Addressing The Hidden Operational Losses Impacting Profit Margins

Operational Shrink: Hidden and Costly

Point-of-sale (POS) losses cost retailers 40 billion dollars annually and substantially impact bottom lines. While some of this shrink can be attributed to employee theft and fraud, the majority of it is actually caused by common and costly operational issues. Operational shrink is much more significant than retailers realize and often goes unnoticed. While fraud is typically isolated to single employee, operational shrink, including losses caused by systemic issues (UPC incorrectly entered, manufacturing issues) and poor promotion execution (unclear promotions, promotions not dropped to the POS) often span the entire chain and are exponentially more costly.

As staggering as 40 billion dollars is, it is actually an underestimate of the true loss that is occurring. The problem is that many retailers’ loss prevention tools are not designed to find certain patterns of operational shrink – their focus is purely on fraud and individual people. Thus, these types of activities are unknown to retailers and unaccounted for in the statistics.

Because of the inefficiency and limited impact of current loss prevention solutions, retailers and loss prevention (LP) professionals are only seeing the “tip of the iceberg.” The reality is that there is a substantial amount of operational shrink that retailers are unaware exists and that are directly impacting their profitability. Retailers need to see and be aware of everything, including small operational errors, because these mistakes quickly add up, and new data show that these losses are much more significant than previously thought.

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