Shrink is one of the most common problems in the retail industry. According to the National Retail Federation (NRF), it results in billions of dollars in losses, significantly impacting retailers’ bottom lines and growth capabilities. 

Retail shrinkage stems from multiple sources, including theft, fraud, and human error. Beyond affecting revenue, it also causes inefficiencies in inventory management, making it harder for retailers to meet customer demand. Therefore, retailers need to implement a multi-layered prevention approach. 

Here, we look at six effective measures that your store can deploy for successful shrinkage prevention.

What is retail shrinkage?

Retail shrinkage is the difference between a store’s actual stock level and recorded inventory. It occurs when retailers lose stock items due to causes other than sales, such as external theft or vendor fraud. 

Retail shrinkage can drastically impact profitability, as business owners have to repurchase items and incur additional restocking and storage costs. It can also affect operations by forcing retailers to divert employees’ attention from other tasks to address shrinkage issues. 

For example, it may be necessary to conduct a complete inventory audit, a process that can take hours or days depending on the size of a store. 

Some of the primary causes of shrinkage include:

• Shoplifting: This involves individuals stealing items, typically for personal use. Shoplifters often hide items in large bags or clothing, switch price tags, or fail to scan products at self-checkout kiosks. 
• Organized retail crime (ORC): While also a type of external theft, ORC is distinct from shoplifting in that it involves multiple individuals who coordinate to steal high-value items. Their primary goal is financial gain, so they work with fences to sell off items after theft. 
• Internal theft: Some employees take advantage of their positions to steal items or cash from work, contributing to 29% of shrinkage. It’s second only to external theft, which causes 37% of retail shrinkage.
• Administrative errors: Inventory discrepancies sometimes result from human errors, such as mislabeling products, using incorrect unit measurements, and miscounting inventory. 
• Vendor fraud: This often involves suppliers delivering fewer items than ordered, overbilling, or shipping damaged products.

6 proven strategies to reduce retail shrinkage

Proactive retail shrink prevention measures will have a much bigger impact than reactive responses, saving you money and promoting smooth business operations. Here are six proven strategies you can implement to reduce shrink.

1. Improve employee training and loss prevention awareness

Employees can play a crucial role in identifying and preventing shrinkage — but they need the right training and tools to be effective. Conduct training sessions focusing on areas like:

• Spotting suspicious behavior: Teach staff how to identify potential offenders in your store. Some behaviors to highlight include walking in large groups, trying to distract store attendants, concealing items in clothes and bags, returning items with no receipts, and acting nervous, particularly when checking out or returning items. 
• Handling high-risk transactions: Emphasize the need to double-check receipts during checkout (especially when dealing with large transactions) and involve managers in high-value purchases.
• Dealing with suspicious activities: Train employees on how to observe suspicious behavior and discreetly involve security personnel or law enforcement to prevent confrontations and escalations. 
• Conducting proper inventory management: Educate staff on how to handle inventory inspections and audits effectively. 

Training shouldn’t be a one-off event. Conduct regular sessions to keep teams informed about the latest fraud and theft tactics. You can also simulate real-life scenarios like shoplifting or supplier fraud to test employees’ loss prevention skills for continual improvement. 

But it’s equally important to foster a culture of accountability and ethical behavior by encouraging staff to report suspicious activities, establishing clear ethical conduct policies, and enforcing consequences for theft, such as reporting cases to law enforcement. Such measures can discourage employee theft and significantly reduce the risk of retail shrinkage.  

2. Strengthen inventory management and auditing processes

Strong inventory management and auditing processes can reduce shrinkage caused by vendor fraud, administrative errors, and even theft. 

Automate these processes by investing in reliable inventory management software with real-time tracking capabilities — this allows you to identify discrepancies quickly. Many modern solutions include AI-powered analytics that can uncover shrinkage trends, helping you focus your efforts on high-risk areas.

You can further automate inventory management by adding barcodes and radio frequency identification (RFID) tags to your products. This limits the need for manual data entry and can reduce manual administrative errors. 

It’s also important to conduct frequent inventory cycle counts and spot audits rather than doing them annually. Frequent checks and audits help you catch errors and employee theft cases before they compound, potentially saving you a lot of money. Other vital measures to take include:

• Integrating POS data with inventory tracking systems to quickly uncover patterns of missing stock and discourage employee theft
• Asking employees to inspect all received goods to make sure they’re in good condition and that they match both invoices and purchase orders
• Regularly rotating inventory management staff to prevent collusion with suppliers
• Enhancing security in inventory handling areas, like loading docks and stock rooms, by installing license plate readers (LPRs) and security cameras

3. Enhance security with technology-driven solutions

Modern security solutions, such as AI-powered cameras and LPR technology, can be your greatest allies in deterring theft and reducing retail shrinkage. They monitor and analyze data in real time, allowing retailers to act quickly, potentially before a theft occurs. 

For example, Flock Safety’s LPRs keep a constant eye on your parking lot, automatically tracking vehicle license plates and other identifying details. When vehicles linked to ORC groups or repeat offenders enter your business premises, you’ll get an immediate notification. 

Not only does this allow you to act immediately, but it also helps you build solid relationships with local law enforcement. You can share captured evidence with them to support their investigations for faster case clearance.

Amp up retail security with Flock Safety’s license plate readers today.

4. Secure high-risk areas and limit unauthorized access

Self-checkout zones, stockrooms, and areas with high-value items are common shrinkage points. They’re top targets for ORC groups, shoplifters, and employees because they have the potential for the highest financial gain. 

To limit theft in such areas, implement controlled access measures, such as locked display cases for high-value items and restricted keycard entry to stockrooms. Integrate access control with cloud-based systems to allow your security team to monitor who retrieves items and enters high-risk areas in real time. 

Additionally, make sure you have good in-store lighting and place security cameras strategically near high-value items and at self-checkout zones to monitor shopper and employee activities. Knowing your team is watching their movements can deter theft. 

5. Leverage data insights to prevent future shrinkage

Analyzing past shrinkage incidents can shed light on how losses occur, allowing you to develop well-informed prevention measures. Leverage AI-driven tools like smart inventory management solutions to assess shrinkage data over time and look for sudden spikes in losses. Then, use solutions like LPRs to identify potential perpetrators. 

For example, if you find that shrinkage regularly shoots up at the beginning of the month, this could indicate repeat offenders. Use LPR cameras to monitor vehicles that enter your premises during this time so you can identify their cars. When you do, create a “Custom Hot List” so that your security team and law enforcement receive alerts when the flagged vehicles pass by your LPR camera. 

Flock Safety’s LPRs helped Friedman’s Home Improvement reduce shrinkage by 23% by providing actionable evidence against an ORC gang. Thanks to the technology, the store’s staff immediately identified the offenders when they entered the premises and quickly involved law enforcement. This resulted in their apprehension just a few exits away.   

6. Implement better vendor and supply chain controls

Vendor fraud and supply chain errors can affect your bottom line and disrupt operations, contributing to shrinkage. Luckily, as with other causes of shrinkage, they’re manageable — with the right measures. 

Here are some ways to strengthen your vendor and supply chain controls:

• Establish clear vendor agreements, highlighting suppliers’ obligations to ship accurate product counts and high-quality items, as well as the penalties for failing to do so. 
• Conduct regular vendor audits to promote compliance with established agreements and prevent fraudulent invoicing. 
• Use tracking solutions like RFID tags, barcodes, and GPS tracking to validate stock during delivery and monitor product movement from supplier to shelf — include these solutions as requirements in vendor agreements. 
• Ask employees to double-check received items, making sure they match purchase orders and supplier invoices. 

For a comprehensive approach, invest in both supply chain monitoring solutions and security systems. Integrate warehouse management systems (WMS) with vendor systems to monitor inventory at different supply chain stages and install security cameras and LPRs in loading docks to monitor delivery activities.

How Flock Safety helps reduce and deter shrinkage in retail

Flock Safety is a valuable community partner for retail businesses and law enforcement, providing cutting-edge theft deterrent solutions to help you reduce retail shrinkage. Flock Safety’s technology allows you to:

Track repeat offenders and suspicious activity in real time

Flock Safety’s LPR technology doesn’t just capture vehicle details — it allows retailers to flag cars associated with ORC or repeated shoplifting incidents and sends real-time alerts when they enter the premises. This allows you to take immediate action, such as calling local law enforcement, before the offenders attempt to steal.

Strengthen collaboration with law enforcement for faster case resolution

Flock Safety’s crime intelligence solutions work together to aid investigations and deter future theft incidents. Our LPR cameras capture vehicle data and send it to the Flock Safety platform, where you can access and forward it to law enforcement to improve case clearance rates. 

Retailers with FlockOS, our Real-Time Crime Center platform, can also integrate their data with other businesses and law enforcement in real time to facilitate the monitoring of suspected offenders' vehicles beyond their premises. 

Simplify data sharing and collaboration with law enforcement with FlockOS.

Expand security coverage beyond store entry points

Shrinkage doesn’t just happen inside the store. Parking lots, loading docks, and delivery areas are all prime shrinkage points, making it vital to amp up security in these areas as well. 

Flock Safety’s LPR cameras help by monitoring all vehicles that enter and leave your premises. They capture identifying data like license plate numbers, allowing you to spot vehicles used by repeat offenders and ORC groups. And real-time alerts allow you to take action before the perpetrators even enter your store.

Protect your retail business from shrinkage caused by organized crime with Flock Safety’s parking lot security solutions.   

Take proactive steps to reduce shrinkage in your retail business

Retail shrinkage poses a risk to profit margins and impacts customer experiences. To protect your store, take proactive measures, like offering employees training on loss prevention strategies, improving inventory management processes, and leveraging modern technology solutions like LPRs. 

With Flock Safety as your security partner, you can effectively deter theft and minimize shrinkage. Our solutions go beyond traditional surveillance cameras, allowing you to monitor suspicious activity in real time and capture actionable vehicle data to help law enforcement build strong cases against offenders. 

Book a demo with Flock Safety today to see how our solutions can help deter retail shrinkage!