Asset Protection: Vital To the Retail Industry
Losses resulting from shrinkage are a perennial problem in the retail industry all over the world. It’s become a lot more glaring in recent times as sales have dropped because of the economic slowdown and retailers are feeling the pinch of shrinkage more than ever before. In an industry where profit margins are around 2% at the best of times, cutting costs due to shrinkage can lead to a substantial increase in the profitability of the business. That is exactly the reason why Asset Protection assumes great significance in the retail industry and cannot be overlooked.
Asset Protection – causes of shrinkage
It’s important to understand various reasons that can lead to shrinkage before one takes appropriate measures towards Asset Protection for their retail company. Some of the common causes of shrinkage are:
- Shoplifting, theft and burglary.
- Employee thefts.
- Losses due to unaccounted inventory of perishable items.
The reason could be any or the combination of a few; it’s important to pinpoint the exact reason that is affecting a particular retail business. However, most retailers lack the ability to conduct root cause analysis of their shrinkage problem as a result many of the Asset Protection Strategies implemented produce negligible outcome.
Their shrink management strategies are naturally flawed and it leads to a series of Asset Protection methods based on trial and error that only add to their costs without giving a decent return on investment. Some of the fatal mistakes in shrink management that can be avoided are:
- Not having enough data to take a sensible approach based on facts.
- Not identifying the basic problem that leads to shrinkage.
- Using an unplanned and haphazard strategy to tackle the problem.
- Taking measures that adversely affect sales of products.
- Implementing methods that cannot be sustained over time, which requires repetition of the process.
Asset Protection measures
After repeatedly committing such errors many retail managers throw their hands in their air accepting shrinkage as a part and parcel of running a business. But the fact is, it can be avoided by adequate and suitable Asset Protection measures. It is known to work for different types of retail establishments, which have seen phenomenal results by taking the necessary steps based on thorough research.
- A grocery chain in the US assumed that their dairy shrinkage was due to poor rotation of products or less of volume stock keeping units. However on detailed analysis the real problem was identified with their high volume stock keeping units. Once fixed, the company managed to save more than $1 million in a year.
- Another retailer couldn’t solve the problem of shrinkage despite many attempts without addressing the root cause. It happened to be the fact that perishable items were being over ordered because associates didn’t have a well-kept sales data to refer to. The retailer finally rectified the problem by creating order guides, which reduced shrinkage by sizeable proportion and a benefit of around $7 million was seen annually.
These are just a couple of cases that show Asset Protection can bring about amazing turnarounds in a retail company’s fortunes. It can be done with a smart, fact driven approach to avoid shrinkage. Hiring services of professionals who have the experience of dealing with the issue having worked with many retailers in the business is a good idea. Their expertise can lead to significant reduction of shrinkage, sustained results and an improved profitability of the retail business.