What Impact Can Shrinkage Have to a Company?

Inventory shrinkage is the loss of products from employee or customer theft or inventory accounting errors. Maintaining a low shrinkage rate is important to the bottom line of your retail business. While standards vary by industry, a normal shrinkage rate is around 2 to 6 percent. Relatively high shrinkage impacts your business and may force you to take certain combative measures.

Lost inventory equals lost revenue. Anytime an item walks out the door with a customer or employee, you lose out on the chance to generate revenue and cash from it. Similarly, it impacts your profits because you have to eat the costs of acquiring the goods and making no money on your investment. Very high shrinkage can make the difference between a slight profit or a loss for some small businesses.

Shrinkage problems resulting from employee theft also impacts the internal culture of your business. When extreme, retailers implement bag and coat checks when employees come and go and monitor break rooms and other common areas. This creates a significant barrier between managers and employees, especially with those who have not been a part of the problem. This feeling of guilt by association and a lack of trust from managers negatively effects morale.

Your employees may become leery of customers and become less friendly toward them if shoplifting is contributing to your shrinkage. More importantly, you may have to implement procedures to prevent shoplifting, which negatively affects customer service. Stores that put signs up requiring customers to leave bags and coats at the door dissuade people from wanting to come in. Excessive use of scanners, security cameras and hovering employees can also deter customers from visiting your store.

High shrinkage rates command attention from store managers. In fact, district and regional-level managers often get involved when stores experience alarming rates of loss. The more time and energy spent investigating causes of inventory loss and strategizing how to address them, the less time company leaders have to focus on business development and employee coaching. This slows growth and business evolution.