RFID versus the three main causes of retail shrinkage…

Shrinkage – or shrink – is the term used in the retail world to describe a reduction in inventory due to shoplifting, employee theft, or other errors.

Most consumers have a perception that this loss of profits is factored into, and absorbed, by retailers as part and parcel of doing business. This is true to a certain degree, as retailers do have to factor loss into their bottom lines, however it’s a costly problem for all.

The average figure used to illustrate this loss by the retail industry is about 2% of sales. This may sound like a trifling amount to most, but that percentage equated to more than $49 billion in losses in 2016 in the US alone, according to the National Retail Security Survey on retail theft. To put it in layman’s terms, if your business is turning over $1M in sales with 50% gross margins, that 2% will equate to a loss of $10,000 – no small sum.

There are three main sources of inventory shrinkage in retail:

1. Shoplifting

The number one source of shrinkage for a retail business is, perhaps unsurprisingly theft by consumers themselves. Customer theft occurs through concealment, altering/swapping price tags, or transfer from one container to another. Shoplifting used to be the second-most common reason for inventory loss, after employee theft, but recently moved into the dubious number one spot.

In 2014, shoplifting accounted for 38 percent of retailers’ shrinkage, and continues to cost retailers billions of dollars every year. This shows that, even with security measures such as cameras and digitized tags that set off alarms, this is still a tough area of theft for retailers to handle.

2. Internal/employee theft

The previous occupier of the number one spot, this happens when company workers steal, or misappropriate funds, or goods. Employees have gotten quite creative in recent years and so this kind of theft can include discount abuse, refund abuse and even credit card abuse.

This area is not monitored as closely as customer theft, in part due to the fact that the employees have a better overall view of the systems in place and thus can ‘exploit’ them. The level of this problem is illustrated by the fact that 34.5 percent of shrinkage in 2014 was due to employee theft. Searching employees personal belongings before they leave the premises is slow, time consuming and, most damagingly, bad for staff morale.

3. Paperwork errors

Having poorly organised inventory and stock management can lead to serious errors in your pricing policy. Marking products down – or up – incorrectly can cost the average retailer quite a bit. Using simple, easy to use stock-management programmes and accounting systems can help eliminate this source of shrinkage – one that accounts for approximately 16 percent per-year.

So, you may be asking yourself, how do I combat these three areas of shrinkage, and thus turn that 2% into a big fat zero? That’s where Paragon’s cutting-edge RFID labels come into it. Simply adding these tags into your stock inventory is a cost-effective and fast way to accurately check your stock at any given time.
Over stocking is a thing of the past with the real-time stock management-systems available to you – and this will also eradicate human error, so a further saving on cost.

Stock is easier to track on shelves and scan at tills meaning staff are less likely to try to steal them, and with inbuilt security systems shoplifting will also be a thing of the past, as the labels are so discreet the average thief would be hard pressed to spot them!

If you are a retailer and are interested in seeing how Paragon RFID can help you and your business maximise profits then drop us a line….