Effective Retail Loss Prevention - 10 Ways to Keep Shrinkage Low (2007)

Adrian Beck, Department of Criminology, University of Leicester
A 2005 ECR Europe Shrinkage Survey concluded that there were 6 steps to successful shrinkage reduction: having a written company policy; high levels of intra-company co-operation; prioritising the problem; incentivising staff; conducting regular shrinkage reduction projects; and making use of the ECR Europe Road Map1.

All of these factors were correlated with lower levels of shrinkage – those companies that employed these strategies had lower levels of loss than companies that did not. It is widely recognised that over the past 20 years or more, the retail industry has for the most part failed to adequately deal with the problem of shrinkage. Reviews of numerous surveys show that the underlying rate of loss continues to be high, with a recent estimate suggesting that globally retailers operating in the Fast Moving Consumer Goods Sector (FMCG) lose €46.8 billion ($61.5 billion) to crime alone, ignoring the losses due to process failure2, which conservatively may account for a further €10 billion a year($13.1 billion).

However, recent work by ECR Europe has shown that retailers (and their suppliers) who have made use of the ‘Shrinkage Road Map’ have achieved not only impressive reductions in stock loss, but also increased sales volumes as well3. Moreover, there is growing evidence, some of which has been captured in various ad hoc studies carried out by researchers around the globe, that certain retailers continually succeed in having lower rates of loss than others – they seem to have an ‘approach’ that works in terms of achieving low shrinkage.

The recent ECR Europe Shrinkage survey went a little way in beginning to synthesise what the characteristics of this ‘approach’ might be, albeit at the macro level, although the nature of the methodology adopted meant that other more qualitative organisational factors could have been excluded. The purpose of this study was to begin to identify the key characteristics of low shrink retailers – the policies, practices, procedures, approaches and indeed philosophy of those companies that are continually regarded as being successful at keeping shrinkage low. In theory this should be a relatively straightforward task, but the difficulty is in identifying the ‘good’ companies. It is notoriously difficult to benchmark shrinkage figures across the retail sector – there are many variables that can make it impossible to compare one company with another.

For instance one company may decide to measure their shrinkage at retail prices while another might record them at cost prices – one shrinkage figure will be decidedly bigger than the other but the difference between the two can be accounted for (in large part) by the method adopted to measure shrinkage. Similarly, whether a company decides to include known and unknown loss within their overall shrinkage figure can have a dramatic effect upon the total cost of the problem. For some companies known loss can be more than double the total value of unknown loss. And so simply taking the shrinkage figure alone as an indicator of the success or otherwise of a company can be misleading in identifying those that are the ‘best’ at managing shrinkage.

Download Report