someone is found to be caught stealing. This will help deter others, but without being too harsh on those who have stolen items, which could cause adverse effects in their life.