Profitability, the L.P. Way – Shrinkage Control!

For those relying on various reports circulating around the retail industry take note; this year’s picture is not a positive one. For example, below are a few of the recognizable names that are being forced to close stores this year and the approximate number of stores each will be closing:

Abercrombie & Fitch (60 stores)

American Apparel (104 stores)

BCBG Max Azria (120 stores)

Crocs (160 stores)

CVS pharmacy (70stores)

Family Christian (240 stores)

Guess (60 stores)

JC Penny (138 stores)

Kmart (126 stores)

The Limited (250 stores)

Macy’s (100 stores)

Rue21 (400 stores)

Sears (54 stores)

Plus a number of other chains’ announcements are expected in the coming months. With all these closings, most likely some shopping malls will also be forced to close once they start to lose their anchor stores.

No, not a good picture for the retail industry. But why? It all gets down to lost profits. Analysts are reporting that increased competition from discounters and E-commerce merchants like Amazon are taking their toll, as is a glut of vacant and costly store space, that further erodes profits by setting idle as customers switch to online shopping. Malls are also suffering as shoppers switch their focus to discounters and online websites. Other issues cutting into profits are competitor’s costly price-matching coupons, customer returns (especially if item is not re-saleable at full retail) and markdowns.

When speaking with analysts there rarely is any mention of the profit improvement potential that can be derived from improvement in inventory shrinkage.

Don’t ignore loss prevention, as shrinkage improvement goes right to a company’s bottom-line. Take a look at your inventory shrink results and ask yourself, how much would we have to increase our retail sales in order to add the same dollars to your bottom-line profits as would a one-tenth of one percent shrink improvement?  We think you may be amazed. It could be a 10%, 15% or even 20% increase in sales to equal just a tenth or two reduction in shrink.  Think about it – how many retailers are posting a 10% to 20% increase in sales these days – not many!  If a company is looking to quickly add to their bottom-line profits, the quickest way may be through an improvement in shrink/loss and not an increase in sales or more expense reductions.

We expect many retailers to begin showing a renewed interest and focus on controlling their shrinkage/losses as a way to increase their company’s profitability. In today’s most difficult environment, loss prevention may just be the key to improving your profits.  $

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