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OSG Thought.

Knowledge Insights Issue 


December 2014

Knowledge Insights:
Reducing Shrinkage in the retail
industry

By Anders Krohn, Daniel Tipping, Chutian Huang, Mingfui Chai and Camilla Rees

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Knowledge Insights:
Reducing shrinkage in the
retail industry
Shrinkage refers to the loss of product between the point
of manufacture and the point of sale. In 2011, the global scale
of retail shrinkage was $119 billion and would continue to
rise. On the other hand, the cost of preventing shrinkage
in that year was equivalent to $66.27 per individual.
This project analyzes the causes of shrinkage and develops
effective prevention methods.
OSG Thought: Knowledge Insights are OSGs thought
leadership publications and articles focused on our case
experience and research.
Contributors:
Anders Krohn (project leader), Chutian Huang, Ming fui Chai, and
Camilla Rees (consultants).
For more information, please visit www.oxfordstrategygroup.com
or contact us at info@oxfordstrategygroup.com

OSG Thought.

Shrinkage Prevention
Background
The total shrink percentage can be as high as 1.58% of sales. In other words, for
every $100 of products carried by a retailer, $1.58 is lost due to employee theB,
shopliBing, and other causes.

This report invesCgates the causes of shrinkage in the retail industry and
subsequently develop economical strategies to minimize shrinkage.

Case Framework & Structure


Reducing shrinkage

Understanding
Shrinkage

Categoriza-on

Professional
Non-professional
Employee theB
Data issues

Academic Framework

Shrinkage preven-on

Two approaches to the


problem

Psychology (eg
emoConal
Time category
distress)

Economics (eg
cost-benet

Developing
analysis)
shrinkage

Social (e.g gender


prevenCon
implicaCons)
methods based
on Cme: before,
during and aBer
the crime.

Technology and So@


methods

Technology focuses
on deploying RFID
chips
SoB approach based
on academic analysis
includes monetary
incenCves, shopliBer
rehabilitaCon
amongst others

Shrinkage prevention

Key Case Insights


1 Shrinkage is not just about customer the3

Understanding
Various Types of
Shrinkage

StaCsCcs have shown that on a global scale, external shrinkage including customer theB is less of
a factor than internal shrinkage, such as employee theB and data issues. The raCo between
losses from external and internal shrinkage is roughly about 4:6, stressing equal, if not more
aUenCon, in the prevenCon in the internal shrinkage.

Whilst advanced technology like RFID and EAS can tackle external theB problems and data
issues, soB methods tend to be more eecCve when dealing with employee theB.

2 Using an academic approach to be8er understand shrinkage

Innova-ve
Academic
Approach in
Solving
Shrinkage

The advantage of student consultants is access to the vast resources of an academic


insCtuCon. As Oxford oers numerous materials and papers on shrinkage related issues, the
project team took advantage of that and developed the three ways to think about shrinkage,
and in general why people steal: psychology, economics and sociology.

3 Developing solu=ons from academic ndings


Based on the three aspects, the team rst analyzed the exisCng shrinkage prevenCon
approaches such as warning signs, alarm and security tags, security camera, RFID amongst
others. They tried to establish a relaConship between the eecCveness of the method and the
problem that it is supposed to address. E.g. in a economics sense, security tag is a method that
adds potenCal cost when stealing.

Also, aBer in-depth understanding of the three aspects, the team came up with original ideas
such as shopliBer rehabilitaCon programmes and unique monetary incenCve programmes.

4 Global vision on shrinkage preven=on

Implementa-on
of Preven-on
Strategies

PrevenCon methods were explored in dierent countries such as China, and with the aid of
Global Retail The- Barometer, more insigh_ul research was done to compare prevenCon
methods between countries with high rate of shrinkage and those with low rates.

5 Future trends in technology and so3 methods


It was idenCed, based on cost analysis, that RFID would be the forefront technology to
focus on. RFID would also be a good way to improve inventory counCng, which potenCally
solves the data issue as well. SoB methods, such as monetary incenCves, internal HR
management and external communicaCons should be given more aUenCon, as they could
be more cost-eecCve and beUer at managing internal shrinkage.

References

Global retail theB barometer, 2012


www. Retailresearch.org

INTERESTING FACTS
RFID, the chip that uses mainly radio
frequency technology, covers 18% of the
products in M&S.
1200 Women versus 4000 Men went to
jail for shopli-ing in the UK

OSG Thought.

OSG Thought is the Knowledge Development arm of
the Oxford Strategy Group that focuses on research &
publication of OSGs leading insights and analysis on
business & strategy.
For more information, please visit
www.oxfordstrategygroup.com
or contact us at info@oxfordstrategygroup.com

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