The Winds of Change…

2011 research by FMI and The Retail Control Group into the ‘causes and cures’ of retail supermarket shrink indicates that 64% of store shrink is directly caused by a breakdown in or the absence of effective store operating best practices, while 36% of store shrink is cause by theft and/or misdeeds.

With the evolving recognition of this condition, 47% of companies report a growing shift in the roll of Loss / Asset Protection departments to expanded focus into operationally centric “profit protection and realization”, and a more collaborative partnership with store operations. 

54% of responding companies said they do not have formal LP training for District Managers, Store Managers, cashiers and/or employees. When loss prevention and shrink control budgets are examined, evidence suggests a disproportionate allocation of budget dollars when comparing company investments in technologies to catch theft versus budget dollars allocated to training of store personnel in effective store operating practices known to prevent shrink loss.

Survey respondents reported overall store shrink at 2.70% of retail sales, with the low average of 1.76% of retail sales and the high average of 3.10% of retail sales.


Three (3) emerging key factors:

1. Technology: Certain technologies have become ubiquitous in stores today. Over 82% have Automated DSD, POS Monitoring and CCTV, yet shrink loss remains at 2.70% of retail sales. Emerging Technologies include Store Task Management, Advanced Data Mining Systems and business intelligence analytics. Companies’ further report plans to slow technology investments
in coming years.

2 Integration & Collaboration: Companies that report lower than average shrink utilize cross-functional training of loss prevention, audit and store operations personnel to implement coordinated profit improvement through traditional loss prevention combined with operational Best Practices.

Throughout this survey evidence persists that consistent and on-going store manager and store team operational Best Practices and Loss Prevention training is the number 1 factor in controlling store shrink. Operational controls and
processes form the foundation for all sales and profit optimization efforts. 


3. Control Conditions:
Extensive cross-tabbing and ‘cause & effect’ correlation analysis revealed when certain operational “conditions” are present, they had an effect of systemically and significantly restraining shrink loss.

Most evident among these control conditions are 6 influencers:

(1) Formal “Known Loss” Control

(2) Strict ‘Ordering Controls’

(3) Inventory Management and Turnover’ controls

(4) “Connected Store Manager’ with ‘Clear Standards of Operation’

(5) Organizational Best Practices

(6) Measurable Accountability 

When store teams are trained and held accountable to execute these “6 Control Conditions” with discipline the affect is a systemic reduction in store shrink of up to 15%.

Where’s the shrink?

Department Shrink % Contribution Shrink $ Department  Shrink % Sales % Avg Annual Sales $
Meat 18% $93,414 4.10% 12% $2,278,390
Produce 16% $82,022 4.80% 9% $1,708,792
Deli 14% $74,048 7.80% 5% $949,329
Grocery 14% $71,010 1.10% 34% $6,455,438
GM 8% $41,011 2.70% 8% $1,518,926
Bakery 6% $30,379 8.00% 2% $379,732
RX 5% $25,062 2.20% 6% $1,139,195
Seafood 5% $23,543 6.20% 2% $379,732
Dairy 4% $19,936 1.50% 7% $1,329,061
HBA 3% $14,240 2.50% 3% $569,597
Frozen 2% $7,595 0.80% 5% $949,329
Floral 2% $9,683 5.10% 1% $189,866
Beer/Wine/Liquor 2% $9,493 1.00% 5% $949,329
Video 1% $3,892 4.10% 0.50% $94,933
Total $512,922 2.70% $18,986,581

 

Shrink Fast Facts:

  • Companies’ report 66% of stores are of conventional supermarket format and 34% of their stores followed the super-store format.
  • 43% of survey respondents reporting using the COST accounting method while 57% reported using the RETAIL method of accounting.
  • 29% of respondents reported that stores can ‘positively’ affect their reported shrink loss in 5 primary ways: Forward buying (most common), execute prices early, deal buy, break open quantity packs for inflated price single item sales and writing- off product for credit all practices that serve to mask actual shrink loss.
  • 80% of respondents expect shoplifting will increase in the coming 1-2 years.
  • 74% of respondents have self-checkout lanes in Super Store format stores with an average of 4.43 self-checkout lanes per store. 58% of respondents have self-checkout lanes in Conventional format stores with an average of 3.25 self-checkout lanes per store.
  • Stores reported average net cash shortages of -$6.00 in conventional Store format and -$21.15 in their Super Store format.

 

Summary:

Significant in the survey findings for 2011 where x primary points:

  1. The reveal that 64% of all shrink was caused by the breakdown of Operational practices at the store exposing significant new focus on operational practices to prevent shrink and disrupt shrink causing conditions.
  2. The expanded focus of Loss Prevention into a more collaborative partnership with store operations.
  3. Certain core technologies are now present in most companies, but shrink remains essentially flat at 2.70%.
  4. Continuous training of all operational personnel in the operational best practices to reduce and control store shrink has the most significant impact potential.