Retail shrinkage eats into the profitability of retailers worldwide. It is described as the loss of inventory due to various factors, and it directly impacts a store’s bottom line, growth and operations.
For retailers in South Africa, the stakes are particularly high. With a mix of economic pressures, complex supply chains, and security vulnerabilities, the causes of retail shrinkage in South Africa demand urgent attention.
This blog will explore the five primary causes of retail shrinkage, breaking down how they occur and offering actionable strategies to mitigate them.
Cause #1 – Shoplifting
Shoplifting is one of the most obvious and persistent causes of retail shrinkage, and it remains a challenge for retailers worldwide, including those in South Africa.
By definition, shoplifting involves individuals pretending to be customers who remove merchandise from a store without paying for it. This form of theft can devastate businesses, leading to direct financial losses.
Despite being recognised as a serious offence in South Africa, shoplifting remains rampant. It’s a big contributor to retail losses nationwide, as thieves keep finding ways to avoid getting caught.
Cause #2 – Employee Theft
Employee theft can be even more destructive than shoplifting. This form of internal dishonesty cuts deeper than financial losses; it erodes trust within the store.
Employee theft involves individuals entrusted with the operation and growth of a business exploiting their positions for personal gain.
Employee theft takes many forms, all of which can harm a business. Employees may steal cash directly from registers or safes, pocket inventory to sell outside the store or manipulate customer transactions.
For South African retailers, the issue is compounded by unique challenges.
High unemployment rates and economic struggles mean that employees may feel greater temptation or desperation to steal. A lack of robust internal controls and auditing practices in some retail setups can also create an environment where theft is easier to conceal.
The scale of loss from employee theft often goes unnoticed until damage has accumulated.
Cause #3 – Operational Errors
When it comes to the causes of retail shrinkage, not all losses are the result of deliberate acts like theft.
Operational errors (a category that includes clerical mistakes, pricing inaccuracies, and inventory management missteps) are often accidental yet equally damaging. These mistakes might not be intentional, but they can hurt a retailer’s bottom line just as much as theft.
- Clerical mistakes are a prime example. Something as simple as a data entry error can lead to discrepancies between recorded stock levels and actual inventory.
- Mispricing is a common problem where items are labelled with the wrong price. This can either cut into sales margins or stop purchases completely if customers think the prices are too high.
- Errors in inventory management play a major role as well, especially during stock counts or product shipments.
Many retailers in the region still rely on outdated or manual inventory management systems, where human error is more likely to occur. Undertraining staff tasked with labour-intensive processes like stock tracking and price labelling can also lead to repeated mistakes.
These factors, combined with the complexities of large product lists or high warehouse turnover, create an environment where operational errors become difficult to detect.
Cause #4 – Supplier Fraud
Supplier fraud is one of the less visible yet highly damaging causes of retail shrinkage. This deceptive practice occurs when vendors intentionally manipulate transactions to benefit themselves at the expense of the retailer.
Supplier fraud can take many forms, such as:
- Delivering fewer goods than invoiced (short deliveries)
- Overcharging for products
- Substituting agreed-upon items with lower-quality alternatives
- Falsifying documentation
One of the reasons supplier fraud is so harmful is its often-overlooked nature.
Unlike shoplifting or employee theft, where losses are tangible and immediate, supplier fraud can go unnoticed for months, quietly depleting profit margins.
Cause #5 – Organised Retail Crime (ORC)
Organised retail crime (ORC) is a major and complex cause of retail shrinkage.
Unlike opportunistic shoplifting, ORC involves well-planned and coordinated efforts by groups of individuals who work together to steal large volumes of merchandise.
These criminal networks often come armed with specific tools, strategies, and even resale channels. This makes their activities far more damaging and difficult to detect than isolated acts of theft.
Rather than targeting a single item or committing spontaneous theft, ORC operatives aim to clear out shelves of high-value products, such as electronics, cosmetics, and designer clothing, often worth thousands of rand in a single incident. They may use distraction techniques, fraudulent returns, or even collusion with corrupt employees to execute their plans.
Preventing Retail Shrinkage
Retail shrinkage is not always unavoidable. If you’re a South African retailer, you must proactively tackle your shrinkage problem before it impacts your business.
We recommend reading our other blog post: “How You Can Prevent Shrinkage In Retail“, for specific strategies and techniques to reduce shrinkage in your store.
Some key steps you can take include:
Implementing strict inventory management processes, such as regular stock counts and monitoring of stock levels.
Conducting thorough background checks on potential employees before hiring them.
Installing security measures like electronic article surveillance (EAS) systems.
Training staff on how to identify and prevent theft, including recognising signs of ORC activity.
Don’t Let Shrinkage Affect Your Business!
Retail shrinkage is a multifaceted challenge that can erode profits and disrupt operations. Each threat poses unique risks but presents opportunities for improved security measures.
At Milestone, we specialise in shrink management solutions.
Our RFID, EAS, and Open Display solutions can help you prevent shrinkage and protect your merchandise.
Don’t let retail shrinkage affect your business; contact us to find out how we can help.
