Retail Shrinkage – What causes shrinkage in retail? | Ways to Minimize Retail Shrink

Retail Shrinkage | What causes shrinkage in retail? | Ways to Minimize Retail Shrink | Operations Management 

Retail Shrink

Retail Shrink is the term that is used to define the situation where loss of inventory takes place because of various factors like errors conducted by administration, employees and customers theft, process failures, return fraud, etc. Retail Shrink has been significantly increasing globally in many countries despite of the necessary precautions taken by the companies. Following are the various ways in which the shrink can take place in the Retail industry.

Various Ways in which Shrink can occur in Retail Industry

Most of the time companies do hire temporary employees (ignoring the standard hiring process) during their peak season because they don’t want to lose their efficiency during those rush days. But not all the employees that have been hired will be familiar with the organization’s work and culture immediately which can result in many consequences facilitating the shrink. Nowadays, Return fraud for items in the retail store has been increasing exponentially. Those companies or businesses which do not have their standard return policy are mainly affected by these types of fraud. Return Fraud occurs for various reasons like returning the goods/products produced with counterfeit money, returning products that have been stolen from the same retail store itself, using the products that have been used, etc.

Along with these fraudulent activities, there are also other reasons that cause retail shrinkage like errors done by the administration. And this account for heavy loss or shrink for the companies. Some of the mistakes that are conducted by the administration like accounting errors, mislabeling the products, incorrect markdowns, etc. lead to the sale of the products in a less amount than the amount is to be refunded. For example; if a product called Colgate has been incorrectly markdown a lesser selling amount (e.g. NPR 40) for which the amount that is to be refunded is NPR 70 then it can create a huge shrink and loss.

Another source of shrink in the retail industry is due to failure and damage in the process of the company. These errors are caused due to misplacement of the products and inappropriate movement of the goods which are perishable in nature (Dutta, 2012). Along with this, vendor error does contribute to the shrink in the retail industry and causes product loss.

Ways to Minimize Shrink in Retail Industry

The above-mentioned points highlight the major source of Shrinkage in the Retail industry. In the retail industry, there are various stages and at any stage, there might be an occurrence of Shrink. Research says that the major source that causes significant shrink at the retail chain globally is because of the sources like shoplifting and employee theft (Bamfield, 2006). Therefore, it becomes very important to find out various ways that can minimize these shrink in the retail chain to a greater extent.

Besides the known causes mentioned above, there are still unknown causes that can cause shrink in the retail chain but it is better for the retail industry to focus on the known causes in order to eradicate the retail shrinkage rather than getting confused with the unknown causes.

As mentioned above hiring temporary employees for the peak season so that the company does not go understaffed can result in a shrink. Therefore, to avoid this issue company can have done a proper analysis of its peak season using the past data and records of the company. Using the various systems in the organization company can do forecasting on when it will need employees. The company can give a proposal for the existing employees regarding overtime that are already familiar with the work and culture of the organization rather than hiring a temporary employee.

Return Fraud can take place in any of the ways mentioned above and it has become a concerning topic for the business organization to limit or completely eradicate these frauds. Although, companies try to be aware of these things it is still taking place in an increasing manner day by day. Companies must have their tighten return policy for the products that are returned. They must ask for a proper receipt for all the items that come for return along with the ID details as well. The companies must train their employees to spot the Return Fraud immediately (Mishra & Prasad, 2006).

Organizations should clearly mention their return policies so that it does not create ambiguity for returning the items. Administrative errors mainly occur accidentally or naturally but it does not signify that it cannot be prevented or minimized. These errors can be prevented by proper employee training their employees with the necessary skills required to track these errors. Integration of various technologies in the retail industry can avoid Retail Fraud because technology will help to track each and every activity of the customer or the person.

For example, Big Retail Companies like Amazon Go have implemented different automated technologies which facilitate better purchase and payout avoiding many fraudulent activities in the store itself related to employees theft, Shoplifting, etc.