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The Real Cost Behind Loss Prevention

Posted by Dean Asher on 10/15/15 12:00 AM
Topics: college retail, loss prevention, inventory management

There is not a corner of the retail world immune to theft. College stores have to be just as vigilant to prevent theft as big box stores and other retailers, if not more so. If you break down the cost of loss, inventory management can be even more important to your bottom line than you realize. That's the gist of this article from Retail Minded. Read the full post here.

Very few retailers have complete product exclusivity, which makes having the right product and size available, when a customer walks into a store critical to successful operations. Beyond selecting the right products in the correct quantities, retailers must have product availability.

There are several challenges inherent in product availability, but the one that is often overlooked is merchandise retention.

  • Merchandise retention, loss prevention, or inventory control helps retailers mitigate theft in their establishments.
  • Theft of goods is a fact in every type of retail environment and every community experiences theft. It is committed by individuals and by organized groups, and it hurts both owners and consumers.
  • If left unmanaged, theft, in an otherwise successful business can mean the difference between a growing small business chain and one that closes its doors.

Here is a great example of the costs of un-managed theft:

A prominent motorcycle dealership which sells licensed products, such as leather goods, noted that for every leather jacket that is stolen, it must sell 12 more leather jackets to cover the cost of that one stolen jacket, when all costs are properly factored. Certainly, a number like that exposes how much investment is contained within each item on a sales floor. Beyond the wholesale cost of the item and its shipping cost, there are labor costs, overhead, and accessory product costs (security tags, labels, etc.) that factor into the retail selling price. Now keep that number in mind and double it because that is what is required to replace an item which has left the store without being purchased.

That is just the monetary cost of the loss of an item. There’s also availability. Hypothetically, a customer comes into store A to buy a product. The product is unavailable because it has been stolen. Store B who practices inventory management has the product. That customer leaves store A disappointed and buys from store B. Thus, store A incurs the costs of the “lost” item, and has lost a customer and her potential loyalty. Unfortunately, this process can repeat itself many times over, and in the era of social media, an unhappy customer can spread her dissatisfaction very rapidly.

Moreover, a lack of inventory control directly effects consumer prices and savvy shoppers know this. Poor inventory control ultimately results in consumer price increases to recover lost revenues. Because retail stores depend upon customers who want the product immediately and will visit a store to purchase it, keeping merchandise on the floor is crucial to retaining sales and maintaining a profitable business.

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