While the word ‘shrinkage’ or ‘shortage’ has been in use for more than a 100 years to describe retail ‘losses’, it does not enjoy a universally agreed upon definition in terms of what is included and excluded when it is used, nor how the value of losses should be calculated. Often used to describe the difference between anticipated and actual levels of retail inventory, where the root causes of losses are typically unknown, it has become a catch all term used by the industry to describe a wide variety of retail-related losses, some of which relate as much to lost margin as they do lost stock.
This lack of a universally agreed definition has led to existing industry surveys on shrinkage generating data which can be highly problematic to benchmark against, especially when it is unclear what types of loss have been included or excluded by respondents.
In addition, the rapidly changing nature and scale of the risks retailers are now facing further undermines the applicability of the current ways in which losses are being defined and measured. This is particularly the case with the increasing use of new technologies and retail formats, which are generating new types of losses. Moreover, retailing is now able to generate a broader range of data points across the entire value chain – gone are the days when differences in anticipated and actual store stock levels were the only data game in town – new sources of data are now available to better understand how a broader range of losses are impacting upon retail businesses.
This research puts forward a new definition of ‘Total Retail Loss’ together with a typology made up of 32 categories of loss that span the entire retail environment, from shop theft in physical retail stores to frauds in corporate headquarters. It offers a unique way of thinking about how a much broader range of losses impact upon retail businesses, differentiating between the ‘costs’ of being a retailer and the ‘losses’ that negatively impact business profitability. In addition, the study developed detailed definitions of each of the categories of loss with a view to improving the accuracy of future benchmarking exercises.
It is believed that by using Total Retail Loss, retail businesses in general, and loss prevention practitioners in particular, will be able to not only better understand the impact of current and future retail risks, but also make more informed choices about the utilisation of increasingly scarce resources.
For loss prevention specialists, it provides a unique opportunity to build upon and reinforce the critical role they can play in becoming agents of change within their retail businesses.
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