How to Create a Shrink Reduction Plan

One important thing to think about next time you're evaluating your store is your shrink reduction plan. Many retail businesses complete a full inventory in January, so they know exactly how the year went and what was missing. Using that information to adjust your shrink plan is a great strategy. 

In 2022, retailers in the US reported that shrinkage accounts for 1.6 percent of a retailer’s sales every year. That is a significant number and needs to be addressed. Listed below are several things to consider when reviewing your shrink results: 

• Understand what causes shrink. Typically, shrink comes from three primary sources: employee theft, shoplifting, and paperwork errors. When you review your shrink results, look at what items caused most of your losses. If the items were highly sought after, then shoplifters might be your issue. If the missing items were secured, employee theft could be a concern. If the items really surprise you and are high quantities of less expensive items, paperwork errors might be the cause. Understanding the root cause is the first step in putting a plan in place that can reduce shrink.
• Compare your shrink results to your store layout. You may discover missing items were located in poorly visible areas in your store. Place your most expensive items near areas employees are expected to be positioned, such as the cash register area, employee workstations, or service desk. Having employees nearby is a great customer service tool and can help deter theft. Have your display fixtures run in straight lines so your employees can see from the front of the store to the back with ease. Potential shoplifters are looking to hide while committing their crime, so reducing that ability may encourage them to change their mind and exit without issue.
• Have a plan for dealing with shoplifters. Greet every customer who enters the business. This sends customers a strong message that they did not enter the business unnoticed. Always have adequate staffing and train your employees to offer great customer service. Customers who want to shoplift do not want to be noticed and require privacy to be able to conceal merchandise. Educate employees on the proper actions to take when observing a suspicious customer. These situations will occur, and employees need to be prepared to address them appropriately.
• Realize employee theft impacts most businesses. Studies have shown that 75% of employees have stolen at least once from their employer. Consider completing background checks on all new hires. Discuss integrity-related topics during the employment interview process. Create an environment of open communication between employees and management. Often, the first person to notice an employee is taking merchandise is the employee who works right next to them. Offer a way for employees to share information with leadership anonymously. Set up and maintain an organized stockroom/backroom, so items that are missing, out of place, or hidden can be easily noticed and addressed. Install a camera system to monitor all entrances/exits, cash registers, and high-value items. Having these cameras creates a deterrence effect, and employees considering something inappropriate may think twice if they believe there is a good chance of getting caught.