Has Your Store  Fallen Victim of Significant Retail Inventory Shrinkage? Here a Few Common Causes

 

According to the National Retail Federation (NRF), retailers across the country reported higher inventory shrinkage rates in 2020. Inventory shrinkage is calculated by the difference in the recorded inventory and actual inventory. If you’ve crunched the numbers and suspect a profit loss due to retail inventory shrinkage, it’s crucial to find the cause. 

As corporate investigators, we have worked with retailers to find the source of their retail shrinkage. This is an issue that has cost companies thousands and even millions of dollars in profit loss. To help retailers identify the possible cause, we have identified the top common sources of retail inventory shrinkage worldwide. 

Administration Errors

Human and computer errors are common issues in any industry. While these errors are never 100 percent preventable, having a reliable POS system can help minimize errors and correct most mistakes. Additionally, proper training on using and tracking shipments and inventory can help reduce the simple errors that could appear to be inventory shrinkage. 

 

Shoplifting 

Shoplifting has been cited as the number one source of inventory shrinkage. Shoplifters widely vary in age, gender, race, and socio-economic status. Due to this, identifying individuals or a group of shoplifters can be hard. However, there are steps to counter shoplifters, such as upgraded technology, employee training, and keeping highly stolen items locked away. 

However, it is also important to be aware of professional shoplifters. On a larger scale, organized retail theft (ORC) can wipe out several thousands of dollars worth of inventory in a single store. The NRF found that 97 percent of retailers have been victims of an ORC hit in 2019, and the numbers continue to rise. 

[RELATED: What Are Organized Theft Rings?] 

 

Return Fraud

This may be an additional step to shoplifting. With return fraud, the consumer returns an item they stole from the store in exchange for cash or store credit. Reports of return fraud continue to increase every year, making it more critical than ever to review your return policy and ensure employees are adequately trained in the return policy process. 

For example, requiring a receipt for all returns and verifying all information is valid and correct can minimize return fraud at your store. By adding extra security and protocol to your store to minimize return fraud, you could minimize risk of retail and profit shrinkage.

 

Employee Theft 

Every employer has the hope that every employee they hire is honest and reliable. Unfortunately, this is not the reality for many.

Employee theft does not always mean swiping items from the shelves or marking them as “damaged.” Providing family and friends unauthorized discounts or free products is also an example of employee theft.

As mentioned earlier, human error does occur from time to time – this is not considered an admin error unless it was done with malicious intent. But how do you know? This is where an investigator would be able to assist. 

 

Vendor and Supplier Fraud

From duplicate invoicing to being invoiced for products that never arrived, vendor/supplier fraud schemes are less common but due still occur and can cause significant loss for a store. To minimize your risk of vendor fraud, keep all vendors accountable and keep careful track of when a vendor arrives at the store and the delivery is what was agreed upon under contract. 

Again, vendor and supplier fraud can also be done by professional retail thefts or could even be working with the store’s employees to commit fraud. Conducting thorough background investigations on new employees and vendors can be an excellent way to minimize this risk. Additionally, carefully reviewing all potential vendor contracts with due diligence can help avoid entering into an agreement that poses a significant threat to profit loss and retail shrinkage.  

 

Find the Source of Your Store’s Inventory Shrinkage

If you have noticed a sudden increase in inventory shrinkage or a consistent loss, it’s crucial to find the source. While you may be able to find the cause of your retail shrinkage on your own, other issues, such as identifying if you have fallen victim to an ORC hit, may require a professional investigation. For more information, contact our investigation firm for a free consultation.