In the ever-evolving retail landscape, the battle against inventory shrinkage remains a pressing challenge for both physical and online retailers. With losses estimated at a staggering $112 billion in 2022, tackling theft—whether internal or external—is imperative. However, combating shrinkage demands more than traditional strategies. It requires a proactive embrace of cutting-edge technologies and astute management practices to mitigate evolving threats.

The trend of shrink appears to be far from reversing course, with losses more than doubling over the past five years. In an industry where margins and profitability are already under significant pressure, the rise in retail shrink is capturing the attention of all levels within retail organizations.

Traceability has emerged as the leading solution, not just for real-time transparency but as an enterprise data tool to combat retail shrinkage holistically and over time. To combat accelerating shrinkage issues, retailers must deploy innovative strategies across both physical and online retail landscapes.

Considering recent customer strategies, Midmo’s foundational traceability model, MotionView Pro, provides end-to-end visibility and tailored scalability according to the unique needs and priorities of different retailers, suppliers and trading partner environments. Designed to compliment legacy supply chain and production best-practices, MotionView integrates with a universe of core business systems and technologies, including RFID technologies. Optimizing operations, ensuring actionable traceability and inventory data, while aiding in theft prevention.

Understanding Sources of Shrinkage:

Shrinkage, primarily the result of theft but not limited to it, arises from discrepancies between inventory expectations and actual counts. While theft constitutes a significant portion—65% to 70%—other contributors include clerical errors, fraud, and administrative mistakes.

Combatting External Theft:

  • Advanced Surveillance: Incorporate surveillance capabilities, including Electronic Article Surveillance (EAS) tags, CCTV, and facial recognition for enhanced vigilance.
  • Self-Checkout Oversight: Implement dedicated staff or technology-based monitoring to mitigate risks in self-checkout areas.
  • Crime Deterrence Measures: Ensure well-lit stores, organized layouts, and attentive staff for crime deterrence.

Tackling Internal Theft:

  • POS Policies & Training: Integrate robust POS policies, avoid solitary shifts, and train employees for heightened awareness.
  • Data-Driven Detection: Utilize data analytics to spot correlations between employee compliance and theft instances.
  • Anonymous Reporting Systems: Implement systems for employees to report suspicious activities anonymously.

E-commerce Shrink Prevention:

  • Data Analysis for Fraud Detection: Leverage data analysis and performance alerts in online retail to predict and prevent fraudulent activities.
  • Secure Packaging and Collaboration: Ensure secure packaging and collaborate with delivery services to minimize theft risks during delivery.

Shrinkage Beyond Shoplifting:

Shrink encapsulates all forms of loss throughout the inventory-to-cash conversion process, occurring across the entire value chain. This multifaceted challenge also involves various players, including employees, customers, and third parties. Organizations should think about the types of shrink–where it occurs, whether it is caused by internal or external parties, if it’s intentional harm such as fraud or theft, or if it’s unintentional loss such as accidents and errors. Through this exercise, retailers will develop their “shrink profile,” a way to classify the various types of loss at a granular level that can then provide better insights into underlying causes.

You can’t manage what you can’t measure:

Moving beyond broad assumptions of where shrink is likely coming from, retailers should undertake a data-driven approach to measure the areas where losses are actually occurring. Given that brands are distinct, the root causes of shrink vary widely, often necessitating tailored solutions working in concert to effectively address the challenge.

Connecting the Dots:

The closer you get to diagnosing the distinct root-cause issues at a granular level, the more precise and targeted your mitigation techniques can be. A holistic data-driven model that pulls information from across the organization to pinpoint individual origins of shrink is not just possible, it’s pragmatic.

The heightened loss from shrink requires a strategic holistic approach based on a thorough understanding of the unique shrink problems a company is experiencing. Only then can mitigation techniques, working in concert with each other and actively monitored for effectiveness, be employed to make a meaningful difference in reducing shrink.

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