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Shrink Percentage or Shrink Dollars: How much are you really losing?

Posted on 1/21/14 11:30 AM

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How much are you losing?Recent inventory results have just shown an excellent shrink percentage across your company. Your shrink percentage beats out industry standards and is rumored to be one of the lowest in company history. Congratulations? Not so fast. How good would your results be if you looked at shrink in terms of dollars lost instead of shrink percentage?

No doubt the standard measurement of a successful loss prevention program for a retailer is the inventory shrink percentage. Whether it is calculated at cost or retail, the shrink percentage will tell you if you have a successful program or not. However, what if you looked more closely at your shrink results by way of dollars lost - Would you rate your program’s success differently?

Let’s use an example of a single store location for a specialty retailer of women's apparel. Here are some numbers to chew on.

  • 5,000 square foot location in a suburban outlet center
  • Annual sales of $3 million U.S. dollars
  • Last inventory shrink percentage of 1.15% (retail)
  • Average price tag is $30 per item

An annual shrink percentage of 1.15% would probably be considered a "good" to "very good" result in the company. But if we were to look at dollars and units lost using the above information, we would learn that this location lost $34,500 in inventory and approximately, 1,150 pieces based on the average price per item. Going deeper into the details, in a twelve month period, this location averaged a loss of 95 items monthly due to theft or error! Based on those calculations, what should you be asking yourself about this location and their loss prevention program now?

First, is a store losing this many items acceptable or even possible in your environment without there being a reason for concern? Should one of your retail locations be losing that many items monthly or a dollar loss of that much money in a twelve month period?

Next, take a look at all your locations differently to see how stores with substantial inventory dollars or units lost compare. Measure stores that have similar square footage, annual sales dollars, merchandise mixture (if different) and store formats.

Lastly, try to understand how it may be possible to lose that amount of items. In most cases, depending on the type of item, even shoplifting that amount would be difficult. Look at how the store is operating with regards to compliance, hiring practices, associates awareness, internal theft prevention, and even handling shipments. Not all loss is caused by theft, but most is the result of a failure by associates.

Now this being just an example, we all understand there are variables in play. Next time you take inventory and have calculated your stores’ shrink percentages, create a spreadsheet and analyze your store locations based on shrink percentage, sales, total shrink dollars and total units lost. Sort your spreadsheet using the different fields and I am certain that you will see some stores that will be a concern using shrink dollars or total units lost with a good shrink percentage. Then build your program around reducing total unit and dollars lost, the shrink percentage will then take care of itself.


Topics: shrink awareness, Loss Prevention program and development