How can you guarantee that when your doors close for the day, your merchandise doesn’t wander out the back door? The term “shrinkage” in the retail space refers to when employees, customers, or vendors steal inventory. However, retail inventory theft is not the only source of shrinkage. Shrinkage also occurs when employees make honest mistakes, or even when inventory is damaged, spoiled, or becomes obsolete. Retail owners and managers can take steps to identify the sources of retail inventory theft discrepancies and prevent financial losses no matter the cause.
8 Prevention Tips
According to the National Retail Federation, retail shrinkage accounts for approximately 1.6% of sales and employees are responsible for about 29% of that amount. But businesses with lax internal controls can suffer even greater losses. Here are eight recommendations to deter employees from stealing inventory:
1. Perform regular cycle counts. A cycle count involves verifying the quantity of high-value stock on hand and reconciling it with your inventory system. For example, if your shelves have 10 items and your inventory system shows 12, two items have been misplaced or stolen. Use cycle count results to determine the magnitude of your shrinkage problem and to track how it changes over time.
2. Monitor sales transactions. Employees who engage in inventory theft could attempt to cover their tracks by manipulating your business’s financial records. Create exception reports that monitor employee-initiated refunds, voids, no-sales, and discounts to identify irregular transactions and unusual patterns.
3. Use clear trash bags. To make it harder for workers to conceal inventory in your company’s trash, use clear trash bags with tamper-evident seals. Although they tend to be more expensive than opaque trash bags, preventing the theft of just one high-value item can make the expenditure worthwhile.
4. Install cameras. Place cameras in high-risk areas — including near the back door, in receiving and storage areas, and on the sales floor. Footage helps reveal suspicious patterns and can deter both employee and customer theft. Ensure workers are aware of the monitoring policy and that all recordings comply with privacy regulations.
5. Enforce access control. Issue personal identification numbers or access cards to employees and maintain records of door usage. You might also want to install an alarm that triggers if a door is propped open for more than 30 seconds.
6. Assign lockers. Don’t allow employees to bring backpacks or other large bags into stockrooms. Instead, require them to store bags in their lockers or other safe spaces.
7. Conduct bag checks. Although bag checks may seem invasive, they can be effective in reducing shrinkage. Just keep in mind that some employees may view bag checks as an infringement on their privacy and refuse to cooperate. Before you start checking bags, consult an employment attorney and implement a written policy to ensure compliance with relevant labor laws.
8. Lock up high-value items. Locking up high-priced or frequently stolen goods makes it far more difficult for workers (and customers) to walk off with them. Unlocking a cabinet should require two employees — one who interacts with the customer and a manager who’s responsible for cabinet keys.
Final Suggestion
A final tip is relevant to all businesses with employees: Make an anonymous fraud hotline or web portal available to all stakeholders to report suspicious activity. Often, those closest to daily operations are the first to notice when something isn’t right. For help with other controls that can deter misconduct and protect profits, contact us.
