How To Calculate Shrinkage In Your Retail Store

Retail shrinkage costs businesses billions of Rand every year.

If you're a store owner currently grappling with this issue, reducing shrinkage is crucial to safeguarding your bottom line. From understanding your problem to implementing effective shrink management solutions, it all starts with one essential step: calculating your shrinkage.

This blog will walk you through exactly how to calculate shrinkage in your retail store, explore ways to avoid it, and introduce you to the best solutions on the market.

How to Calculate Shrinkage in Your Retail Store

Calculating shrinkage is easier than you might think.

Here's a clear, step-by-step guide to help you calculate shrinkage rates.

You'll need to know two key values:

• The theoretical stock value, which refers to the total inventory value currently shown in your system shows, should be left.
• The actual physical stock value, which requires a manual inventory count of what's actually on hand in your store.

Shrinkage Formula

This is the formula to calculate shrinkage, expressed in Rand value:

Shrinkage = Theoretical Stock Value - Actual Stock Value

For example:

• Theoretical stock value = R100,000
• Actual stock value = R95,000
• Shrinkage = R100,000 - R95,000 = R5,000 in stock losses

Shrinkage Rate

To express your shrinkage as a percentage of your sales, use this formula:

Shrinkage Rate (%) = (Shrinkage ÷ Total Sales) × 100

Using the earlier example:

• Shrinkage = R5,000
• Total sales = R120,000
• Shrinkage Rate = (R5,000 ÷ R120,000) × 100 = 4.17%

This percentage gives you a clearer view of the proportional impact of shrinkage on your revenue over a specific period.

How to Avoid Shrinkage

Preventing shrinkage requires addressing its root causes. While theft is the largest contributor, other factors, such as administrative errors, damaged goods, and supplier issues, also come into play.

Here are actionable solutions to prevent shrinkage in your retail store:

1. Improve Stock Accuracy with Regular Audits

• Schedule regular manual stock takes to compare physical inventory with system records.
• Use advanced inventory management software to reduce human errors.
• Invest in RFID to monitor your stock levels in real time.
• Train staff to spot inaccuracies and report them promptly.

2. Train Your Staff

• Train employees to spot suspicious behaviours and improve accuracy during stock management tasks.
• Develop a theft-prevention culture by clearly communicating the consequences of internal theft.

3. Upgrade Store Security

• Position EAS (Electronic Article Surveillance) security tags on high-value items.
• Focus on well-lit aisles and improved customer flow for better supervision.

4. Use Data to Spot Patterns

• Analyse sales reports and inventory discrepancies to identify suspicious trends, such as repeated losses of specific items.

5. Ensure Vendor Accountability

• Cross-check deliveries from suppliers to reduce vendor-related fraud or errors.
• Ensure that signed receipts and documentation are provided for every transaction.

Invest in Shrink Management Solutions with Milestone

For many retail business owners, technology offers the most effective way to tackle shrinkage.

At Milestone Integrated Systems, we specialise in shrink management solutions to protect your profits and improve operations.

Here's how our solutions can help:

1. RFID Technology

Our RFID (Radio Frequency Identification) systems track your inventory quickly and easily. This ensures 99% accuracy and makes shrinkage caused by stock mismatches a thing of the past.

2. Anti-Shoplifting Systems

Minimise theft with our anti-shoplifting systems, which use the latest state-of-the-art sensors and tags to reduce shoplifting incidents without burdening employees.

3. Open Display Security

Selling high-value items? Our open-display security solutions protect your products without detracting from the shopping experience.

Get proactive about protecting your bottom line with Milestone.

Explore our full range of retail shrink management solutions here.

Protect Your Store and Maximise Profits

Retail shrinkage won't fix itself, but armed with the right knowledge and tools, you can drastically reduce its impact on your business.

It all begins with an accurate calculation of your shrinkage.

Want to learn more about effective shrink management?

Contact Milestone today and speak to our team of experts.