Shrinkage - the Drain for Profits - Turn off the Tap

SHRINKAGE -THE DRAIN FOR PROFITS – TURN OFF THE TAP

Defined in the Oxford Dictionary as: -

n. 1. The fact of shrinking

2. The amount by which anything decreases in size, value or weight.

Two simple definitions of a word that has become synonymous with the commercial world, the retail trade in particular, and that is, in fact, used to cover up a multitude of sins. The reality is that shrinkage has almost become acceptable because the commercial world has, or so it thinks, found ways to cover it up or build in allowance factors.

Isn’t it the case that shrinkage is another way of recording losses to theft and fraud? Many years ago I remember speaking to the then Chairman of the Oxford Street Retailers Association, who, in conversation, stated that his membership accepted a certain tolerance of shrinkage and that a percentage figure was built into their budgeting. How can that be the case? How can it be acceptable to turn a blind eye to dishonesty in your business? Don’t forget that statistics show that 80% of fraud suffered by companies in the UK involves employee collusion.

The British Retail Consortium’s recent crime survey showed that the impact of crime was cost the sector £2.3 billion in 2004, a rise of 9% from 2003. Why isn’t the issue tackled head on? It’s all very well to look at the front end of a business and drive marketing, production and sales forward but what’s the point if you are haemorrhaging profit out of the back door. Margins suffer, employees become used to an excuse culture, and inevitably running costs increase. Sadly, all too often companies calculate their shrinkage losses and inflate their prices accordingly. All that achieves is to make your product less competitive.

Customer theft has grown alarmingly, since 2000 the figures have risen by 50% but at the same time according to the Centre for Retail Research a recent survey of 25 European countries revealed that the UK is second only to Iceland in levels of employee theft.

One way employers can address the issue is looking at security levels within the business and introducing simple cost effective procedures to reduce losses and thereby increase profitability. There are many areas from Recruitment and Staffing levels all the way through to stock control, purchasing, sales, fleet management and expenses, physical security, cash handling to name but a few.

One of the problems is the ‘Perk of the Job’ attitude that has festered in employee culture. Employers should clamp down on dishonesty no matter how small the value of the theft may be. There is a need to promote a different culture in the workplace. There should be more vetting of staff, greater rewards for loyalty and, most importantly, pay the rate for the job!

Peter Ferguson

Managing Director

Corporate Fraud Solutions Limited