Effective ways to reduce shrink and increase profitability
We asked retailers what they were doing to control shrink and, not surprisingly, the profit leaders stuck out again. However, what they are doing is not overly complicated and can easily be implemented. Even those who measure shrink using retail method accounting showed a 2.7% shrink level, which is .6% lower than the overall average of 3.3% and only a half a percent higher than the 2.2% of the profit leaders.
Programs to curb perishable shrink
- Fresh item management
- Dedicated tool for planning production
- Custom-built shrink, markdown, and goals program
- Organizational focus across all departments on profitability programs and improving underperforming stores and departments
- Electronic tracking of all shrink and reports/action plans based on results
- Discount/markdown sale before shrink and use of ripe or at-date items in food service
- Shrink is scanned each day at retail, tracked over time and compared to department goals
- Shrink is tracked daily by department managers and recorded in the inventory system
- Inspection upon arrival for damage/credits and stocking according to freshness dates
- Add value to produce, meat and deli items before shrink
- Loss identified weekly and compared to goals to understand what and why above or under
- Technology solutions including ScanItAll, ShrinkTrax, Grocery Order Tracking and Periscope
Profit leaders also experience significantly lower turnover rates. What does this have to do with shrink? More than you would imagine.
Training on ordering properly to prevent excess stock and out of dates will improve profitability over time. It will also make staff more aware of rotation issues, dates when receiving the product, and to the need for being proactive before a product is thrown out.
This training and the shrink programs mentioned above become part of the experienced team member thought process.
If you have trouble with turnover, understand that the cost goes beyond direct training dollars, impacting shrink and customer satisfaction! If that turnover is due to a strong economy in your area, the above shrink programs need to be put on posters with simple ways to keep new staff on board. Hang signs by the time clocks with today’s shrink objective, and remind staff to check dates in coolers, look for short date product in the cases and notify their department manager for markdowns, organize the cooler for the better ordering and to reduce damage.
Be creative. As everyone fights for top-line dollars, shrink is one way to add to the bottom line or create funds to enhance ad programs to drive top line sales.
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Contributed by FMS Solutions
The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.