Shrink is defined as the unaccounted value of merchandise and is usually reported as a percent of sales.
Some retailers define unaccounted value based on the cost of the merchandise when it was purchased and some use the value based on the selling price (retail). Shrink is caused by three different sources including employee theft (42%), shoplifting (35%) and paperwork error/vendor fraud and others (23%).
Controlling Shrink is a team effort where loss prevention, operations, HR and logistics come together to maintain operational controls and apprehensions when these control fail. Often there is no ‘Silver Bullet’ for a retailer to use that will bring their shrink number down. Most have to focus on all three areas with good operational controls, awareness program and apprehensions when those two components fail.
Setback for Indian Retail Sector
India has been ranked number one in retail shrink among 43 countries by the Global Retail Theft Barometer 2011 survey. There are various factors responsible for high shrink rate in India, but most important factor is that it’s not a board level issue so far and Indian retailers are not investing on their loss prevention program as they should.
In addition, employee dissatisfaction level at front end contributes and creates high shrinkage conditions for retailers. Retailers should timely review salaries/incentive structures and working hours for front end staff, which presently is missing as compare to global standards. It seems small issue if we see it at macro level, but with actual case studies and practical encounters, we get to know this is a significant factor which determines high or low shrink rate for that particular store. All investments on electronic and video surveillance pay you back only if you have a team of fully motivated staff at store level, otherwise you may not get the expected results.
Indian retailers should also understand the diversity of the country when it comes to design a loss prevention (LP) program, because it may be changed by one state to another. They also should maintain black listed data for defaulter employee’s which needs to be circulated among all retailers.
There may be endless discussion and literature available for retail shrink, but need of the hour is to have a strong, efficient and motivated team which may design, implement and review all LP program within the company and it should be a board level issue.