Retail and wholesale businesses across a broad range of industries often share a common challenge – stock shrinkage. Millions of dollars are lost every year through stock shrinkage which hits the bottom line dollar for dollar. Shrinkage occurs whenever the business fails to sell an item at its full price. Put in an equation, it would be:
Shrinkage = Usual selling price – actual selling price
There are various causes of shrinkage and are typically a few common ones to each industry, in general, shrinkage can be caused by:
- theft by an employee;
- theft by a customer;
- errors in recording label numbers;
- not adequately checking goods when they're received into the business;
- poor handling techniques;
- dropping stock;
- leaving perishable products out of refrigeration;
- over-ordering products, thus having products that need to be discounted to sell; and
- stock going out of date - this can be caused by poor stock rotation.
Management should measure shrinkage and proactively ensure staff undertake strategies to reduce shrinkage and its negative impact on business profits. Strategies staff can perform to reduce shrinkage may include:
- identify inadequate checking procedures for goods received from suppliers;
- escalating to management any suspected dishonesty by customers and staff;
- cautiously handling fragile stock;
- rotating stock properly; and
- ensuring perishable stock is returned to refrigeration or chillers promptly.
A business should measure and report on shrinkage in management reports on a regular basis. Where shrinkage levels are problematic, a full stock management review should be undertaken to identify the common causes and determine strategies to be implemented to arrest the issue and reduce profit leakage.
Hanrick Curran is skilled at assisting business owners to track and measure shrinkage then collaborate with owners and staff to devise strategies and policies to reduce the impact of shrinkage on profits. Every dollar saved is a dollar contribution to profit. Please contact your usual Hanrick Curran adviser or call 07 3218 3900 and speak with Matthew Beasley, Nathanael Lee, Michael Georghiou, Tony Hunt or some of our Business Advisory or Audit specialists.