Shrinkage in retail, a comprehensive update - Part1

Do you know the link between baby formula, Levi’s jeans and Gillette razors?

Globally, these three are the most popular targets of retail theft :)

Such retail thefts are part of Shrinkage. Shrinkage in retail context is basically the difference between book stock and actual stock. It can also be defined as :

The loss in inventory on account of a combination of employee theft, shoplifting, vendor fraud and administrative error.

Another way is to say that shrinkage happen when goods leave the retail store or the warehouse without a matching payment.  

Or simply “shrinkage is unaccounted loss of retail goods”.

According to a last year study conducted by the UK-based Centre for Retail Research, shrinkage costs for the world’s retailers were approximately $98.6 billion in 2007. Which is more than six times the $16-billion organised retail that happened in India in that year.

Indian retail’s shrinkage figures are more worrisome. At 2.9 per cent of sales, India’s shrinkage rate is said to be the highest in 32 countries surveyed by the company.(though it has seen a decline over the previous year)

Shrinkage in India vs other APAC countries and Rest of the WorldShrinkage in India vs other APAC countries and Rest of the World

 

 

 

 

 

 

 

 

 

 

 

 

 

There are four main reasons of shrinkage:

Employees: Direct theft, low/under bill cutting in collusion with customers, stealing the Cash etc

Shoplifting Customers: also known as PIE theft, five-finger discount, or shrinkage within the retail industry: Customers stealing the products from the store

Accounting errors: Mistakes in Delivery/Sales/DnD/Expiry or any such component will cause a difference between accounting and actual stock

Vendor fraud: Under delivery in terms of number, size or quality of items when compared to the bill invoice

Reasons of higher shrinkage in India:

  • Companies are still learning the best processes of store operation & theft prevention. Many things can’t be directly copied from west due to huge technology investment or different conditions at home require an adaptation.
  • Large format stores are new to the masses. For most of the consumers  the idea of roaming around the  merchandise loaded racks without any apparent supervision is new.
  • Opportunity to see and experience lots of new things might also be a trigger for consumers to think about obtaining them, and the prevalent lower purchasing power might make them take this step.
  • Lower wages and low motivation at the floor staff level
  • The crowd factor: Thanks to our population, we create a crowd everywhere. This might also make shoplifters think that they will find their task easy.
  • Unprofessional vendors
  • Lack of investment from Retailer or vendors in IT control systems

In the next post, we will discuss about the Shrinkage prevention mechanisms adopted by retailers world-wide and a check of the situation in India. We will also post some rather interesting pictures of the posters that the retailers have used to warn people against Shoplifting.

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