The sources of paper shrink-sometimes referred to as book shrink-will vary depending on whether the company uses the retail method or the cost method to account for its financial inventory. However, to be successful at uprooting and resolving these problems, companies require an LP program based on a more comprehensive view of retail shrink, a program that works from vendor to sales floor and from back office to front. In most instances, these operational problems can be readily dealt with. Though the three theft-related causes cost retailers billions of dollars every year, the impact of the other causes can be substantial as well.īy focusing only on theft-related sources, companies are ignoring pockets of poor policies and processes as well as errors in which retail shrink germinates and grows. But according to Tom Yake, a retail shrink expert who has helped the Internal Revenue Service and Security Exchange Commission examine shrinkage issues related to financial misreporting, there are more than 100 causes of retail shrink. In fairness to loss prevention professionals, the resources and authority many of them have to work with are limited to theft-related causes of retail shrink -employee theft, shoplifting, and vendor fraud. Put another way, the ability to identify and control paper shrink directly affects a company’s ability to determine and accurately measure the real losses that require corrective LP action and control measures. If the retail shrink in that department results from administrative error and no one knows it, the company is wasting real dollars trying to catch thieves that don’t exist.īy knowing more precisely the causes of paper shrink, companies can better determine the causes and sources of real shrink, more accurately measure its value, and more effectively use available resources in controlling retail shrink of all types. That is, if the company cannot identify its paper shrink, then it does not have an accurate handle on its real shrink.įor example, to reduce exceptionally high retail shrink in a particular department, loss prevention may spend time and money guarding against theft, though theft may not be the problem in that department. The primary reason to be concerned, however, is that unidentified paper shrink hits hard when it misdirects the efforts of LP programs designed to attack the real shrink. But other paper shrink may cause real bottom-line losses. That is, these types of retail shrink are typically offset in other accounts such as cost of sales or the shortage appears as reverse retail shrink in the next period. One reason for the laissez-faire attitude of some retailers is that some paper shrink, such as that from missed markdowns, has a netting effect on profits. (Admittedly, it’s an older term, as much of this data is kept in spreadsheets rather than on actual paper these days.) Paper shrink results from incorrect counting or pricing, misdirected shipments, careless paperwork on the loading dock, and a range of other accounting and recordkeeping errors. “Paper shrink” is the term applied to all discrepancies between physical inventory and book inventory that are not out-the-door losses caused by theft, shoplifting, or fraud. But even the most advanced loss prevention program can come up short if, in addition to uprooting the causes of so-called “real shrink,” the company does not identify and eliminate the causes of paper shrink. Sophisticated IP camera systems, sensor devices, exception reporting, and the like have cut retail shrink considerably. Toward that end, many retail businesses have implemented elaborate inventory control programs to reduce real retail shrink -the out-the-door inventory losses caused by employee theft, shoplifting, and vendor fraud. At times, unacceptable results may even lead to dismissal.įorward-thinking LP professionals, like golfers in search of the key that will elevate their game, continually search for that new technology, idea, or process that will lower retail shrink and help transform their departments from cost centers into profit centers. At a minimum, poor retail shrink numbers negatively affect bonuses and department morale. Each year, loss prevention directors are evaluated based at least in part on retail shrink results.
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