How to reduce retail shrinkage

What shrinkage is and how to calculate it

Shrinkage is the difference between the inventory your records say you should have and what you actually count. It is usually expressed as a percentage of sales for the same period.

Track shrink by store, department and category. A store average can hide one category, such as cosmetics or tools, where most of the loss happens.

The main causes

Process errors are often underestimated. They are also the easiest to fix, because they do not require catching anyone.

Fix receiving and inventory processes

• Check every delivery against the purchase order before signing, and record discrepancies.
• Separate the person who receives goods from the person who records them, where staffing allows.
• Count high-risk categories more often with short cycle counts instead of waiting for a full inventory.
• Record markdowns, damages and transfers on the day they happen.
• Audit price changes so shelf tags and the register match.
• Keep the stockroom locked and limit access.

Staffing is a loss prevention tool

Empty aisles invite theft. One of the most effective deterrents is simply having trained employees on the floor, greeting customers and paying attention. That means scheduling to traffic, not just to tasks.

• Match staffing to your busiest hours and to the times when losses spike, often evenings and weekends.
• Avoid leaving one person alone to run the register and the floor.
• Keep fitting rooms and high-value areas staffed or monitored.
• Plan cover for breaks so the floor is never empty.
• Track call-outs and fill gaps quickly. See handling call-outs.

Use your labor budget wisely: compare labor cost percentage with shrink by store. A store that saves on labor but loses more in shrink is not saving money.

Reduce internal theft fairly

Most employees are honest, and treating everyone as a suspect hurts morale. Focus on controls that make theft hard and errors visible, and apply them to everyone:

• Require manager approval and a receipt for refunds, voids and large discounts.
• Review exception reports: voids, no-sales, refunds and discounts by cashier.
• Use individual register logins; never share codes.
• Count tills at shift change with two people, using a cash count sheet.
• Check bags and packages according to a written policy applied consistently, and follow state rules.
• Make it easy to report concerns anonymously.

Accurate time records help too. Time theft and buddy punching are a form of loss, and patterns in clock-ins sometimes line up with other problems. See how to prevent buddy punching.

Deter external theft

• Store layout with clear sight lines and high-value items near staffed areas.
• Visible cameras and signage.
• Security tags, locked cases or display dummies for high-theft items.
• A greeting for every customer; attention deters theft.
• A clear, safe policy on what employees should and should not do when they suspect theft. Employee safety comes first; most retailers tell staff not to chase or detain.

Train every shift

Loss prevention works when every employee knows a few basics: how to receive a delivery, how to process a refund, what suspicious behavior looks like and who to tell. Use short, regular sessions rather than one long training. A five-minute topic at the start of a shift, recorded on a training attendance sheet, keeps it current. Include opening and closing routines, using checklists such as the store opening checklist and store closing checklist.

Shrink by type of store

Every store is different, so use the list as a starting point for your own data, not as a rule. The categories with the highest shrink in your counts deserve the first actions.

Build a loss prevention culture

Controls work better when employees understand them and see that they apply to everyone, including managers. Explain why refunds need approval and why counts matter: shrink comes out of the money available for raises, hours and store improvements. Share each store’s shrink results with the team, celebrate improvements and invite ideas from the people who work the floor every day. Some of the best fixes, such as moving a display or changing a delivery time, come from cashiers and stock associates. Employees who feel trusted and fairly treated are more likely to protect the business and to report problems.

A 90-day shrink reduction plan

1. Days 1 to 15: calculate shrink by store and category and review exception reports for voids, refunds and discounts.
2. Days 16 to 30: tighten receiving and markdown recording, and start weekly cycle counts in the top three loss categories.
3. Days 31 to 60: adjust schedules so peak and high-risk hours are covered, and train every shift on refunds, receiving and what to do about suspected theft.
4. Days 61 to 90: recount the focus categories, compare results with the starting point and decide what to keep, change or extend to other stores.

Measure and review

Review the scorecard with store managers each month and agree on one or two actions per store.

How EZTime helps

EZTime helps store managers schedule to traffic, fill open shifts quickly and keep floors covered during breaks. Opening, closing and cash procedures can run as recurring tasks with photo proof, and kiosk or NFC clock-in at the store reduces buddy punching.

Frequently asked questions

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