Software Advice Survey: Sixty-Eight Percent of Small Business Retailers See Above Average Shrink Due to Theft

According to Software Advice, shrink, by way of theft, is a growing problem among small to midsize retailers. The company recently shared findings from a survey of retail business representatives, which included the statistic that 68 percent of SMB retailers are experiencing shrink rates above the industry standard of 1.5 percent.

The increase, the company says, is attributed to external theft, such as shoplifting, organized retail crime, and fraudulent returns. According to Software Advice, the finding represents a challenge for those businesses with smaller margins and less sophisticated loss prevention strategies.

“Shrink isn’t just a buzzword lately—it actually has increased for over one-third of small retailers," said Molly Burke, senior retail analyst at Software Advice. "A deep dive into how shrink affects your business can provide insights into hiring practices, vendor relationships, and store layouts that may be impacting your bottom line."

The survey also revealed an increase in shrink across factors like inventory damage and vendor fraud. Thirty-four percent of SMB retailers experienced an increase in shrink over the previous 12 months. Forty-six percent claimed to have experienced more theft at their stores. Of those who have experienced more theft, 88 percent said they now consider loss prevention a top priority.

Retailers believe economic pressures, such as inflation and the rising cost-of -living, are contributing to more theft and, consequently, an increase in shrink. The survey also cited high employee turnover and inexperienced administrative staff as significant contributors to increased shrink. Employee theft also saw a reported uptick.

The survey found that rising shrink is even more pronounced in businesses operating a larger number of physical stores (specifically those with 20 or more). This, Software Advice says, indicates that growing businesses with more public exposure should anticipate losing more inventory and revenue as they increase the scale of operations.

Over half (54 percent) of SMB retailers surveyed reported that they have installed or updated security cameras in the past year to improve surveillance and reduce theft and shrink. Many have also introduced new inventory management system reporting software and training techniques to transition to a "more proactive" and technological approach to dealing with the issues, while also keeping employees safe and maintaining a high level of customer experience.

Software Advice says companies should explore point of sale systems, inventory management software, and IoT (Internet of Things) physical security, in addition to other types of technology to address loss prevention. The company also points out that cloud-based surveillance cameras can make a "huge difference," as they can automatically collect data on customers and help employees monitor incidents.

In late 2023, the National Retail Federation (NRF) walked back an earlier claim that organized retail crime accounted for nearly half of all shrink losses, noting that the initial analysis was incorrect and based on flawed data. As some reports have pointed out, this only demonstrates how hard it is to track theft. This is all the more reason to remain vigilant and use modern technology to battle potential losses.