Approximately 40% of retail shortage is attributed to employee theft. The remainder is in administrative and vendor shortages. Since employee theft is the biggest percentage, it is important to know exactly what makes up that loss. Statistics show that roughly 50% is in the form of actual merchandise theft and the rest split between cash, refund fraud, false markdowns and other financial fraud. From a location standpoint, about 25% of the internal theft happens at the register, 40% from the sales floor followed by almost one-third in the back office or stock room areas. These figures are critical because they pinpoint where retailers need to focus their energy to reduce internal theft.

External theft or shoplifting is centered on the theft of items from your sales floor and can involve the items to be re-sold, either on the street or more recently, on the Internet. The most frequently stolen items across all retail lines tend to be expensive, branded items such as clothing, entertainment and beauty products. It is hard to say what causes a "non-professional" to steal, but if there is a need, or a basic "want," anything can be stolen if the opportunity presents itself.

Administrative error is a result of an accounting error. For example, if you are selling an item for $10 and that is reflected in your "book stock" and you take a markdown to $7 and fail to record it show that in your "book stock" then you have created a $3 shortage for each of the remaining units.

Vendor shrinkage is a usually a form of a short shipment. An example would be purchasing 50 sweaters and there are only 48 in the shipment at the time of checking in the merchandise. It can be a result of either the vendor "short shipping" or even an employee stealing the items at the time of check in. Regardless, this is now a shortage as you paid for merchandise you did not receive.

So how do you control your shortage?
The cost of shortage is just shy of $40 billion in this country. That is a huge number and one that all retailers need to address in their own stores. As was mentioned earlier in this article, employee theft is the biggest percentage of that $40 Billion number. Here are some ways you can try and reduce that number in your own stores.

• Make employees aware of the problem so that they can learn how to be part of the solution.
• Holding periodic meetings with associates sends a clear message that you believe this is important, as well as that you will be monitoring all employees as well.
• Perform "test audits" on items that could be "high theft" so that you can closely monitor stock versus actual sales. This helps employees keep a close eye on areas that you pinpoint as potential targets for theft.
• Create systems that all employees are aware of from who rings up an employee sale, to bag checks in and out of the store and those people who are in charge of opening and closing the store.
  

When it comes to external shortage, the best deterrent is outstanding customer service. When employees are aware of who is in the store and where they are at all times, it is harder for the "would be" thief to steal. When their eyes can't always be watching customers, here are some things you can do to reduce customer theft

• Merchandise and display high-theft items so that the employees can have direct "line of site" to their location.
• Consider putting only a few items on the floor at any given time that are potential theft items. Customers even appreciate being told, "I will get you a fresh one from the back stockroom"!
  
• Always hold monthly shrinkage meetings to get the employees feedback on what they see as possible ways to control theft.
  
• Monitor your customer traffic so that you staff your stores based on the increase or decrease in the number of customers in your store. If there is only one employee working in the store and there is a long line at the register, this gives the potential thief the opportunity to walk out of the store without ever being noticed. That thief can validate his/her stealing your merchandise because you didn't care they were in the store by staffing it with employees that could wait on them.
  
• Security systems are an important part of any shrinkage control program. A CCTV camera system can deter theft not only from a customer but also from an employee. There are "dummy cameras" that will make a non-professional thief think twice.
  
• Invite law enforcement officials to come into your store to do answer questions regarding what to do if they see a theft take place.

Administrative shortages can be reduced by making sure that employees are specifically trained on procedures that can directly affect shrinkage. Those procedures involve correctly handling every type of sales transaction including markdowns, returns and especially, damaged items. Those employees in charge of checking in new merchandise need to be trained on the correct procedures needed to be completed in that process. Accuracy is critical in all of these areas. You may consider creating a limited number of employees who are able to "sign off" on certain procedures as a "second check" for procedures where mistakes are more frequently made. Vendor shipment shortages need to be addressed as soon as they are noted when merchandise is checked in according to the enclosed packing slip. You may want to consider a policy that more than one employee verifies incoming shipments. Again, this helps to reduce employee theft from the receiving area. Additionally, if there is a discrepancy within a shipment, there needs to be accounting procedures in place to "red flag" a subsequent invoice to check for correct charges and/or credits for that shipment.

As you can see that are many things that can affect your shortage numbers. By building a shortage program, no matter how small it starts out, you will send a clear message to your employees that this is a very important issue within your store. A simple, well-thought-out program addresses the following with all employees:

• Determine your shortage categories or departments.
  
• Develop actions/procedures to reduce your shortage losses.
• Conduct scheduled "shortage" meetings
  
• Develop a simple "audit" program.
  
• Create a reward program for improved shortage numbers.
  

Make a decision today to take a serious look at all of the areas within your business that you think you could be "giving it way" and develop a strong management team that is trained and dedicated to putting a stop to retail shrink within your store.

Jerry Obarski, Retail Shrinkage Control Consultant and coach, works with retail organizations who want to fight shrink and improve their profits. Contact him at www.merchandiseconcepts.com/shrink.html or email at jobarski@sbcglobal.net.