Page 87 - DMGT553_RETAIL_STORE_MANAGEMENT

Retail Store Management

Notes 5.2.4 Retail Method of Inventory, or Stopping Shrinkage

Shortages, also called shrinkage of inventory or just shrinkage, can cause a store to go out of
business. Fast. That is why it is important to have procedures in place to keep track of everything
happening in the store, from receipt of goods to final sale. There are two definitions of inventory:
1. Physical inventory. This is the counting of the stock that is actually on hand.
2. Book inventory. This is the record of what should be on hand. To derive the book inventory,
begin with the starting inventory (either from store opening or the results of last year’s
physical inventory). Add all purchases, all returns that are in saleable condition, and any
make goods the vendor may have provided for substandard merchandise.
Subtract all sales and the amount of any markdowns that were below the price you paid
for the goods.

Shrinkage, or overage, is the difference between the physical inventory and the book
inventory. The only cause for an overage is a booking error that should be avoided by
double-checking everything. Some shrinkage is inevitable, and you need to plan for it. It
represents the loss of merchandise for reasons that cannot be precisely specified. Those
reasons include:
Vendor mistakes or fraud. Sometime, containers don’t include the full count of
goods.

Employee theft. This includes outright theft for profit (e.g., letting a few cases “fall
off the back of a truck”), pilfering merchandise for personal use (taking home a box
of detergent), and using store merchandise for legitimate reasons but without paying
for it (a store clerk who needs a pencil opens a pack of a dozen and tosses the rest).

External theft. The most frequent method of external theft is shoplifting. More rarely,
theft from your warehouses may occur.

Clerical mistakes and bookkeeping errors.
Unrecorded markdowns and allowances. These result in the quantity of product
sold for the dollar volume recorded actually being greater than the recorded amount.
For example, if you mark down a $10.00 item to $5.00 but fail to note the markdown
on your books, selling $100.00 worth of that item will sell twenty items but only
show ten as having sold. The missing ten items will show up as inventory shrinkage.
Unrecorded breakage.

How to Minimize Shrinkage?

Some shrinkage may be unavoidable, but a majority of the loss is preventable. Whether the
issue is sloppy record-keeping or neighbourhood hooligans taking a “five-finger discount,”
take the following steps to minimize shortages:
Record merchandise as soon as it arrives.

Properly mark, price, and identify merchandise before moving it to the selling floor.
Record all price changes.
Record each transaction.
Change records before transferring goods or returning them to the vendor.
Take precaution against theft, as discussed in the following sections.

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