Shrinkage has always been one of the costs that retailers face, with the rate varying depending up where the store is located. There’s nothing new or noteworthy about this. What has been making headlines is the number of large US retailers who are pulling out major cities citing crime as the reason for leaving. Part of that is general crime that seems to have escalated over the past three years - at least in terms of becoming more violent. However more are pointing to merchandise theft as becoming intolerably high. Thus retail shrinkage is in the news. Recent headlines called out the feedback from the National Retail Federation’s annual survey which put the nation’s retail shrink rate at 1.4% in 2021 resulting in $94.5 billion in losses. What was not pointed out was that in the US shrink rates have hovered around 1.4% for the last decade. <blockquote> The U.S. retail shrink rate was 1.4% in 2021. In 2008, shrinkage in North America was around 1.48%, and that was down 2.6% from 2007. The situation is the same in Europe. <cite>Global Retail Theft BarometerJohn Doe</cite></blockquote> By comparison, in 2019 shrinkage in North America was 1.48%, per the Centre for Retail Research (UK). In 2008, shrinkage in North America was around 1.48%, and that was down 2.6% from 2007, according to data from the Global Retail Theft Barometer. So it could be argued that shrinkage rates are getting better, not worse. The situation is similar in Europe. Shrinkage in the region in 2019 ranged from 1.67% in Italy to 1.12% in Germany, according to data from the Centre for Retail Research. The centre estimated annual retail shrink at almost $26 (€21.3) billion. <h3><b>Reducing Losses</b></h3> While confronting customers who shoplift, accusing employees of stealing or trying to stop organized crime from merchandise theft might be out of reach for most retailers there is one thing that they can take action on. That is merchandise loss due to process errors and control failures. The 2021 NRF survey pointed out that 26% of shrinkage was attributed to process/control failures. The Centre of Retail Research found similar data with European retailers seeing an average of 25.3% of merchandise shrink coming from “error” and another 18.6% attributed to “warehouse/supplier theft”. <h3><b>Road Map for Loss Reductions</b></h3> To effectively tackle shrinkage, retailers need to bring ownership and accountability to the C-Suite. A major contributor to process errors and control failures are poor inventory systems. Many companies still lack the data required to identify incidents as they occur, while others don’t have adequate reporting tools to spot exceptions. “Your shrinkage control and monitoring system should provide clear identification of problem origin and cause – to establish the appropriate course of action and timely response,” according to the Control Management Group (CMG). They recommend a holistic approach towards shrinkage control, for example the store teams concentrate on in-store shrinkage and the supply chain looks at stock loss separately. Retailers can also start to control process errors by doubling down on reporting discrepancies when shipments are received, such as short shipments or damaged merchandise. Too often receiving staff failure to accurating report these errors, which then end up as part of the retailer’s total shrink, according to Protiviti, a global consulting firm. It’s important to realize that not all shrinkage is the result of theft. Over 25% is due to human error or operational failures that can be improved through the use of better systems supported by a growing range of advanced technology. By making incremental investments in reviewing current systems, aiming to increase supply chain transparency and utilizing technology, retailers could achieve a significant reduction in shrink and recover a substantial amount of lost profits.