Working and managing in the retail business has been a tough gig since the end of the COVID-19 lockdown. Consumers and the public at large remain under pressure as costs rise across the board. Higher prices means more chances for loss for retailers as bad actors resort to crime to obtain goods. Relaxed prosecution laws in areas such as San Francisco only add fuel to the fire as thieves become more brazen in the way they operate. While large, big box operators can easily close up sites and leave problem areas, small and medium size owners cannot easily pack up and leave town. With the current state of security in the retail industry, creating strategies to manage loss will help control costs and increase profitability.
So many ways to lose money
Margins have always been a challenge for retail operators and driving profitability means increasing sales and seriously controlling costs. One of the bigger challenges for managers and owners is controlling ‘shrink’ or loss. The National Retail Federation suggests that shrink should fall in between 1-2% of gross sales. Retail loss can come in different forms and each has their own negative impact on the bottom line.
- The easiest to tackle are losses caused by internal errors and mishandling of assets. Mistakes in receiving inventory can easily add up and handling products and store assets improperly can drive up costs while reducing profitability. Taking the time to focus on inventory processes is a quick and easy way to reduce loss and drive the bottom line.
- Internal theft is something that every retail manager and owner needs to think about. We want to trust our employees and team but theft from internal sources can quickly reduce profitability and worse, decrease team morale and productivity.
- External theft is a biggest factor when it comes to ‘shrink’. 80%-90% of retail losses can be attributed to shoplifting and robberies during closures. This type of loss may be tricky to control but reducing theft opportunities will help control these types of losses.
Having well communicated strategies and processes in places for each type of potential loss will help in controlling and possibly reducing costs for the business. Lowering costs is key to driving profitability in a retail environment.
Knowing the who, what and where of potential losses
Having defined processes in place is the best tool to help reduce costs associated with shrink. It starts with inventory handling and ensuring that the backroom team is well trained in proper receiving and storing procedures. Processes associated with the storeroom should be readily available to any staff and located in a binder that is easily accessible. Managers and owners who walk storage and sales floor areas can identify ‘blind spots’ that create opportunities for loss. Creating a ‘map’ and marking ‘LP hotspots’ in storage and selling areas can reveal spaces that need improvement and inform staff of potential vulnerabilities at the location. Emergency Binders are a must for sites that offer public access Information such as procedures, emergency contacts and other vital information should be easy to get to and find by all staff members. Small and medium sized businesses that have defined and consistent plans and processes are better situated to control costs and combat loss from internal and external sources.
The Bottom Line
The retail industry has been through some tough times since the start of the COVID-19 pandemic. Lockdowns and restrictions have taken their toll on the bricks and mortar retail business. Now the industry is facing even more turmoil as operational costs continue to rise in the face of a more demanding and volatile consumer. Small and medium sized retail businesses that take a long hard look at internal processes and procedures could potentially realize a reduction in losses which helps drive profitability. Owners and managers can address a location’s vulnerabilities by having semi-frequent loss prevention walks and meetings. Inventory handling and receiving processes should be reviewed every so often to ensure proper bookkeeping and maximizing asset potential. Operations that have well defined processes and procedures specific to internal and external losses can control these costs more efficiently and help drive profitability.
