Shrink. It’s a word that many retailers don’t like to hear or even think about too much. Also referred to as merchandise loss, this major challenge carries with it many secondary problems, from compromised operational efficiency to diminished revenues. Often cited in earnings reports as a cause for tighter margins and other unfavorable outcomes, shrink affects retailers everywhere: from small and mid-sized businesses to larger enterprise operations. An article published on Fortune.com noted that, “in an industry where margins and profitability are already under significant pressure, the rise in retail shrink is capturing the attention of all levels within retail organizations.”

While shrink is a legitimate and serious problem for retailers, it’s also greatly misunderstood. As a result, it is more difficult for retailers to address merchandise loss effectively. Without a clear understanding of their organization's vulnerabilities, attempts to correct and control shrink can often be misdirected, causing real and long-term harm to a business. According to information released by the National Retail Federation (NRF), retail profit loss due to shrink was more than $112 billion in December 2023.  

Fortunately for retailers, the industry is undergoing a significant renaissance in technology and innovation, which includes the advent of more effective tools for combating shrink at every level. Before retailers can implement these solutions, they must first understand where and how shrink is occurring. This list of five common myths about retail shrink—and the reality of what is occurring in each scenario—is a good place to start.  

Myth 1: The primary cause of shrink is shoplifting.

While shoplifting is certainly the most visible and discussed form of merchandise loss, it’s just the tip of the iceberg. Retail shrink can occur at many points during the merchandise lifecycle, including administrative errors and operational loss and damage or expiration of inventory on the backend, as well as returns and vendor fraud and even employee theft. Traditional shrink prevention methods, such as exit door scanners and other security measures, have focused primarily on shoplifting, but to combat shrink effectively, retailers must understand and address other forms of retail loss as well.  

Myth 2: Shrink is inevitable.

Because shrink is so common, it's easy for retailers to dismiss it as just part of doing business. However, doing so would represent an incredible loss, potentially even compromising the business’s long-term success. Instead of accepting shrink, through measures such as raising prices to account for loss, passing the burden onto shoppers at the risk of customer attrition, retailers should feel empowered to address shrink wherever it occurs, strengthening their business for years to come.  

Myth 3: Investing in loss prevention is too expensive for small businesses.

Shrink can be especially harmful for small businesses, which often operate on much thinner margins than enterprise businesses. While preventing shrink does require an initial investment, spending money to combat retail loss prevention can result in a net positive financially. The good news is, smaller businesses have a smaller footprint, which makes it much easier for operators to address the places where the most shrink is occurring, as opposed to larger businesses who must implement significantly broader solutions.  

For example, in stores where limited manned checkout lanes provide opportunities for shoplifting or cashier error, the addition of self-checkout lanes can reduce these vulnerabilities, along with customer queue times, without significant addition of staff. Targeted solutions like these are impactful in small businesses and can represent exponential reductions in shrink.  

Myth 4: One loss prevention strategy can address all causes of shrink.

Because the causes of shrink are so varied, the solutions are as well. Solving retail loss prevention takes a medley of solutions, and retailers must balance convenience for their customers with their own security needs and budget.  

Common sources of retail shrink that are less well-known include employee theft and process shrink. Employee theft occurs when employees intentionally under-scan items, give away unauthorized discounts or manipulate transactions by voiding sales or providing false refunds. Unlike theft, process shrink is not malicious. It can manifest in employees making mistakes as they handle cash or price items. Because these sources of shrink are so distinct, they require different solutions.  

Fortunately, retailers have tools at their disposal to help them implement the most effective solutions. 34% of retailers are already using data analytics to spot shrink patterns, allowing them to invest in the areas that are the most vulnerable. For example, because many stores have identified self-checkout as a source of shrink, 81% of retailers have increased their staffing presence near self-checkout lanes.  

Myth 5: Self-checkout implementation is correlated with an increase in shrink.

Since shrink has traditionally been associated with shoplifting, it makes sense that people tend to associate self-checkout (SCO) with vulnerability. The truth is that today’s self-checkout systems are designed to combat this in various ways. New self-checkout kiosks are equipped with software that can recognize items with a 95 rate of correctness, per internal product testing, and utilize weight-based alerts to combat theft at self-checkout. While it’s a low-tech solution, research shows that associates stationed at SCO are also an effective deterrent.  

Additionally, retailers should understand that their customers will need time and instruction to adjust to new systems, such as SCO, and should be sure to incorporate education into plans for implementation. Per a recent report from Incisiv, “Incorporating educational initiatives can foster an environment of trust and responsibility, actively engaging customers in reducing store losses.”  

A modern approach to combatting shrink

Like an iceberg, there’s more to shrink than is visible at first glance. Truly combatting the problem requires a deep and personalized understanding of shrink and its common causes. Once retailers take the time to understand the specific ways that shrink impacts their business, they should feel empowered to combine tools and strategies to address the most pressing needs for their individual businesses.  

To learn more about the way new technology can help your business prevent inventory loss, schedule a demo today.