What Is Shrink? And How Do I Lower It?

Shrink -- when used in the context of retail -- refers to the loss or damage of product between point of manufacture and point of sale. If a product is damaged while an employee is attempting to stock it on the shelves, for instance, it must be removed and counted and shrink. Unfortunately, shrinkage can take a toll on a store's profits, forcing them to raise prices in an attempt to make up for the loss. The good news is that you can lower your store's shrinkage by following some simple steps.

Theft

The single most common cause of retail shrink is theft. When a product is stolen, the store must count it as a shrinkage. Experts believe that American businesses lose more than $30 billion worth of product annually to theft. To deter theft, store owners should consider implementing one or more of the following:

• Video surveillance systems
• Alarm/ink tags
• Security mirrors
• Locked storage rooms
• Background checks on job applicants and existing employees

Move Product

The longer product sits on your shelves, the greater the risk of it becoming shrink. This is particularly true for grocery stores, supermarkets, convenience stores, and other businesses that sell perishable goods. To turn these products faster, it's recommended that you move them to a highly visible area, such as an end-cap. You can encourage shoppers to buy them by reducing their price and advertising them as a special promotion.

Hiring Employees

The wrong employees can contribute to a store's shrinkage problem. Workers who fail to properly stock shelves, handle products, etc. may cause shrink. On the other hand, loyal, hard-working employees will have the opposite effect by lowering your store's shrink. When conducting job interviews, try to gauge the applicant's work ethics to determine whether he or she is fit for the job. Taking the extra time to selectively choose your employees will go a long ways in reducing shrinkage while promoting an all-around positive working environment.

Employee Recognition

Another key step in reducing retail shrinkage is to recognize hard-working employees. How exactly can this help to reduce your store's shrink? Well, numerous studies have shown that workers prefer recognition over raises, and failing to recognize workers can result in a loss of productivity. Consequently, when productivity drops, shrinkage increases. A simple way to recognize workers is to implement an employee-of-the-month program, naming a single hard-working employee for each month.