Stop the shrink

The scene: A customer walks into a garden center clutching a loyalty coupon entitling her to 50-percent off any one item priced at $15 or less. Ah, but she’s there for much bigger things! A major garden renovation is underway. The cart is quickly filled to capacity with five 3-gallon shrub roses and a large Carolina jessamine.

But, not wanting the coupon to go to waste, she adds a 6-inch pot of dianthus to the pile—a little gift for her daughter. It’s the only thing on the cart priced at less than $15. The happy customer breezes through the checkout and loads up her plants. But once she gets home, she realizes something’s not right. She pulls out the receipt and finds the 50-percent discount was applied to one of the $34.99 roses, not the dianthus. Lucky day, right?

Shrink Rears Its Ugly Head
Most customers probably wouldn’t give this fortuitous mistake another thought. But in this case, the woman mentioned here is me. Your resident managing editor, retail stickler and garden-retail advocate. I called the store and spoke to the manager about the discrepancy. To her credit, she thanked me profusely, assured me that she would give extra training to the cashiers and told me not to worry about making up the price difference.

I think we can all agree that the typical consumer wouldn’t say anything. And it’s only one example of how retail shrink erodes a garden center’s profits. Shrinkage, essentially, is the percentage of loss of products between manufacture and point-of-sale. And, as noted above, it isn’t always accounted for by theft or shoplifting.

According to the National Retail Security Survey, shrinkage costs retailers more than $31 billion annually. It remains a big problem for shopkeepers both big and small. Shari Waters, a small-business owner and About.com’s retail expert, said there are four major sources of shrinkage: employee theft (the No. 1 source), shoplifting, administrative error and vendor fraud.

Manage Shrink
Shrink won’t disappear completely, which is why retailers must be proactive in managing the problem. Jerry Obarski, an expert on shrinkage, offered these best practices:

1. Recognize that shrinkage is a business expense that needs to be controlled. Although you do not get an invoice as you would for a utility or rent, shrinkage is nonetheless an expense that needs to be accounted for.
2. Plan and conduct an accurate annual physical inventory. The only real means to determine actual shrinkage is to compare your physical stock to your book stock on a regular basis.
3. Express your shrinkage loss in dollars and as a percent of sales in order to have a reference point. Keep good records.
4. Break your shrinkage losses down to specific product classifications. This is a critical action to determine how you can begin to reduce losses.
5. Establish reasonable shrinkage reduction goals. Build policies and procedures to achieve goals.
6. Actively involve all associates in your company shrinkage program. Hold periodic shrinkage meetings to assign responsibilities, review procedures, discuss self-audit results and create awareness.
7. Based on specific product shrinkage results, determine if theft deterrent actions are needed. This could include the use of security devices, closed-circuit TV coverage or lock-down requirements.
8. Develop effective audit techniques. Any active shrinkage-control program must be supported by both formal and informal (self audit) reviews of policies and procedures. Audits need to review any and all possible actions that could produce shrinkage—receiving /shipping, register controls, ticketing, order placement, damage processing, theft deterrence measures, etc.
9. Based on your shrinkage history you should plan a monthly charge to your profit/loss statement for anticipated losses. This monthly shrinkage reserve will spread your losses over the year and can then be reconciled when you take your next inventory.

For more: Jerry Obarski, jobarski@sbcglobal.net, (636) 922-2695.