While shrink is an issue for the entire retail industry, the business of managing and reducing shrink differs significantly for small vs. large retailers.
Small retailers face unique challenges when it comes to managing risks, but their smaller size does not mean that they cannot develop a successful loss-prevention (LP) program.
LP pros and cons for small retail
Small retailers operate under the same high-pressure conditions as large retailers: costs have to be tightly controlled, customer service must be a priority, employee turnover is high and the supply chain must aim for perfection if already-slim margins are to be maintained. In addition to operating in this highly competitive environment, small retailers face other challenges.
Smaller retailers generally have fewer human and capital resources than larger retailers to apply to non-core operations. Staff members tend to be less specialized and have broader job responsibilities. Which means that LP duties fall into the hands of operations, finance staff or general management rather than a dedicated LP professional or team. So LP staff have minimal time and fewer financial resources, which can make it difficult to invest in technologies designed to monitor and reduce shrink.
These challenges definitely present limitations for small businesses when they go about constructing their LP strategies. However, these challenges do not mean that loss-prevention efforts cannot be successful.
So how can small retailers start addressing loss prevention effectively? A few, simple best practices can put small retailers on the road to effective loss prevention.
The best place to start with a strong LP program is with the talent.
Consider what qualifications are required to ensure success. An LP manager will be comfortable working with many levels of the company and will have the access and authority to do so. These generalists must be able to understand the big picture and work well with others, on whom they will rely to get programs up and going. Particularly in the small retail environment, this individual will rely on employees to help prevent loss.
The person heading up LP may be a finance professional, but will need to understand the fundamentals of merchandising, operations and purchasing to educate those co-workers on how their groups can contribute to shrink reduction. By choosing someone who understands the business as a whole and effectively works with others, small retailers can benefit from reduction in shrink in all areas of the business.
Leverage employees
Employees who are not part of the solution are part of the problem.
All employees should understand what role they play in loss prevention and how their efforts can contribute to the bottom line by preventing loss. It is not enough to post a flyer that says “Think shrink!” in the break room. Simply implementing an awareness program among associates will not lead to the desired results.
Retailers should go to great lengths to explain the risks of stealing and the rewards for reporting.
While a new employee is being trained, she should learn about the greatest potential loss-causing risks relevant to her position. For example, a new cashier should be instructed on the consequences of performing price overrides as a convenience.
If a customer brings a product to the register that is not marked or does not scan properly, it’s important to hand-key the entire SKU or call for a price check rather than just overriding the register with a “guess price.” Mispriced items at checkout are responsible for millions in shrink.
Education about shrink allows employees to understand the root of the problem and address specific challenges common to their functional areas.
Think beyond theft
In many cases, small retailers limit their definition of shrink to theft. Efforts often center on trying to prevent merchandise from walking out the door. Yet operational and administrative errors can cause more loss than theft. In small retail environments losses may be attributed to poor tracking systems and processes.
For example, inadequate receiving, inventory or tracking processes can keep the amount of product originally ordered from ever seeing stores shelves, and can dramatically increase the risk of having product incorrectly transacted at the point of sale.
Clearly defined processes for the receipt of product from suppliers are the best way to prevent loss in inventory receiving.
By scheduling delivery times and ensuring that someone is there to receive shipments and to inspect, verify and track inventory, small retailers can prevent loss that occurs when product listed on the invoice is delivered damaged, incorrectly or not at all. In short, loss- prevention programs should take all areas of the business into account and realize that loss can originate before the merchandise ever makes it to the shelf.
Select tools carefully
Today, the technology available to support security and loss-prevention efforts is virtually unlimited. Particularly in light of restricted capital, it is critical to select and implement technologies that best meet the specific security needs of the particular organization.
For example, many retailers implement Electronic Article Surveillance (EAS) systems simply because “that’s what everyone else is doing.”
Without specific objectives in mind, randomly implemented technology will have minimal impact. Retailers should consider their unique security problems, possible solutions and how different technologies will help resolve those problems.
Careful consideration should be given to who will use the technology, how they will use it and how it will be rolled out in the company. To adequately serve its purposes, technology should be a means to an end rather than an end in itself.
For example, consider a small retailer that is interested in implementing a video system to deter theft, but is working with a limited budget. The LP manager may explore alternatives such as public-view monitors, which can be installed at entrances and in high-risk areas to effectively deter theft and give the appearance of the store having a more comprehensive video system than it actually does. This solution may be more cost effective and meet the primary objectives just as well as larger solutions.
Smaller retailers don’t need to follow the herd or larger retail technology and process deployments to make a difference. If they will apply a LP program that is specific to their business, the small retailer can be successful in reducing shrink and improving the overall financial performance of the business.
- Andrew Wren
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Andrew Wren is president of Wren (www.wrensolutions.com), a provider of video surveillance solutions. He can be reached at andrew.wren@wrensolutions.com.
June 2008