Analyzing your locations based on inventory results should involve looking at a number of variables, however most companies use shrink percentage as their primary key performance indicator (KPI) in selecting targeted locations to reduce shrink across the company.
A question often pondered is whether or not shrink dollars would be a more accurate primary KPI to use when looking to determine those locations, that if shrink dollars are reduced, would it have a greater impact in reducing the overall company shrink percentage.
We recently tested this theory using data across numerous specialty retailers with locations ranging from 70 locations to upwards of 500 locations. Here is what we tested;
Inventory results from multiple retailers measured independently against themselves
Ranked individual locations by both shrink percentage and then by shrink dollars
Created two “target store” lists for each company. Each list contained the top 20% high shrink locations, one by shrink percentage and the other by shrink dollars.
Our first assumption, like many may assume, was that we would not have expected too much of a difference in which locations made our “target store” list in dollars or percentage. Here is what we found regarding our “target stores” for each company.
We noticed that our “target store” list changed slightly in which stores made the list but more importantly the total shrink dollars lost were 16%-22% higher on our test companies Shrink Dollars “target store” list compared to the total shrink dollars on our Shrink Percentage “target store” list.
This list difference showed that although some locations had lower shrink percentages (and would not have made our target list due to percentage) their dollars lost from shrink were greater and possibly affecting the overall shrink of a company.Overall Shrink Reduction
Our test against overall shrink reduction would be the ultimate test. Although our target lists showed interesting results, we were not certain what we would find when calculating the overall shrink reduction from dollars versus percentage. Because we used post-inventory results for our measurement, we assumed an across the board reduction of shrink by 50% for each target location in each of our target lists. Using this reduction we found;
Our overall company shrink percentage was reduced and average of 5% more when we used the shrink dollars as our primary KPI in target stores versus using shrink percentage as the driving indicator to rank target stores.
A couple of items do need to be mentioned about our little test. First, we completed these using results that were already calculated and some of these retailers may not have had true target store programs in place (could the results have been better?), which is why we used a standard reduction across the board (50% shrink reduction in each target store). We understand that in a real world experience, shrink reduction in each location would have been different.
We used this process in multiple companies, across various retail segments to get our averages and findings. Even with varying store counts and segments, we found the results to be similar.
What do you think of these results?
Can you make a greater impact to your overall company shrink percentage by focusing on those locations with higher shrink dollars versus an individual location’s shrink percentage?
We ask you to test out this theory with your locations and would be interested in hearing what results you obtained. Even better, take your most recent inventory, develop the two target store lists, put all locations on each list on a target store program and test your results during your next inventory period.
Shrink dollars and shrink percentage shouldn’t be your only KPI’s when accessing target store locations or shrink reduction. We also have some great articles written on the topic of target store development and execution.
Written by Tim Casey, Director of Corporate Services