Everyone in the organization is satisfied, if not ecstatic, when final shrink results reveal that we have achieved the company goal. The shrink result, alone, seems reason for celebration and these good results would intuitively indicate the existence of an effective loss prevention program.
An unfortunate number of times, however, companies are frustrated when the next inventory cycle misses the goal or when shrink slips back to a higher percentage. In a search for answers, the most common responses to increased shrink are:
“Perhaps it was a systemic issue”
“Loss Prevention wasn’t a priority for the company this past cycle”
“Maybe we didn’t have enough resources”
While these factors may play a role, without an analysis of the individual and historical store results these responses are difficult to defend. One reason is that in statistics “correlations” imply that “one thing causes another.” These correlations may be weak or strong but they are never perfect. In other words, correlation does not mean causation. Just because loss prevention was not a priority does not make it the cause of higher shrink. It is the actions or absence of actions created by a condition of “low priority” that caused the shrink.
Isn’t this just semantics? No. Consider that we can have no systemic issues, LP can be a high priority, and we can apply more than enough resources…and still have poor shrink results. Conversely, many companies without any focus on loss prevention enjoy good shrink results. In short, the only way to determine if your results are attributable to your program is to be able to draw a line between “what you did” and “what you got.”
Even a highly focused and effective program will not prevent every store from having a shrink meltdown. A focused program, however, that maintains a clear connection between its components, execution, and results can accomplish three important objectives:
Confirm that the program components provide desired results
Establish and monitor the behaviors that create a rise or fall in shrink
Determine when the issue is one of effectiveness versus resources
Often companies forget that more resources alone will not fix the problem if they are incorrectly applied. The proper analysis requires that we forgo celebration until we understand how program components and execution affected the individual store’s results. Even an acceptable company shrink number needs consideration against individual store results. To obtain a consistent shrink history we must recognize trends that demonstrate:
Substantial swings in individual store shrink from year to year
Stores whose “middle of the road” shrink performance never improves
When major overages offset major losses
These conditions may be an indicator that your program results are more about luck than effectiveness. Understanding the intricacies that make up your company’s total shrink, measuring the actions taken to the results achieved, and evaluating methods for improvement at the store level are the best ways to ensure you have implemented a great program.
Looking for additional resources to help you with your recent inventory results? Click on any of the following resources to learn more.
Want to benchmark your shrink results against those across the industry? Need to analyze your target stores against other retailers anonymously with up to date information? Learn more about The National Shrink Database, an online industry tool, provided free to retailers.
Written By Raymond Esposito, Executive Vice President