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12 Ways a Small Business Can Impact the Primary Causes of Shrink

Contributed by Aaron Stamm, Retail Specialist at Acuity Insurance.

With back to school and the holiday season just around the corner, many retail businesses will start to see an increase in customer traffic. Unfortunately, that increase in traffic also correlates with an elevated risk of inventory or merchandise loss, commonly known as shrink.

For any business to be able to properly address this concern, it must first understand the root cause of its shrink. Industry professionals have varying beliefs on how much shrink comes from any one root cause, but many agree that in retail, shrink has three primary sources: employee theft, customer theft, and paperwork/process errors.

Here are a few tips your business can use to address these three primary sources of shrink:

Employee Theft

  • Ensure honest, trustworthy people are being hired in the first place. Consider completing background checks on all new hires. Discuss integrity-related topics during the employment interview process.
  • Create an environment of open communication between employee and employer. Often, a coworker is the first person to recognize that an employee is taking merchandise. To support open communication, offer a way for employees to share information with leadership anonymously.
  • Set up and maintain an organized stockroom/backroom. This way, items missing, out of place, or hidden can easily be noticed and addressed.
  • Install a camera system to monitor all entrances/exits, cash registers, and high-value items. Having visible cameras also creates a deterrence effect.

Customer Theft

  • Greet every customer who enters the business. In addition to generating goodwill, this sends customers a strong message that they did not enter the business unnoticed.
  • Have adequate staffing and train all employees to offer personalized customer service to everyone. Customers wanting to shoplift do not want to be noticed and require privacy to conceal merchandise. Offering personal customer service reduces the opportunity for customers to do something inappropriate.
  • Educate all employees on the proper actions they should take when observing a customer acting suspiciously. These situations will occur, and employees need to be prepared to address them appropriately.
  • Display high-theft items in an area that is clearly visible from the cash register or where the employees work a majority of the time. This will allow employees to monitor these items and acknowledge any customer who enters that area.

Paperwork & Process Errors

  • Educate employees on the negative consequences of inaccurately completing inventory-related processes.
  • Put a system of double checks in place for any process involving the receiving or shipping of merchandise. These processes directly impact book inventory and are critical to maintaining accuracy.
  • Have a good inventory management system and periodically verify the accuracy of that system. Inaccurate information can lead to empty shelves and lost sales.
  • Require documents on procedural training be signed by employees. This will be helpful for accountability purposes in the event repeat errors occur.

A business cannot become complacent with addressing shrink. The retail environment continues to change, and a plan that works well today may quickly become ineffective. To ensure continued success, a business should periodically evaluate the impact of its shrink reduction actions and adjust accordingly.

Contributed by Aaron Stamm, Retail Specialist at Acuity Insurance. Stamm is the Retail Specialist at Acuity Insurance, a property and casualty insurance company that protects over 100,000 businesses and offers innovative insurance products and excellent customer service. We understand you work hard to grow your company, so we provide the insurance you need so you can focus on operating your business.


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