Ted L Moss, Security Expert

Prevent Shrink, Increase Profits: the Impact of Responsible Hiring on Retail Shrink

With retail shrink sucking a whopping $31 billion dollars or more out of retail profits annually, finding effective ways to combat shrink in the retail environment is one of the best ways to increase a business’s profitability. And although shoplifting is the most recognizable form of retail shrink, it is not the most costly—not by far; individuals within an organization account for much higher levels of retail shrink.Three out of the top four sources of retail shrink come from either employees or vendors. Administrative error alone accounts for up to 15% of shrink; vendor fraud, most often committed by vendors invited into the store for purposes of restocking, constitutes the smallest percentage of shrink (within the top four), but still ranks high on the list.

The number one source of profit loss caused by retail shrink comes from employee theft—those very people who are charged with the protection, sale, and ultimately the profitability of product. Employee theft occurs in many ways; among them:

• Abuse of employee discounts
• Abuse of refunds
• Abuse of credit cards
• Outright stealing

The irony is that while employee theft is directly responsible for the largest profit losses due to retail shrink, it receives much less attention than consumer theft. Storeowners and managers either do not realize the impact of it or do not know how to stop it.
The most effective means of stopping retail shrink caused by employee theft and system abuses is to prevent it by committing to a good hiring process. An effective hiring process means more than reading the information an employee gives on a job application, too; it means verifying that information and looking further into an employee’s background to see what he or she hasn’t been disclosing (because if they haven’t offered up the information, there is usually a good reason why.

A very good tool to add to the hiring protocol is a background check for every promising employee. Although background checks can be quite time consuming for an employer, they can be performed at a very cost effective rate. Even the most basic third-party employee background check can return some surprising results that will bear greatly on the decision to hire.

The cost involved in securing background checks for employees is easily recouped when losses due to shrink decline. The expense is minor in the long run compared to lost profits. A detailed, thorough hiring protocol, including a thorough employee background check, is the best available predictor of not only employee performance, but employee honesty as well. It’s a small measure that could return dividends in eliminating the number one source of retail shrink.