The Impact of Shrinkage on Your Retail Business and How to Address It

Shrinkage is a problem nearly every retail business faces, and unfortunately, it’s more or less unavoidable.

Inventory shrink can happen due to hundreds of different factors, and even the most diligent and watchful staff can’t keep an eye on every single item 24/7.

That being said, loss prevention efforts do help reduce the amount of inventory shrink by a significant amount; however, that amount does depend on the individual business.

Knowing the full impact inventory shrink has on your retail business means having the right systems in place to monitor your assets.

From there, the data gathered can be used to identify areas where items are disappearing, as well as the unique reasons for it.

Before we get into how to properly monitor your inventory and tackle shrinkage head on, let’s take a closer look at what retail shrink is exactly.

What is Shrink in Retail?

Inventory shrinkage is the name given to any disappearance of a business’ asset, whether it happens at the store itself or the warehouse.

Such a wide definition can apply to many different situations. While theft is often the leading factor in inventory shrink, that isn’t to say damage that happens during transport as well as employee negligence or miscounting don’t factor in as well.

Monitoring shrink at your specific location means identifying where and how the shrinkage is primarily occurring. To do that, you’ll need to have the right tools and systems in place.

The Most Common Ways Shrink Occurs

As you might experience, shrink occurs in a few fundamental ways.

Taking note of which ways shrink tends to take place around your business can help you build the right defenses necessary to bolster your loss prevention efforts.

Theft

For most retailers, both large and small, external theft is the primary cause of inventory shrinkage.

It can occur in various forms and at various scales, from the opportunistic or occasional shoplifter to entire organizations of people.

Organized Retail Crime (ORC) is an increasingly difficult problem to manage for many major retailers, especially as criminals are becoming more coordinated in their efforts and, in certain cases, more violent.

However, with powerful video security tools, cooperation with local law enforcement, and proper employee training, external theft can be reduced considerably.

Internal Fraud

Theft doesn’t just happen from outsiders entering your store and stealing. In many cases, it can be your employees and vendors responsible for missing inventory.

There are plenty of methods to watch out for when monitoring internal fraud, including fraudulent refunds, cash or merchandise theft, and providing discounted/free inventory to non-employees where no discount should be applied.

On occasion, employees may be consciously working with those outside of your organization to have better access to your store’s merchandise.

In these cases, it’s always important to see how exactly the theft is occurring and where the inventory is disappearing too, as it could be related to ORC.

Employee Errors and Inventory Damage

While the previous two cases of shrinkage are a direct result of theft, a fair percentage of shrink can be tied to operational errors or inadvertent damage done to merchandise.

When inventory shrinkage is monitored, it’s important to understand that accidents happen as merchandise is transported or recorded.

Sometimes this shrink can be tied to poor employee training or performance as well.

Video security can help in these cases still, as operational weak spots can be quickly identified to potentially aid in adjusting the safety and flow of particular areas.

How to Fight Retail Shrinkage

Addressing retail shrink starts with identifying the biggest points of loss within your organization. Above, we’ve covered some of the most common culprits, but it’s important to monitor the unique problems your business is facing.

That said, having the right systems to quickly and correctly identify where shrink is occurring is necessary to tackle this issue.

Below, we’ve covered some of the best ways to take advantage of video security and software to bolster your loss prevention efforts and reduce shrinkage.

Video Security and Point-of-Sale Integration

POS systems are the backbone of most retail operations out there, and typically, the more advanced they are, the more they’ll help when reducing shrinkage.

Having each piece of inventory recorded as it’s sold helps keep track of what’s moving out of the store.

However, data from a POS system can only tell you so much.

While it can be helpful to know that a particular item was sold, if five additional items are missing, who’s to say they weren’t stolen or lost during that transaction?

When combined with video, these systems become more capable of answering those questions.

A point-of-sale integration combines the data received from POS systems with security video to provide visual verification of the POS events.

Video is an incredibly powerful tool when used to combat inventory shrink. It can quickly identify user error, streamline investigations, and pinpoint where loss may be occurring.

Video Analytics

A security system equipped with video analytics can be one of the most efficient ways for retail businesses to strengthen loss prevention efforts.

When paired with video surveillance, analytics can be used to significantly streamline the process of analyzing hours of footage when looking for incidents related to theft or fraud.

Loitering can be recognized by a video analytics platform to help keep you alerted on the presence of unwanted persons or vehicles near back doors or other entrances where people (other than employees) shouldn’t be entering from.

License plate recognition technology can additionally be leveraged to recognize vehicles of interest who may have been involved in previous incidents, or to speed up investigations where you’re looking for a particular license plate.

The uses of video analytics have nearly endless applications and can be used in a plethora of different ways. Some additional capabilities include:

• Person and vehicle detection
• Line crossing
• License plate recognition
• Loitering

Streamlined Video Export

Particularly for retail businesses, being able to easily export and share video can help incidents resolve quickly before the next one takes place.

Easy video export and sharing benefits retail security in many ways, one of the foremost being avoiding physical backup devices.

Instead of having to retrieve, download onto, and deliver a USB or other external device, a system with a simplified clip sharing approach can quickly deliver important footage to the necessary parties.

Whether that video is shared with management, local law enforcement or insurance, having the ability to quickly access and share video in a time-sensitive manner helps strengthen the overall security of your system and safety of your business.

See How OpenEye Can Help You Fight Shrinkage

Monitoring and reducing inventory shrink is an everyday battle for many retail businesses. OpenEye can help you tackle these issues head on.

Our easy-to-use products are designed to help users streamline operations, bolster loss prevention efforts, and reduce the burden on IT, making it easier to manage and maintain video surveillance deployments and integrations of all sizes.

OpenEye’s trusted cloud-managed video and data platform provides actionable intelligence so you can protect and grow your retail business.

If your business needs a complete retail security solution, talk to us!

We’d love to see how OpenEye can help your business take advantage of our powerful cloud-managed video solution.