Gross Margin eaters in Retail- Does shrinkage impact?

Most retail companies spend their first month of the year with Inventory stock, budget planning, and finalization of the previous year's report.

Myself and my team are also involved in budget planning along with the audit process currently and penning this article at midnight to share my thoughts with fellow retailers.

One aspect that gives nightmares to every retail operation professional is stock auditing as it impacts the store’s profitability directly and impacts the retailer’s P&L statement.

In 2022, the US retailers collectively experienced some $112 billion in total inventory loss, mostly (63%)?due to various causes within their operations.

The other 36% was lost to theft from outside, including shoplifting, burglary, break-ins, robbery, credit card fraud, organized retail crime, and other retail crimes committed by non-employees, according to the NRF’s survey conducted in the US.

Shrinkage offlately has become a buzzword for retail executives and even after putting all the stringent processes, the shrinkages still occur.

Let’s see what the elements of shrinkage are:

1. Self-checkout is an inventory sieve.

Lost merchandise from self-checkout causes?more shrink than organized retail crime?in many stores,

A 2022 study from the University of Leicester in England estimated that self-checkout in the U.S. and elsewhere causes between one-fifth and nearly one-quarter of all unknown store losses.

There may be various reasons for this. New technologies designed to foster convenience can sometimes make things easier for thieves.

2.??Reducing store’s manpower in the wake of technological advancements.

Manpower costs get the first axe in the wake of cost-cutting, which is a boon for shoplifters and thus is one of the main reasons for shrinkages.

3. Frontliner's meagre pay scale also promotes to internal thefts.

Costco enjoys?below-industry shrink rates?and has attributed that to its store layout, limited entrances, and membership model, as well as its higher store employees’ wages, which the company says leads to higher employee satisfaction and lower internal theft.

Shrinkage isn’t the biggest hit to margins, even all retailers citing it as a major problem.

I conducted a poll on the linkedin and the majority said Markdowns are the biggest Gross margin eater which is the real dark truth of retail.

?I always recommend that markdowns are a strategic tool and should be used with caution.?

I had penned down an article on how to use markdowns in retail, click here to read.

If you are a business owner operating in the beauty/fragrance genre and want to grow your business or need a retail expert to help you achieve your “Vision to Reality” framework then feel free to schedule a discovery listening call over a #coffeechat.

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