If we refer to financial meaning of the term ‘inventory shrinkage’, we can describe it as the loss of products between point of manufacture or purchase from the supplier & the point of sale. It can be understood that controlling shrinkage and inventory can be the difference between opening another store and closing the doors of a last store. However, independent retailers who remain closer to their inventory, staff, and, most importantly, customers through higher service levels , should expect much smaller shrinkage numbers as it is much easier to control in comparison to large, big box operators who promote high traffic to survive.
Harish Bijoor, Brand expert and CEO, Harish Bijoor consults Inc. says, “Technology interventions have helped when we talk about this topic. Apparel retail suffers the most on the count of shrinkage as does confectionary. Shrinkage is related to the attitude of a society as well. I do believe in India, it will be a perennial disease we have to live with. It is the cost of doing retail business in India.”
Bijoor shares the current numbers (for inventory shrinkage) to be ranging from 2.6 per cent upwards. However, it is to be noted that in a rather low profit situation this could be killing!
The commonest causes of shrinkage are due to employee theft and customer shoplifting. Nearly 50% of the retail inventory shrinkage comes from employee theft. Other causes of shrinkage include:
* Damage in transit or in the store.
* Administrative errors such as shipping errors, warehouse discrepancies, and misplaced goods.
* Cashier or price-check errors in customer's favour.
* Vendor fraud.
* Perishable goods not sold within their shelf life.
Shrinkage in retail that is caused by employee actions typically occurs at the POS terminal. There are different ways to manipulate a POS system, such as a cashier giving customers unauthorized discounts, creating fraudulent returns, manually entering values in the system or making a no-sale, which means that the cashier opens the cash counter without registering a sale. These transactions that differ from normal transactions are called POS exceptions.
Viney Singh, Managing Director, Max Hypermarket India Pvt. Ltd (SPAR), opines, “Traditionally POS fraud is fought by surveillance staff monitoring a POS terminal or by manually searching in surveillance video recordings. Modern POS systems can have automatic alerts when specific exceptions are detected. Also exception reports and listings based on employees, refunds, terminals etc are possible to detect with modern systems. Modern networked based POS systems can also include network video to POS exception listings, giving quick access to detailed information of what has happened.”
“As important as accurate counts are to running an effective merchandising system, the acceptable error rate for effective merchandising is much more forgiving than what is acceptable from a financial point of view on a company's financial statement,” adds Singh.
Harish Bijoor, Brand expert, CEO, Harish Bijoor consults Inc. avers, “Inventory shrinkage has two factors. One is internal employee related shrinkage and the other is external customer related shrinkage. The first is controllable more easily than the second.
Many retailers are using security technologies such as anti-shoplifting, digital video and point-of-sale systems to help their staff zero in on theft problems.
Singh points out the newest security technologies being used by retailers this year to control losses due to theft. It is learnt that there is a ‘Point-of-sale data mining software solutions’ that detect the potential theft problems at the cash register and alert appropriate personnel in real-time. These data mining packages can be tied to digital video recorders to provide crisp, clear images of who sold what to whom with a click of a button and can be delivered to any location around the world.
The other technology which can be employed is the ‘Source tagging programs’, where tiny anti-theft labels about the size of a paper clip are placed inside an actual product or product package, effectively hiding it from view.
Joining the bandwagon is the ‘Self-alarming anti-theft tags’ that broadcast an audible alarm throughout the store when a shoplifter attempts to improperly remove it from merchandise. Stores that utilize security technologies generally have lower overall inventory shrinkage than those retailers who do not. Technology also allows employees to focus more time on assisting customers and less on patrolling the aisles.
However, technology alone will not eliminate retail theft. Retailers who want to reduce losses should also strive to provide good customer service and promote high job satisfaction levels among its retail sales associates.
Yet another effective measure to prevent against loss due to shrinkage is to implement an effective inventory management application. These applications allow for better control over inventory and will alert companies of the source of the inventory shrinkage. A more accurate picture of inventory also provides significant cost savings for companies as costs associated with stock-outs or excess inventory are eliminated.
Most frequently used methods are stationing security guards in uniform and mufti, cameras throughout the store and sensors at exits. Bijoor makes an interesting point by adding, “Policing is the only answer. Technology can help to an extent. Vigilance on the shop floor and exemplary action against shop lifters helps.”
Inventory shrinkage is a crucial retail issue which needs to be addressed before it proves to be damaging, especially to the low profit bearers!