Five ways to minimise shrinkage in a franchised business


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Minimise Shrinkage

Shrinkage is not confined to franchises – it is a global epidemic caused by theft, employee fraud, or admin errors. Nor is it confined to South Africa. According to Global Retail Theft Barometer’s statistics, employee fraud accounts for fully 39% of loss; shoplifting and theft a further 38%; and 16% due to administrative error. Unchecked, it has the ability to turn a thriving business into a loss making one.

The global quantum of shrinkage is an almost meaningless figure in the billions of dollars, but you should know that whatever you are losing in your store – your profits are reduced by that difference – comes primarily from employee theft and shoplifting. There are ways to limit that loss.

When you own a franchise, the store will come with cash and inventory management systems which mean you are able to identify and prevent shrinkage from occurring in your stores. In the training you should receive from the franchisor, you will be taught to monitor key financial ratios as percentages: if your cost of sales rises or margin falls inexplicably that should be an immediate red flag. If you cannot identify the loss, you’re probably not following the system.

Simply put, reducing shrinkage involves closely monitoring the daily operations of your business from the shop floor so as to increase your awareness of where things are going wrong. Then you can formulate your action plan. Here are five steps to reduce shrinkage in primarily retail businesses.

Watch your staff through increased accountability

This can be difficult to maintain in the event of a high rate of staff turnover. There is often a strong correlation between high staff turnover rates and a high rate of internal theft – it could be as high as 50% of total shrinkage. Increasing employee longevity and accountability is one of the most effective ways to reduce shrinkage in retail. Increase the accountability of staff by monitoring their cash management practices and by ensuring that each register is reconciling at the end of each shift. Being a visible on-the-floor presence throughout the day lets your staff know that you will permit no slippage of systems and that they have limited opportunity to steal.

Watch customers by training employees on security policies and procedures

Train staff to ensure that franchise policies and procedures are strictly followed so as to prevent shoplifting. They should be fully knowledgeable as to whom they should report instances of suspected shoplifting. Such training can double as customer service training while preventing shoplifting:

  • greet every customer
  • watch for customers who avoid eye contact
  • ask customers if they can be of assistance.

Ensure your store layout offers good visibility

If your store is filled with high shelving units, blocked aisles, little nooks and crannies, it makes it more difficult to monitor customers – and employees – as they walk through the store. Being visible deters attempts to shoplift.

Cultivate a team culture of loss prevention

Loss prevention becomes more effective if everyone works to one end, especially if it is incentivised:

  • encourage staff to care about preventing internal and external theft
  • establish guidelines and procedures as to how staff can report suspected theft
  • make it comfortable and non-threatening for them to express observations.

Invest in automated cash management technology

This is one of the most effective ways to reduce shrinkage in retail. It reduces the touches that you and your staff have with cash, and increases the security and efficiency of your daily store operations. You can track cash as it moves through your store from transaction to processing.