68% of Small Retailers Are Seeing Above Average Shrink Due to Theft, Sparking Need for Proactive Measures

On December 5th, 2023, the National Retail Federation walked back a bombshell claim about the severity of organized retail crime on inventory shrink rates at big-box retailers such as Target and Walgreens. Despite the admission that sophisticated theft rings may not account for nearly half of the billions of dollars originally believed to be lost to retail shrink in 2021, the NRF and Software Advice's new research suggests shrink, particularly through theft, is still a growing problem for small to midsize retailers.

Survey data reveals that 68% of SMB retailers are experiencing shrink rates above the industry standard of 1.5%. This rise is predominantly attributed to external theft (e.g., shoplifting, organized retail crime, and fraudulent returns) and marks a significant challenge for businesses with smaller margins and less sophisticated loss prevention strategies.

The survey findings also indicate an unsettling trend?an increase in shrink across its various contributing factors, such as theft, inventory damage, and vendor fraud. In fact, 34% of SMB retailers report a rise in shrink over the past 12 months, and 46% have experienced more theft at their stores. With shrink taking a bigger bite out of small-business sales, the focus on effective loss prevention strategies is paramount. Of the retailers who have observed more theft, 88% say they now consider loss prevention a top priority.

Molly Burke, senior retail analyst at Software Advice, emphasizes the importance of understanding these trends. "Shrink isn't just a buzzword lately?it actually has increased for over one-third of small retailers. A deep dive into how shrink affects your business can provide insights into hiring practices, vendor relationships, and store layouts that may be impacting your bottom line," she explains.

Retailers are pinpointing a variety of causes for the increase in shrink. Economic pressures, such as inflation and the rising cost of living, are leading to more external theft, as reported by the retailers experiencing an increase in shrink.

Operational factors contributing to the rise in shrink are multifaceted. High employee turnover and inexperienced administrative staff are also significant contributors, with some SMBs attributing the uptick in employee theft to these factors. Rising shrink is more pronounced in businesses operating a larger number of physical stores (20 or more), indicating that growing businesses with more exposure to the public need to anticipate losing more inventory and revenue as they scale their operations.

SMB retailers are adopting a range of strategies to curb shrink. Over half (54%) have installed or updated security cameras in the past year, a move indicative of their commitment to improving surveillance and reducing theft. Additionally, the introduction of new inventory management system reporting software and training techniques reflects a shift toward a proactive, technological approach that can keep employees safe with minimal impact to customer experience.

Software Advice emphasizes the critical role of technology when it comes to loss prevention. Businesses can explore point of sale systems, inventory management software, and IoT physical security, among others. Cloud-based surveillance cameras can make a huge difference by automatically collecting data on customers and helping employees monitor incidents.

The full report offers additional findings, expert analysis, and recommendations to mitigate retail shrink at small businesses.

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