This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes. The fix may be simple, such as monitoring the movement of goods at multiple points instead of just one, or it may require a total overhaul. Conduct a deep dive with your team to determine what is required.
Installing security cameras in employee-only areas, such as stockrooms and break rooms, can also decrease internal theft. The initial action that a business should take to prevent inventory shrinkage is to implement a double-check system. It should have more than one person assigned to important inventory management stages, such as signing invoices, recording stock, and accepting stock. Although employees should be at the forefront of preventing inventory shrinkage, some dishonest employees may steal from their employers. Employees may take some of the business stock to compensate for an amount they feel they are being underpaid, underappreciated, or undervalued.
Human Error
According to the 2022 National Retail Security Survey, the average shrink rate for retailers across industries in 2021 was 1.4%. An acceptable rate lies between 1% and 2%, so you’ll want to take measures to reduce your shrinkage rate. If one of the wine bottles is dropped and shatters, that’s loss of merchandise.
- Like those at or above 3%, which account for almost 11% of retail businesses.
- Even as stores increase security through the use of CCTV cameras, digital tags, and other means, some customers still manage to steal inventory.
- Unhappy and under-trained employees are risk factors for theft.
- Once you’ve settled on a new platform, run a pilot program to see how your inventory shrinkage rate changes over time.
- When the Widget Fairies carry off your widgets in the middle of the night, that’s called inventory shrinkage, and it can cost your company a lot of money.
For example, certain doors could require a keycard that only some employees have so others — such as those doing general warehouse maintenance — would not have access. An integrated system makes decisions about what to do about shrinkage easier, too, because you have a lot of the information you need on hand for easy reference. Unhappy and under-trained employees are risk factors for theft. Organized retail crime, where two or more people conspired to steal merchandise to resell, also falls under the shoplifting label. Examine the financial health of your business by highlighting exactly how much revenue is being generated versus what’s being spent. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Because of the preceding issues, a business might elect to invest in extra security for its inventory, including fencing, electronic surveillance, and security guards. If so, these are incremental costs that would not have been incurred if the firm had not suffered from persistent inventory shrinkage. According to the 2016 National Security Survey, businesses in the United States lost $45.2 billion through inventory shrinkage in 2015. The amount represented a significant increase from the $35.3 billion recorded in 2008 during the National Retail Security Survey (2008). Getting a second person to verify the records helps prevent inaccuracy and omission of key details.
Inventory shrinkage is when the amount of product a business actually has available is less than what is shown in the accounting records. This discrepancy indicates that there has been theft, miscounting of products, damage, or other issues. Shrinkage as a KPI measures the rate at which actual inventory value has decreased over time. After identifying the main causes of inventory losses, you can utilize shrinkage rate to see how successful your prevention methods are.
What does shrinkage mean for retailers?
A double-check system also helps to identify loopholes that may contribute to stock shrinkage and to implement measures to curb fraud. Although most businesses have moved from paperwork to digital methods of record-keeping, administrative and paperwork errors are still among the leading causes of shrinkage. Administrative errors may include pricing https://www.kelleysbookkeeping.com/restitution-and-unjust-enrichment/ mistakes, accidental reorders, missing or additional zeros, or left-out decimal points. To reduce such errors, inventory should be physically counted and re-counted even when the business relies on automated systems. Clerical errors like this also lead to premature ordering and, eventually, sitting inventory that takes up shelf space.
It conducts a physical inventory count, and calculates that the actual amount on hand is $950,000. The amount of inventory shrinkage is therefore $50,000 ($1,000,000 book cost – $950,000 actual cost). The inventory shrinkage percentage is 5% ($50,000 shrinkage / $1,000,000 book cost). Inventory shrinkage is the excess amount of inventory listed in the accounting records, but which no longer exists in the actual inventory. Excessive shrinkage levels can indicate problems with inventory theft, damage, miscounting, incorrect units of measure, evaporation, or similar issues.
Even though that’s the average, it’s still pretty high because it equally weights even the highest inventory shrinkage rates. Like those at or above 3%, which account for almost 11% of retail what are some examples of investing activities businesses. If you’re using a POS system like Lightspeed, you can check your inventory levels and past cycle counts at a glance, making it simpler to monitor potential shrinkage rates.
Fashion Industry Shrinkage – Consumer Discretionary Sector
Inventory is complicated to manage, so it’s not surprising that units get lost in the shuffle. Some adjustment for inventory shrinkage is unavoidable, particularly in larger operations. However, improving your administrative processes should help prevent some products from disappearing. The next most common reason for inventory shrinkage is administrative, at 15.4%. This includes simple errors on the part of your staff such as miscounting, paperwork mistakes, or not factoring in things like inventory turnover ratio. Simple signage lets consumers know about CCTV cameras, and employees can frequently check in with customers to deter shoplifting even further.
If, for example, a Grand Cru wine was ordered but the vendor filled the order with a Premier Cru of the same vintage. It’s easy for the vendor to claim it was a mistake, and they still get to roll the dice on nobody noticing or caring enough to do something about it. It doesn’t take much shrinkage to make a noticeable impact on your business. Even with shrinkage lowering to 1.44% in recent years, that number translates to over $94 billion lost. Sometimes goods are broken without any theft or administrative error being at fault.
Some inventory management systems include barcode scanner apps, allowing warehouse workers to scan products using mobile devices. Monitor items as they move from receiving to sales and determine which items are routinely misplaced or stolen. Cycle counting requires you to work in regular intervals, moving from one subset of products to another to keep accurate inventory records. According to the shrinkage statistics from the 2019 National Retail Security Survey, inventory shrinkage accounted for 1.38% of all retail “sales.” That’s almost 48 billion dollars. To give you some perspective, the entire wine industry has a market value of 70.5 billion dollars. There are literally tens of billions of dollars to be recouped.
By being insiders of the company, they may quickly cover up the theft of inventory. If you have errors in your inventory counts when manually taking inventory, that screws up your shrinkage rate. To take any action on shrinkage, you need accurate information. Each time you take inventory is a chance to detect an inventory discrepancy. How to prevent shrinkage is an exercise in how often you’re taking inventory. Longer than that, you’re setting yourself to be on the losing end of a shrinkage problem.
Train your team on smart shelving practices and proper handling and storage to help curtail damaged goods. Employee screening and educationFrom the very beginning, close screening of potential candidates reduces potential inventory theft. Run credit, background, and criminal checks before hiring, and reach out to applicants’ references to identify any red flags. If you’re interested in learning how Lightspeed Retail POS could help you cut down on administrative errors and speed up how you work, let’s talk. When most retailers think of shrink, they think of theft, or shoplifting.
The restaurant POS will eighty-six that wine at 60 bottles and those 12 won’t be sold. When the vineyard sells the cases of wine, the vendor or wholesaler receives and sells the wine on an online marketplace. They don’t often know their shrinkage numbers—which is something wholesale inventory management software and inventory forecasting helps with—but they know they’re losing product. Vendors can be subject to the same administrative errors as retailers, which can contribute to shrinkage.
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