Fighting retail shrink: How smart POS systems turn data into loss prevention
If you are like most small to medium size retailers without a smart POS system, you often go years without realizing how large your inventory shrinkage really is. You know that feeling when everything seems to be fine and dandy. Your sales are strong, the store looks great and your inventory seems to be right where you left it. Then it’s time for your annual inventory count. Suddenly nothing is fine and dandy at all. Inventory is missing, storage areas are a mess and management is stumped.
An actual count of inventory on hand is known as an inventory count. This count should equal the amount of merchandise that you believe you have, or that you have sold and are supposed to sell to customers in the future. When the count of your actual inventory on hand is less than your recorded inventory, and or the amount of merchandise you have accounted for as being sold, the missing inventory is known as “retail shrink.”
Retail shrinkage reached $112.1 billion in losses for the nation’s largest retail stores in 2022, as reported by the National Federation’s annual national retail security survey. Inventory shrinkage can occur in a couple of ways including theft that is committed by customers on the sales floor and through internal theft that is committed in the backroom of the store.
Shrink visibility is a very advanced topic in the retail business. However, the simplest answer is an advanced point of sale system. We have used the cash register as the point of sale for years but the technology behind it has changed dramatically over the last few years and it can do so much more than just ring up the sale. As this article from Rapid POS explains, many of the new smart POS systems can do inventory tracking, monitor employee behavior, do transaction analysis and even give management alerts when something does not seem right.
Why Retail Shrink Is Rising
Shrink does not happen from one big event. It is the accumulation of many small errors that can add up to significant dollars.
Some common shrink errors include:
- Processing an order incorrectly for return.
- Scanning in a product that was already paid for by the customer.
- Failing to obtain management approval for discounts.
POS Analytics Reveal Suspicious Patterns
Every transaction passed through a smart POS system creates an electronic audit trail, containing all transaction data. An audit trail will record who processed the transaction, the date and time it was processed, as well as any edits to the transaction such as the application of a discount, a void or refund.
A good example is refund reporting. Each individual refund transaction may look OK when individually examined. But with enterprise-level visibility the smart POS system can now advise management of trends in behavior (like large numbers of refunds occurring on a specific cash register towards the end of a night shift), where maybe individual refunds have not set off alarm bells but the system now allows management to get to the bottom of why such large numbers have occurred and then investigate the cause which here may be refund abuse going undiscovered as there is no corresponding receipt to reveal the original purchase that a refund should have been derived from.
Intuition is no substitute for analysis, and it’s easy for even the best of retailers to miss key trends or to not notice the “red flags” that in hindsight signaled the onset of a shoplifters’ spree. But with the right analytical tools, large quantities of data are easily searchable for anomalies in customer behavior — anomalies that in many cases can be dealt with while the merchandise is still in good condition and before real losses are accrued.
Inventory Visibility Closes the Gap
In an ideal world an inventory discrepancy should always equal shrinkage. Let’s say you receive an order of 40 of your top-selling inventory items. Your purchase order, receiving ticket and freight bill all agree. However, when you perform the cycle count you are only able to find 34. With advanced inventory management in the smart POS system, you will be able to see the date an item was marked counted, who counted it and if any adjustments were made before the discrepancy was discovered. This gives you an idea of whether your discrepancy occurred before a product was sold, during the process of being counted or after they were already marked counted.
Tracking every sale, return and exchange back to inventory records is important to understand inventory activities and trends, and to make sure that any inventory discrepancies are addressed before becoming a major problem. And this applies to every transaction that occurs.
Protect Profits Before Shrink Happens
It is probably unrealistic to eliminate shrink completely from the retail environment but shrink can be dramatically reduced with the right inventory systems, controls, reporting and processes in place — and a good weekly shrink reduction process.
Today’s systems help you monitor all transactions, detect anomalies and address inventory shrink in minutes each week.
This story was produced by Rapid POS and reviewed and distributed by Stacker.
