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Preventing shrink: strategies for minimizing loss

January 10, 2024

Izzy Esber

In This Article

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In 2022, retail businesses lost a whopping $112.1 billion due to shrinkage. That’s an average shrink rate of 1.6% of annual revenue, according to a study conducted by the 2023 National Retail Security Survey, an increase from 1.4% in FY 2021.

Retail shrink is the reduction in a business's earnings or inventory, typically caused by factors such as wastage, theft, or discrepancies between recorded and actual stock levels.

Preventing shrink is critical to securing your business’s profitability, and loss prevention is the top strategy to help implement protection, insights and change at your establishment.

Key takeaways you will learn from this article:

An understanding of the depths, trends, and pains of shrink
Preventing shrink in retail with effective loss prevention strategies
How to reduce shrink and optimize your loss prevention ROI by leveraging your current technology

Understanding shrink in retail

Several types of shrinkage occur in a variety of industries, but retail shrink is high for average annual profit loss.

The definition of retail shrinkage is the loss of inventory from a variety of factors, including employee theft, shoplifting, administrative or cashier error, damage, vendor fraud, and more impacting a company's profitability, reputation, and overall business operations.

But what contributes to this? Let’s unpack the top individual factors contributing to retail shrink:

Employee theft

Employee theft refers to the unauthorized taking of an employer's property, assets, or funds by a company's own employees, typically for personal gain, and in violation of trust and legal obligations.

Return fraud

Return fraud is an unethical hijack involving the return of merchandise to a retailer to obtain a refund or exchange under false or fraudulent pretenses, often resulting in financial losses for the retailer.

Shoplifting

Shoplifting is the act of stealing merchandise from a retail store without paying for it, typically with the intention of avoiding purchase and causing financial losses to the store. Shoplifting can also act as online theft where thieves use cyber hacking to outsmart software.

Operational loss

Operational loss refers to financial setbacks or costs impacted by a business due to various factors such as inefficiencies, errors, accidents, or other non-fraudulent events that disrupt the regular operation of the business. This can include:

Administrative errors
Clerical errors
Goods getting damaged
Miscounting of the goods
Lost goods
Incorrect units of measure

Vendor fraud

Conducted by suppliers, vendors, or third-party entities who provide goods or services to a company, vendor fraud is the intent to deceive or exploit the company for personal gain.

Seasonal shrink and the holiday seasons

The most wonderful time of the year isn’t always so wonderful for business owners, inventory managers, and other stakeholders accountable for revenue-impacting goals, metrics, and reports.

It’s no doubt Black Friday is the leading day for increased retail shrink. NRF found that a record 196.7 million consumers shopped over the Thanksgiving holiday weekend last year, and a Newsweek study found that 67% of these consumers shopped at physical retailers.

Source: NRF’s 2022 Thanksgiving Weekend Consumer Survey, conducted by Prosper Insights & Analytics

This year, Loss Prevention Magazine predicts that 80.4% of sales will occur in physical stores. Despite the emergence of new online purchasing methods like e-commerce, mail-orders, and services such as buy online, and pick-up in-store (BOPIS) ––in response to the pandemic, shrinkage rates are on the rise due to new issues and areas of loss arising from these innovations.

Next-generation loss prevention for retail – how to reduce shrink

You may be asking yourself how to reduce shrink at your establishment. The solution is a simple yet intelligent approach to solving the loss issue.

Technology to aid in preventing shrink for businesses is here, letting you take a modern and proactive approach to preventing shrink at your retail stores. Retail loss prevention software enables store owners to remotely monitor their business through their smartphones or computers. Not only do these intelligent video systems deter theft, but they also provide insights into employee and customer behavior, helping improve staff performance and enhance the customer experience.

But it gets even more innovative than that: more advanced providers — like DTiQ — can customize loss prevention insights with advanced analytics, artificial intelligence technology, and mobile app remote monitoring that work to help meet your business’s loss prevention goals.

Let’s look at the ways that a smart video surveillance and loss prevention provider can help in preventing shrink.

Intelligent video

DTiQ's intelligent video solutions combines real-time data with advanced analytics for heightened customer engagement and operational optimization. Insights like customer tracking, traffic analysis, speed of service enhancement, and more, can be monitored and addressed with action-oriented feedback in staffing, merchandising, coaching, inventory management, and service improvement.

Features like regular monitoring, remote incident archiving, and cloud-hosted business intelligence take your surveillance game to another level. Motion detection, off-site data storage, and mobile app access for on-the-go decision-making make DTiQ’s competitive edge unmatched.

Book a demo to harness the power of intelligent video for your business.

SmartAudit™

What is a SmartAudit™? A way to improve business performance; a tool that combines the expertise of our certified professional auditors with state-of-the-art video algorithms to deliver invaluable insight, ensuring that your locations maintain compliance and safety standards. Detailed POS transaction data allows you to identify key trends, incidents, compliance hiccups, shoplifter activity, safety hazards, instances of fraud, delivery orders, discount transactions, and much more.

DTiQ’s SmartAudit™ key stats:

Over 28,000 audits per month for businesses around the nation
Over 100 certified professional auditors
24/7/365 dedicated customer service representatives to help ensure success

Advanced analytics

DTiQ's preventative retail shrink solutions are backed by advanced analytics, reporting, and seamless data integration. With our exception reports, you can effortlessly identify and review suspicious transactions, receiving alerts that keep you in the loop when incidents occur by observing video and audio surveillance for easy verification. By integrating with your point of sale, you can review detailed timestamp data and video footage, ensuring you can match POS line items with cashier activity.

DTiQ's 360iQ business intelligence platform is one of the most robust products on the market, combining video, live sales, alerts, and reports to paint a comprehensive picture of your entire business. You'll receive detailed data and insights into your operation, receive event triggers, alerts and notifications, and real-time in-store analytics that identify potential instances of discount fraud, unauthorized voids, and other forms of financial loss.

With DTiQ's managed services, you can trust our professional expertise to support your loss prevention efforts, providing you with more time and freedom to focus on running your business effectively.

Retail loss prevention

DTiQ’s retail-specific loss prevention offering help businesses reduce shrink in retail year-round: inventory management, improve employee performance, and ultimately enhance the customer experience. With advanced surveillance tools and in-depth analytics, DTiQ's retail loss prevention solution offers features like:

Mystery shopping
Employee engagement tools
Exception-based reporting
Industry benchmarking and reporting

Investigative support
Merchandise tracking processes
Remote and in-person audits
Staff monitoring and training

Bonuses:

Camera agnostic integrations: no new cameras needed! We’ll work with your current equipment.
Mobile app designed for feasible monitoring and management. Easily access data wherever you are.
24/7/365 customer support.
Complete functions, customizable features, and supporting resources available.

Tips for preventing shrink in retail year-round

Inventory control: utilize DTiQ’s cutting-edge tools for effective inventory control, ensuring the best resources are at your fingertips.
Regular audits and reviews: strengthen your defense against losses by implementing regular audits and reviews.
Regulatory compliance solutions: stay up to date on your establishment’s regulatory requirements.
Ongoing employee training: invest in continuous employee training to create a vigilant and informed team, enhancing overall security measures.

Brands preventing shrink in retail with DTiQ

DTiQ takes pride in its partnerships with brands committed to proactive loss prevention, embracing the "smarter store" concept to enhance their operations.

rue21

Rue21 reduced its shrink percentage by 28% in the first two years, lower than any of the five years prior to the partnership. Additionally, DTiQ supported rue21 with:

3,632 conducted audits, marking a 100% increase from the previous LP team at rue21 who did not conduct audits.
648 conducted investigations, marking a 28% increase despite the partnership starting in 2020.
324 reported exceptions, resulting in at least 100 more EBR exceptions year-over-year.

DXL Big & Tall

DXL realized a $4.6 million earnings improvement with the help of DTiQ.

“Our lowered shrink and resulting earnings improvement are a testament to the success of the program. DTiQ seamlessly integrated into our operations and helped us build and maintain a proactive loss prevention program.”

Of the 68 stores enrolled in the target store program, shrink was reduced by 50%, resulting in an earnings improvement of approximately $600,000.

Learn about partnership between DTiQ and DXL that resulted in millions of savings.

Eyes on the back of your head

Shrink in other industries

Preventing shrink is a reoccurring theme that various industries face as a common challenge, and how to reduce shrink is a question that often comes into conversation for all business owners.

In quick-service restaurants (QSRs) and traditional restaurants, inventory discrepancies and internal issues contribute to shrink.
Convenience stores face similar challenges, with added complexities arising from high customer traffic and diverse product offerings. However, employing cross-industry strategies becomes a key solution.

Work with experts in retail loss prevention for preventing shrink

Equipping your business with intelligent loss prevention solutions is the number one way to get lost profit back from areas you may not always have eyes on.

DTiQ is a determined force to help strengthen your loss prevention initiatives by automating monitoring processes, improving situational awareness, identifying anomalies, and offering valuable data-driven insights. These technologies empower businesses and organizations to mitigate security risks, minimize losses, and enhance overall safety and security.

See how DTiQ’s loss prevention solutions can help. You can contact us or book a demo to see our technology in action.

Preventing shrink: strategies for minimizing loss

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