Presented by; Vikram Singh (46)

Topic to be coveredy What is retail Shrinkage? y How to Calculate Shrinkage y How it affects the Bottom Line y What Causes Shrinkage -&y How to Control retail Shrinkage

Retail shrinkage isas per the books and the actual stock available in the shop. y Retail Shrinkage is defined as: Inventory losses occurring from employee theft, shoplifting, organized retail crime, administrative error and vendor fraud y Physical Inventory Count vs. Book Inventory Balance.

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y Retail shrinkage is the difference in the value of stock

Results/Effect of Shrinkagey Direct loss to bottom line

y y y y y

. Increase in Cost of Sales . Decrease in Gross Profit Loss of Retail Sales Loss of Sales Taxes Safety of innocent employees Popular merchandise not available Raise in consumer prices

Calculating Shrinkagey Shrinkage is typically expressed as a

Percent of Sales y Calculation: Shrinkage %=Shrinkage Dollars Retail Sales y Example: Retail Sales: $500,000 Shrinkage Dollars: $12,000 shrinkage%= $12,000 $500,000 = 2.4% Shrinkage y Retail Industry Considers over 2% High

Cost of Sales & Gross Profity The Plan:

Retail Sales: $500,000 Cost of Sales: 70% or $350,000 Gross Profit: 30% or $150,000 y With Shrinkage of 2.4% or $12,000 Cost of Sales: 72.4% or $362,000 Gross Profit: 27.6% or $138,000

Net Profity The Plan:

Retail Sales: $500,000 Net Profit: 10% or $50,000 y With Shrinkage of 2.4% or $12,000 Net Profit: 7.6% or $38,000 y Profit Plan was missed by 24% y Sales of $620,000 needed to make $50,000 profit after shrinkage

Gross profity Those Missing Shirts100 Shirts: Sales at Retail Sales at 30% off Sales at 50% off Total units 45 35 15 95 Dollars 48 33 24 extension 2160 1155 360 3675

y y y y y

Cost of I shirt $23. Total Cost $2300.00 Gross Profit: 37.4% or $1375.00 Shrinkage of $115.00 If had sold 5 shirts at cost: Gross Profit is 40.5% or $1490.00

Reason of shrinkagey Administrative Errors

POS Errors Paperwork Errors Poor Inventory Controls y Theft Internal - Employee External y Vendor Fraud y Shoplifting

Retail shrinkage

Retail shrinkage in %

Reason of shrinkagey y y y

Administrative Errors Last Year 15.4% of National Loss Self-Inflicted Shrinkage Causes I. POS Errors II. Paperwork Errors III. Poor Inventory Controls . Receiving . Handling Merchandise . Demo Clubs

POS Errorsy Incorrect retail price y Incorrect SKU y Incorrect discount y Markdowns not recorded y Wrong Button on POS Screen y Incorrect Member Account Charged y Employee Theft

Controlling POS Errorsy Accountability of each employee for their y y y y y

own transactions Periodic test scans of merchandise Challenge POS Screen Buttons Ticket self-service merchandise Verify ticketed price matches POS Price for each item on transaction Enlist help of all employees to catch and report errors

Paperwork Errorsy Invoice Coding y Office: Invoice Posting & Payment y Merchandise Transfers y General Ledger Adjustments y Member Charges / Adjustment y Physical Inventory y Inaccurate count and adjustments

Controlling Paperwork Errorsy Double entry bookkeeping systems y y y

y

Clearing Accounts Monthly reconciliation of ledgers Inventory Careful review of financial statements Cost of Sales Discounts Physical Inventory Controls

Poor Inventory Controlsy No merchandise should leave your shop

y y y y

without a WRITTEN record or POS transaction memory doesn t count!!! Receiving: Ideally one person doing all receiving inventory entries and invoice coding Match every shipment against packing slip and packing slip against invoice. Verify all tickets are correct

Controlling Inventoryy Log Books to track:

.Special Orders .Returns to Vendors .Do not remove from inventory until credit received .Repairs .Try-ons y Monitor activities of Sales Reps y Physical Inventory

Thefty Last Year 78.3% of National Loss

Internal Employees External Shoplifting y Dishonest employees steal almost 5 times more than shoplifters y Shoplifting: $549.90 per incident y Employee Theft: $2672.95 per incident

Internal Thefty Internal

Employee y Last Year 42.7% of National Loss y High Turnover in employees major factor Theft increases as number part time employees increases

Employee thefty Improper Cash Handling

. Cash sales never rung through POS cash taken . Fraudulent cash refunds . Cash theft y Outright Stealing . Merchandise . Supplies

Controlling Employee Thefty Utilize pre-employment screening y Empower but monitor ALL employees

. Make sure all employees have a complete understanding of Shrinkagey Thorough POS training

Controlling Employee Thefty Each Employee Accountable for own POS

transactions y Procedures in place for: Handling Cash Handling Credit Cards Voiding transactions y Reconciling POS transactions daily Cash Credit Card

Controlling Employee TheftManagement Challenge / Spot Check: y Daily sales y Chits y Discounts y Refunds y Voids y Cash Drawer y Inventory suspected theft items frequently, at odd times, and in front of employees

External TheftExternal Shoplifting y Last Year 35.6% of National Loss y 98% of shoplifters are repeat offenders y Middle Aged: Women steal more than men y Organized Retail Crime major factor y Ease of reselling on Internet blamed for increase in ORC and Shoplifting

Controlling External TheftCustomer Service: y Be aware of ALL customers in shop y Make Eye Contact with customers y Nametags on right leads to eye contact y Appropriate Staffing y Ticket merchandise correctly y Neat and Clean Counter area y High theft items behind counter

Controlling External TheftShop Layout: y Keep line of sight above 5 feet open from counter area to entire shop y Merchandise shoulder to knees to keep people standing y Keep shop neat and clean y Fitting Rooms in Shop y Challenge lighting and fixture placement . Avoid creating areas in shop where customers are not easily visible

Vendor FraudLast Year 3.7% of National Loss Causes: . Items invoiced but never shipped . Item or items missing from multiple quantity boxes or shipments . Incorrect or no credit for returns .Log Book to track .Drop Shipments never ordered .Company reps in shop not monitored

Controlling Vendor FraudReceiving Practices . Count ALL Merchandise verify against packing slip . Open all boxes of gloves, socks, etc. . Match packing slip to invoice . Monitor Sales Reps . Especially when trading product . Create paper trail for all sales reps transactions

Controlling shrinkage: Shrinking Shrinkagey Monitoring Shrinkage is first step to

reducing . Know your shrinkage number . Have a shrinkage goal y Awareness is biggest deterrent to shrinkage . Measure measure measure . Know most vulnerable products / areas . Make entire staff aware

Shrinking ShrinkageDevelop a loss prevention culture . Accountability of ALL personnel is vital to Shrinkage awareness / reduction programs being effective . Make sure employees know what is and isn t acceptable . Be sure all understand POS system and what it tracks

New technologies to curtail shrinkage:y There are two kinds of RFID tags. y Passive RFID tags which operate without onboard power source,

and use radio wave energy to turn the microchip attached with the product.

y Active tags that operate on battery power and send information

through a transmitter to the database.

Conclusion: y In todays retail technology security is the chief concern. Reducing shrinkage is a profit growth strategy for retailers. Retail shrinkage requires utmost attention and care of the retailers beyond the festive discounts and promotional tactics.

Some video of retail shrinkagey India tops in retail theft

http://www.youtube.com/watch?v=cnlnBdN1AaQ y Shoplifting by a customer (Pro Shoplifter Showing hows it's done) http://www.youtube.com/watch?v=KAhD08P6kU4 The Stop Shop - Shoplifting & Shrinkage Prevention Training Video http://www.youtube.com/watch?v=5AGkewH0lgQ