Minimizing shrink is crucial for any retail business. Losses come in two main categories; known and unknown. As a loss prevention team, your goal must be to move as many losses into the known group as possible. That way, they can be more closely watched and managed.
Shrink has always been the enemy. No matter the specifics of your industry, market, or location, the loss of product inventory has a negative impact. Maintaining a successful supermarket becomes exponentially easier when you implement a loss prevention strategy to manage shrink.
A particularly challenging area of loss prevention (LP) is unknown loss. Any retail manager or executive will tell you that shrink and loss are major pain points, but unknown loss is especially difficult to regulate.
Understanding Known and Unknown Loss
Unknown loss is incredibly frustrating because it is apparent, yet challenging to pinpoint the root cause. After you factor in the physical loss, value variances, and process variances, the rest of your losses are unknown. You know they are there, but you don’t know what they are.
While known loss is unfortunate, it is traceable. A strong LP strategy will account for the loss and provide direction on how to reduce loss and shrink. Since you can see what you’re losing, it’s easy to prevent excessive loss. Known loss is defined as any recorded reduction in the value of store stock.
The primary way in which unknown loss can be dealt with is through understanding the causes of the problem after reconciliation. Figuring out if these unknown losses are due to error, waste, theft, or other known shrinkage issues can convert unknown loss to known loss. Shrink is inevitable in the supermarket industry, but tracking it will drastically reduce the impact it has on your business.
Should Unknown Loss Be Tracked With Known Loss?
There are, in fact, those who argue that known loss doesn’t need to be tracked at all since it can be easily accounted for and dealt with, it’s not technically a “loss”. We of course encourage you to keep a close watch on every metric of shrink, as the more data you have, the more informed you are on opportunities for improvement.
Tracking both known and unknown loss can be an essential Key Performance Indicators (KPI) for your company. A recent European survey has shown that about 49% of loss is known, and 51% of loss is unknown.
By tracking your percentage of known shrink vs. unknown shrink, you can get a good idea of the general health of your inventory. Additionally, it allows you to develop methods that target suspected areas of unknown loss and convert them to known loss. This conversion will lead to a higher percentage of known loss and decrease shrink.
While shrink is always the enemy, it’s not always unknowable. By keeping a close eye on your known vs. unknown loss, you can get a better idea of where your unknown losses are coming from, and create an LP strategy that addresses these problematic areas.