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How vulnerable are you to shrinking out?

How vulnerable are you to shrinking out?

A loss prevention review for a small business

You’ve come this far and I suspect you did so because you have an issue with losses.

Shrinkage can be the deciding factor for whether a small retailer thrives or shutters its doors. And in most cases, the owner is unaware until it is almost too late.

An annual inventory can tell you how you are doing, but if you want to react earlier, you need an early warning system.

That’s where a Loss Prevention Review comes into play, and we will give you step by step components to creating your own. 

First things first; understand that any successful review measures compliance to standard operating practice. So you need a clear set of rules that you want your business to operate by. You need to have the documented standard to compare to.

We do not focus on looking for shrinkage in this process, but rather focus on making sure that your operation is sound.

Shrinkage is the result of non-compliance to standard operating practice, so you don’t look for it specifically. It happened when there are exceptions or deficiencies. You make sure things are humming along smoothly and as you anticipate. The results would naturally be less shrink because there is less room for error.

So if you think that shrink falls into 3 main buckets*, then your review would have 3 independent parts.

Let’s start with administrative errors.

When you develop your Operating Manual, you must be clear on the process. Along the way, there may be risky steps (see HACCP). These are points are points of review that should be documented. Checking them will give you an idea of whether or not your staff is doing things right.

Now let’s look at Employee Theft

If engagement reduces the opportunity for employees to take advantage, or at least makes them think twice about it because you have personalized it, then your review should be focused on checking things that matter to increase engagement.

Honest Employees – Questionable Customers.

The last piece of the shrinkage puzzle is customer theft. In a separate article we cover why customers steal, so your review should be focused on reducing the opportunity by increasing the fear of exposure off the side of a would-be thief.

Means of Measurement

Review questions should be worded in a way to gather a score. You can either use a simple yes or no scale, where all yeses related to compliance, so you can use a scale. In my experience, a simple yes or no works best, even though you will get resistance that the day the review took place was the only day in the month where the exception took place, so you should be administering half marks. 

Sample Review – Bottom Line Matters.

Source: Bottom Line Matters, 2018.


Celebrate and Hold accountable

80% last week, and 85% this week is a success. Celebrate it! Then look for the root cause of the 15% non-compliance and hold accountable, first by training, then by removing person or activity that is causing the exception.

It takes respect and courage, but yes it might mean moving an employee or removing them via termination.

The bottom line is this;

(1) inspect what you expect…and,

(2) when what you expect is not what you find – take action!


About Stephen O'Keefe

As an independent consultant I leverage my experience and knowledge to help a number of companies achieve results. Clients range from non-retailers looking for guidance to serve their retail customer, to retailers looking for quick solutions to unique and costly problems, right to the Industry Association. Bottom line Matters!

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