If you’re a small or medium-sized business owner and you’re looking for a loss prevention strategy to reduce your retail shrinkage, you’re in the right place. At Product Protection Solutions (PPS), we’ve developed this retail shrinkage guide to educate you on how to calculate loss and what you can do to reduce its occurrence. 

What You Should Know About Retail Shrinkage 

It goes by several different names: shrink, retail loss, inventory shrinkage, etc. Still, it all has the same meaning – an item inventory count is different from the physical count. 

This loss can occur from several sources, including internal and external theft, inventory errors, product damages, or vendor fraud. No matter the reason, without an effective strategy in place, your losses will add up, and the business will continue to lose valuable profits.  

How to Calculate Retail Shrinkage 

Before learning solutions on how to prevent shrinkage, you’ll need to calculate your losses. There are two different formulas you can use to calculate it, one formula allows you to determine the number of items lost, or the other will determine the percentage of products lost. Either way, you’ll learn where your losses are at and how you’ll want to move forward. 

Number of Losses 

Here’s the equation for calculating your number of losses. 

  1. Gather the recorded inventory number of product A
  2. Physically count the inventory of product A 
  3. Subtract recoded inventory total with physical inventory total 
  4. The result is your number of retail losses 

Recorded Inventory – Physical Inventory = Retail Shrinkage 

Percentage of Losses 

Here’s the equation for calculating the percentage of losses. 

  1. Gather the recorded inventory number of product A
  2. Physically count the inventory of product A 
  3. Subtract recoded inventory total with physical inventory total 
  4. Take that number and divide it by the recorded inventory number of product A
  5. Take that number and multiple it by 100
  6. The result is your percentage of retail losses 

Recorded Inventory – Physical Inventory = Total A

Total A / Recorded Inventory = Total B

Total B x 100 = Percentage of Retail Shrinkage 

Your Retail Shrinkage Guide to Reducing Losses 

Now that you understand what causes retail loss and how to calculate your loss totals, the next step in the retail shrinkage guide is to prevent it from occurring. There are several loss prevention strategies available depending on the type of loss and your budget. If you would like to talk with experts in loss prevention for advice on the right solutions for your goals, then contact the PPS team. 

Shoplifting Solutions

  • Product Specific Protection 
    • Alarm series – wraps, cable locks 
    • Beverage protection 
    • Safers 
    • Tags – RFID, EAS, alarming, ink
  • Benefit Denial Protection 
    • Ink tags
    • Ink pins
    • Beverage security 
    • Security labels
  • Intelligent Fixtures
    • Anti-sweep fixtures with hooks
    • Time-delay fixtures

Employee Theft Solutions

  • Implement loss prevention policies 
  • Conduct regular training
  • Create goals for the team to work together on 
  • Install cameras at checkouts and in inventory rooms
  • Create individual employee logins on the POS system

Inventory Error Solutions 

  • Create cost and retail accounting practices to catch administrative errors 
  • Add a key and asset management system
  • Develop a cycle counting schedule 
  • Remove damaged items from the stock count

Product Damage Solutions 

  • Clean, cluttered aisles 
  • Don’t overstock shelves (it makes it easy for items to fall when a customer reaches for one)
  • Keep product displays to a minimum 

Vendor Fraud Solutions

  • Check for damaged goods on delivered orders
  • Review order receipt when checking in new orders 

More Loss Prevention Strategies for Retailers 

Read our article on Stock Loss Prevention in Retail to learn more about shrinkage solutions, their purpose and costs, and your potential ROI.

Contact the Loss Prevention Experts to Protect Your Bottom Line 

Shoplifting is one of the most significant contributors to a loss for retailers. The good news is that there are many options available to help reduce your shrinkage from it. The PPS team works with retailers of all sizes to help them find solutions to reduce theft in their business. 

Learn how we can help meet your loss prevention goals. Contact us today!