5 Tips to Reduce Shrink in Retail

Shrink is a real threat to retail success. Every year, businesses across the globe lose around $100 billion to shrink, and the average shrink rate of 1.44% in the U.S. costs American retailers $48.8 billion annually. That’s a lot of money left on the table!

Here’s the kicker: Most businesses are actually reducing their investment in tools and technology to prevent shrink. 

It’s easy for retailers to get hung up on the more exciting aspects of having a retail business: the latest trends, driving sales, and focusing on new customer acquisition. However, by paying attention to loss prevention you may discover lost profit you didn’t realize is right under your nose.

To help you recoup those lost profits, let’s go over some loss prevention strategies to help you reduce shrink in your retail business. 

1. Improve the returns process

Return fraud accounts for $18.4 billion in lost capital each year in the U.S. It’s one of the leading causes of shrink. 

Luckily, there are ways to prevent return fraud — the first of which is to take the time to formally create a return policy, especially if you don’t already have one. 

Without a return policy, customers won’t know the stipulations when they make a purchase. This makes it harder for retailers to fight return fraud, chargebacks, and other threats to the bottom line. Make customers aware of your policy, perhaps even including it on your tag

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Shoplifters are getting smarter and more tactical in their crimes. “Return fraud as a result of rising Organized Retail Crime trends appears to be an ongoing problem,” said Robert Moraca, VP of Loss Prevention at National Retail Federation. “LP practitioners at every level are constantly attempting to balance the legitimate customer shopping and return experience with the retail criminal who is abusing the return policies to victimize the retailer for illicit gain.”

Ways to mitigate return fraud from shoplifters include: 

  • Be mindful of where you attach pricing and tags to products so they’re not usable with the tag still on. For example, a sweater tag shouldn’t be easy to tuck away in a sleeve. 
  • Make sure labels can’t be removed and replaced undetected. 
  • Consider offering store credit or exchanges instead of full refunds, especially after a certain period of time. 
  • Check the condition of items to ensure they’ve not been overused before being returned. 
  • Require a receipt, credit card statement, form of identification, or other verification for the original purchase. Go digital when possible. 
  • Track returns on a daily basis so you stay on top of what’s coming back in. 
  • Watch for serial returners. Keep a log in your POS and add notes to customer profiles each time they make a return. 
  • Turn returns into new sales opportunities. Ask what the problem was with the product and work to proactively find a solution or replacement. 

2. Get your team involved

Retail success rests on the shoulders of your staff. At the end of the day, they’re the ones interfacing with customers and taking care of day-to-day operations. They’re your biggest asset, though also your biggest threat, unfortunately. Retail staff are responsible for more than a third of shrink.

NRF Retail Employee Theft

There are two angles to come at this: internal (employee) theft and external theft. 

The latter is easier to approach, as it’s less accusatory. Train staff on loss prevention techniques and how to spot signs of shoplifting or counterfeit cash. They also need proper training on the checkout process, store return policies, and other key guidelines for your store. 

When it comes to employee theft, it could be both purposeful and unintentional. Unintentional clerical errors happen, especially when staff hasn’t been properly trained on the POS and other tools. (As a preventive measure, you can set up user accounts and permission levels on most POS systems, so you can keep tabs on specific staff members’ register activity.) 

The sad reality is, retail employees are often willing to steal directly from their employer. “Reasons for employee theft vary but are typically feelings-based: low employee morale, feeling underappreciated and underpaid or feeling mistreated and misunderstood,” says Chris Guillot of Merchant Method. She recommends investing in your employees. The more they feel you’re invested in them, the more likely they’ll deliver a return on the investment. 

“When you train and develop effective employees, it increases sales while addressing common causes of both employee theft and clerical error,” Guillot says. 

3. Consider the physical space

When it comes to your store layout, displays, point-of-purchase locations, and other key elements, there are things you can keep in mind to make it more intimidating or difficult for someone to steal. 

Consider the following ideas: 

  • A store greeter, similar to Walmart or Sam’s Club
  • Foot traffic counters and analysis (technology that tells you how people move around your store, instead of just how many walked in the door)
  • Video cameras
  • Signage to bring awareness to your security measures and policies
  • Security staff
  • Loss prevention robots
  • One-way glass for offices or other hidden spaces
  • Intentional product displays that make it obvious if an item is missing
  • RFID tags and sensors

Shoplifting aside, you’ll also want to take a look at how your stock is stored and managed. If you have a messy warehouse or stockroom without an intentional organization scheme, it’s a lot easier for items to go missing undetected. 

4. Upgrade your tech

Much like human error can lead to shrink, technical problems can too — especially if your software isn’t compliant or is outdated. Considering 21% of shrink is caused by administrative and paperwork errors, you want to take a look at your tech stack to ensure it’s mitigating such errors instead of creating them. 

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Pay extra attention to in-store tech, like security cameras, POS, and inventory management software. Build a tech stack that works together. Many tools can integrate with one another, or offer an open API so your development team can build custom integrations specific to your needs. 

5. Audit regularly

“The most common mistake I see retailers make when it comes to shrink is to approach loss prevention from a single point of view rather than implement a comprehensive set of practices that prevent the multiple opportunities for loss,” says Guillot. One way to be proactive is to audit regularly. The more effective your audit processes, the more effective you’ll be at early detection for loss prevention — before it bleeds your business dry. 

First, build a checklist of your existing loss prevention policies and procedures

Next, evaluate your stores against that checklist. Consider things like: 

  • Physical security: Are keys, cash, inventory, important documents, and other valuables properly stored and secured? Who can see POS and other screen displays meant only for staff eyes? 
  • Hardware and software: Is everything working as intended? Are tools connected, powered on, updated, and in working order? 
  • Staff: Are staff educated on return policies and other LP strategies? Are they properly transacting each sale? 
  • Inventory: Is the warehouse/stockroom organized? Can you account for each item you’re meant to have on hand? 

Finally, based on the evaluation, make changes to your stores. You can use a tool like Compliant IA’s Smart Checklists to perform the audit, create an action plan, and keep tabs on progress and issue resolution.

Check out three other audits every retailer should conduct.

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Moving forward with your retail store

Shrink is a multi-pronged threat that every retailer faces. While it can put a major dent in profits, brands that are proactive in their approach to reducing shrink see the best results. If your LP budget is tight or being reduced, see what can be automated to save on labor. 

In sum, our five ideas to reduce shrink are: 

  1. Improve the returns process: Create an official policy and make sure staff and customers are made aware of that policy. Then hold them accountable for sticking to it.
  2. Get your team involved: Employees are the first line of defense for retailers and their assets. Train them on how to prevent shrink and make sure they feel valued so they don’t willingly steal. 
  3. Consider the physical space: Make it difficult for items to go missing. 
  4. Upgrade your tech: Today’s tools are powerful and can work together to prevent shrink in your business. 
  5. Audit regularly: This is the best way to spot problems early on before they become large scale threats. 

Also, see our Loss Prevention Guide for Retailers

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It’s important to make loss prevention a prominent part of your retail strategy. In what ways do you prevent shrink in your retail stores? Let us know in the comments!

About the author:

andreaAlexandra Sheehan

Alex is a copywriter who works with B2B companies in the retail, e-commerce, and travel sectors to create strategies and expert longform, website, and blog content. You can see her work on sites like Shopify, Vend, Stitch Labs, Money Under 30, and more. thealexsheehan.com.



One thought on “5 Tips to Reduce Shrink in Retail

  1. Organizations should start using -Radio Frequency Identification(RFID)-. This technology will help resolve most of those problems.

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