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To print this newsletter, click here. by Linda Carter ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SHRINKAGE - IT CAN BE CONTROLLED! 47% employee theft Did you know that inventory shrinkage remains the single largest category of larceny in the United States, more than motor vehicle theft, bank robbery and household burglary combined? If your fiscal year ended in December, January or February it is too late to do anything about last year’s shrinkage. However, everyone can take steps so shrinkage for the current year will be less. Was your shrinkage as low as you expected, and wanted, it to be? If not, following is a procedure to help you determine the probable cause of shrinkage for each individual classification (you will need unit information in addition to retail data to do this): 1. Calculate the average retail of inventory shrinkage.
Review the data carefully. It can tell you a lot if you know what to look for. Common causes of shrinkage are: misclassified merchandise, un-recorded transactions such as un-recorded markdowns, employee fraud and shoplifting. For example, did Long Sleeve Sport Shirts have a shortage while Long Sleeve Dress Shirts showed an overage? This could mean that a merchandise receipt was recorded using the wrong class number. In a multi-store company, if Mens Blazers is ‘short’ in Store 1 but ‘over’ in Store 2 the most likely cause was a merchandise transfer that was not recorded. There are numerous things, other than missing merchandise, unrecorded markdowns or employee fraud that can cause shrinkage. If the physical count is poorly done and some merchandise is not counted, it will show up as missing merchandise, even though it is actually not missing. Or if some merchandise is counted using the wrong class number or incorrect price the physical count will be distorted. Many times, paperwork errors show up as overage when the physical count is compared to the book inventory. Overage is bad because it hides or distorts actual shrinkage. It also distorts Gross Profit for a classification, making it appear higher than it actually is. If you want to reduce shrinkage and increase the accuracy of your inventory records, the first step is to make it a high priority in your store. Employees must be educated in what to look for so they can detect shoplifters. Use physical deterrents to discourage shoplifters, such as keeping small expensive items behind the counter and eliminating any blind spots. You must communicate to your employees the importance of paying attention to the details and making sure that all paperwork is completed in an accurate and timely manner. Let your employees know that any employee caught stealing from the company in any manner will be immediately terminated and a police report will be filed. Some situations are more conducive to theft than others. The opportunity to commit fraud is more convenient when people have access to financial accounts, when no one audits them, and when they think it is unlikely they will be caught or prosecuted or punished. Fraud is easier when companies have poor internal accounting controls and when they fail to follow them. Occasionally, fraud is so convenient that even honest people are seduced by the opportunity presented to them even though they had no intention of being dishonest. You must set up procedures that include good internal controls. Shortages can and will occur at every point where merchandise changes hands or paperwork is created or processed, from the time it comes in the back door until it is sold and leaves the store. Every step of this process involves both people and the forms on which the transactions are recorded. The receiving/marking person records the receipt of merchandise, checks it and attaches the price tags. This person also handles merchandise that is returned to the vendor. The sales staff handles sheet (or bulk) markdowns and records sales, including any POS markdowns. And of course the office is responsible for accurately recording in the books all the information from all the forms that come into the office. The process can break down at any of these points. Shrinkage can be controlled. Management must give it a high priority, employees must be trained, and internal controls must be put in place and monitored. If your Net Profit is 5% of sales, it takes an additional $20 of sales to make up for each $1 of shrinkage. If shrinkage is $1,000 it will take an additional $20,000 in sales. It is just good business sense to initiate action to reduce your shrinkage figure as much as possible. For small independent retailers that provide good personal service, shrinkage should be no more than 0.50% to 0.75% of sales. If your store is in a mall, the shrinkage is likely to be a little higher, perhaps as much as 1.25% of sales. If your shrinkage was more than this, you have a problem that you need to attend to now so the next physical inventory count will be much better! QUOTE OF THE MONTH FEBRUARY SALES SURVEY To remind everyone, this survey concerns February sales.
An insufficient number of sports goods, children/infant, western, gift and dance retailers responded to provide an accurate representation. TELE-SWAP GROUPS
Comments from just a few of retailers taking part in these teleconferences are:
If you would like to discuss the types of issues listed above, and others, with retailers who are similar to you, but far enough away they are not competitors, give us a call at 1-877-206-1299 or on our web site at http://www.the-retail-advisor.com/peer_groups_tele-swap.html. Then you can complete an online application. Once I get your application I will contact you about joining a group to take part in a monthly one- hour teleconference call. The biggest commitment will be the one-hour a month for the call. The cost is minor at just $180 for a 6 month commitment (just $30 a month). Click on the link above and join a group today! KEEP YOUR EMPLOYEES HONEST & INCREASE YOUR BOTTOM LINE! If you can reduce shrinkage by 1% that is an additional 1% of profit for you. As the owner it is your job to provide the procedures, checks and balances to keep your employees honest.
Fortunately, I can help. As controller for a 5-store chain of family apparel stores and with my experience working with retailers around the country as a retail management consultant I have developed a manual to help you with this. It is our "Internal Control Manual" that covers all aspects of a retail store's operations. It is set up in an easy question and answer format where a Yes answer means things are OK and a NO answer means you may have a problem that needs further checking To get a copy for your store, for just $95 shipped Priority Mail, visit our website at http://www.the-retail-advisor.com/internal_controls.html. Do not wait until you discover that a trusted employee has stolen $70,000 from you (like a retailer I know had happen to him last year). Take steps now to make sure your merchandise and cash are as safe as you can make them. WHAT WE DO . . . To print this newsletter, click here |
© 2010 The Retail Management Advisors, Inc.
