Insight: What are the main causes of retail shrinkage?

24th February 2020

According to the ‘Retail Security in Europe’ report, shrinkage is costing UK retailers almost £11bn annually – the highest of any country in Europe. 

Keeping a close eye on shrinkage is therefore essential, not just for accounting purposes, but also in terms of identifying and tackling issues with a proactive approach. Whilst some would argue that retail shrinkage is merely a “cost of doing business” most would appreciate the need for urgent action. Why wait until the issue has a drastic bearing on the bottom line? 

From grocers to corner shops, small boutiques and the globe’s largest retailers, it’s never been more important to take a more proactive approach to reducing shrinkage. Below we’ve outlined just a few of the main causes, but these should only be seen as the very starting point in understanding and tackling a shrinkage problem.

Shoplifting

Analysis by Checkpoint stated that UK retailers suffered over 1,000 daily incidents of shoplifting in 2018, whilst the ‘Retail Security in Europe’ report shows UK shoplifters most frequently use the ‘grab and run’ method. Depending on the store, customer theft can also occur through concealment or swapping tags, whilst many thieves shoplift with intent to return items for the full retail price. 

Employee Theft

According to the Office of National Statistics, employee theft costs UK businesses more than £190 million every year, whilst employee fraud is responsible for another £40 million in losses. From fraudulent use of discounts and refunds to outright stealing of products or supplies; the common assumption with internal theft is that it’s often committed by a low level employee, however, many cases involve a manager or senior team member committing the offence. Whatever the size of your retail business, various steps can be taken to help mitigate such threats, such as creating a ‘zero tolerance’ theft policy, recording entries and exits, conducting random searches and carefully vetting new employees. 

Administrative errors

From simple pricing errors to clumsy markups, administrative errors can cost retailers considerable sums, so it’s vital to put a high level of protection in place, such as intuitive and easy to use accountancy software and simpler procedures. 

Supplier fraud

It may not be the most common cause on our list, however, it does happen and it can be rather simple in many ways. A supplier may, for example, send two invoices for the same purchase order (PO) just a few weeks apart, but with different invoice numbers. The individual approving payments may not remember processing the first invoice, meaning both are paid. If the double payment is spotted, the supplier can simply apologise for the ‘mistake’. It’s a sign that you must never drop your guard – not even for longstanding suppliers you’ve maintained strong relationships with over the years. 

Unknown shrinkage

As frustrating as it can be, a large amount of retail shrinkage is due to unknown causes. The National Retail Security Survey confirmed that approximately 6% of all losses couldn’t be accounted for under any other categories. 

Protect your business today

Our award-winning software Synapse enables a more proactive and accurate approach to loss prevention, aided by real-time reporting and a more effective use of intelligence. It enables retailers throughout the UK to collaborate together as a community – securely sharing intelligence across their platforms to improve strategic security planning for various specific types of existing and emerging incidents and shrinkage causes. 

If you’d like to learn more about how Synapse can adapt to your retail risk and loss prevention strategy, please contact our team today.  

 

Helping customers protect what matters to them.

Learn more: www.zinc.systems or contact us for a detailed demonstration
by calling +44 (0)1604 598999 or email us at info@zinc.systems

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