Your Stock Profit Killers You Can Control


Stock counting

Have you ever wondered where your stock disappears? You're not alone. Many retailers do not know. Yet, understanding stock shrinkage and damage rate is crucial for retailers. Let's dive into these KPIs. It will only take a few minutes to find out. Then maybe it can transform your business.

Shrinkage and Damage

Imagine this: You've just finished a stocktake, but the numbers did not add up. Sound familiar? That is shrinkage. And those damaged gifts at the back of the shop now? That's damage eating into your profits.

Quick Definitions:

  • Shrinkage: Stock that's gone missing
  • Damage: Stock that's no longer sellable without discounting

Crunching the Numbers

Let's get our hands dirty with some calculations. A full and detailed explanation is available here.  After a stocktake, working through the calculations should take a few minutes.

Some real-world case studies

Case Study 1: The Vanishing Vitamins

A pharmacy in Brisbane was losing $5,000 worth of vitamins each month. After calculating their shrinkage (2.5%), they discovered employee theft was the culprit. By implementing stricter controls, they reduced shrinkage to 0.8%.

Case Study 2: A newsagent in Sydney

They found that their margins on stationery were, in theory, about 50%. Yet they found that their margin was more like 32%. This is due to the theft rate. They rearranged many of the stationery and put it behind the counter, which boosted their profits dramatically.

Industry Benchmarks

I can give you some typical figures quoted, but almost everyone I ask tells me that these figures are educated guesses. Most quote a figure of 1% to 2% and then give a disclaimer to say they believe it is too much higher. Figures typically quoted are 1.5% shrinkage with a damage rate of 0.4%; here are some details. How do your numbers compare? If they're higher, panic!

What we do know is that since COVID, shoplifting rates have jumped. You can read about it here in every state; we are looking now at about a 20% to 40% increase. This is a worldwide trend; for example, in the UK, it was a 37% increase. 

Yesterday figures from the Victorian Crime Statistics were released for the year ending March 2024 here there is a concerning 17% increase in theft offences recorded for the period to March 2024, driven by the highest ever numbers of incidents from retail stores. They I think confirm an early report that shoplifting is at highest level ever here. I am sure the oother states will becoming out soon with similar figures. Shoplifting since COVID has been a disaster.


The Why Behind the Numbers

Shrinkage causes:

  1. Sticky-fingered shoppers (shoplifting): One pet shop told me that the small items for the pets too often disappear.
  2. Employees with light hands (internal theft): Lott is often a big problem here. An employee gets the sudden urge to grab and rub a scratchie, and it loses, so they put it down. 
  3. Paperwork nightmares (administrative errors) - Often, lousy data entry has errors.
  4. Dodgy dealings (supplier fraud) - I suspect this is all too common in newsagencies. I find it hard to believe that these errors we pick up are entirely accidents.

Damage Demons:

  1. Clumsy handling 
  2. Storage snafus
  3. Time's Cruel March (expired products)
  4. Rough rides (transport damage)
  5. Sun causes the item to fade over time.

Ideas for Prevention

  1. Regular Stock Audits: Don't wait for year-end surprises. Implement cycle counting to catch issues early.
  2. Set SMART Goals: Use your percentages to set Specific, Measurable, Achievable, Relevant, and Time-bound targets. I discussed how to do them here yesterday. 
  3. Train Your Team: Get your staff involved.
  4. Upgrade Your Tech: A modern POS software and a camera system can be your best ally in the fight against shrinkage and damage.
  5. Secure Your Space: Precious items should be behind the counter or under lock.

POS Systems: Your Secret Weapon

A robust Point of Sale system isn't just a glorified cash register. It's your 24/7 stock guardian. Here's how:

  • Real-time Tracking: Know your stock levels at a glance
  • Automated Alerts: Get notified of suspicious patterns
  • Easy Auditing: Simplify your stocktakes
  • Data Insights: Spot trends and make smarter decisions

From Numbers to Action: Implementing Change

  1. Set Your Baseline: Calculate your current shrinkage and damage percentages.
  2. Benchmark: Compare your figures to industry standards.
  3. Identify Hotspots: Which products or areas are most affected?
  4. Strategise: Develop targeted prevention strategies.
  5. Monitor: Regularly check your percentages to track progress.
  6. Adjust: Refine your changes based on results.

Loss Prevention Strategies That Work

  1. The Power of Light: Well-lit shops deter thieves and reduce accidents.
  2. Look for dead areas: Design your stock layout to minimise blind spots. Have cameras and mirrors there.
  3. Inventory Management Software: Use technology to track stock movements accurately.
  4. Get your employees involved: Often, they can pick up suspicious people. 
  5. Customer Service Focus: Attentive staff naturally deter shoplifting.
  6. Grandmother: This idea works. Have the grandmother at the front of the shop personally welcome everyone into the shop. 

The Bottom Line Boost

Reducing shrinkage and damage isn't just about preventing losses but unlocking profits. Here's the impact:

  • Increased Revenue: Every item saved is an item sold.
  • Better Cash Flow: Less money tied up in replacement stock.
  • Enhanced Customer Experience: Your POS system will know the stock that you have.
  • Improved Forecasting: Accurate stock levels lead to smarter buying decisions.

Your Next Steps

  1. Calculate your current shrinkage and damage percentages.
  2. Set realistic targets for improvement.
  3. Implement at least one new prevention strategy this month.
  4. Use your POS system to automate tracking.
  5. Schedule reviews on loss prevention.

Remember, every small improvement adds up. A 1% reduction in shrinkage on a million dollar turnover business, at 30% margin is about $10,000 profit to you.

By tackling shrinkage and damage head-on, you're not just protecting your stock – you're safeguarding your success. It's time to turn those missing items and damaged goods into profit on your bottom line.


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