Report: Analyzing and Addressing Shrinkage in Walmart Retail

This report provides a comprehensive analysis of retail shrinkage in Walmart, identifying key causes such as shoplifting, employee theft, register errors, and vendor fraud. It explores the significant financial impact of inventory loss, emphasizing the need for effective loss prevention strategies. The report delves into the various methods employed by shoplifters and employees to steal, including price swapping, concealing items, and manipulating register systems. It also examines vendor fraud, including billing schemes and corruption. The report recommends a multi-faceted approach to minimize shrinkage, including employee training to enhance awareness and vigilance, implementing tighter security measures, improving vendor management, and streamlining payment processes. It stresses the importance of technology, employee screening, and the need for a chain of employees to oversee vendor interactions, ultimately aiming to improve Walmart's profitability by reducing inventory losses.

Running Head: HOW TO DEAL WITH SHRINKAGE
How to deal with shrinkage in Walmart
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HOW TO DEAL WITH SHRINKAGE 2
Introduction
Retail shrinkage is an insignificant reduction in inventory due to manmade errors. These
shortages range from external to internal theft especially at the register and shoplifting which are
all contacted with the help of the business employees. The employees take advantage of the
unsuspecting bosses and act in the manner that if there is no close monitoring, the business can
collapse. Despite technological advancements that have brought along ways in which businesses
are conducted, the retail shrinkage still remains one of the major issues facing business in the 21st
century. Beck (2017) connotes that this issue attributes to loss of approximately $40 billion
annually. In 2016 retail shrinkage coasted retailers who absorb the issue as a price to pay in order
to succeed $49 billion. The five main causes of shrinkage are shoplifting which alone contributes
38% and it occurs when customers swap prices of commodities with the aim of saving
themselves money or at times hiding commodities under their clothes. Employee theft which
follows closely at 34.5%, register errors at 16%, vendor fraud at 7% and other unknown causes
attributing to 6% of shrinkage. These factors contributing to shrinkage then pause a serious profit
challenge to the business therefore growth is hampered (Bensoussan, Çakanyıldırım, Li &Sethi,
2013). This happens because even though shrinkage might have occurred and the employees are
fully aware, the wages still have to be paid and the bills remain to be cleared so as to keep the
business running.
Thesis this report will therefore concentrate on how to eradicate or minimize shrinkage
through employees training.
Many businesses across the globe have put up technologically advanced security but it
has not yet fully managed to eradicate the causes of shrinkage (Fan, Chang, Gu, Yi & Deng,

HOW TO DEAL WITH SHRINKAGE 3
2014). Among the technologically advanced methods being employed to minimize shrinkage are
use of CCTV cameras which do capture many of the details mostly but are not manned therefore
they only serve to instill fear on thieves but not actually dealing with the issue. Internal audits
have also made it possible for retail businesses to conduct audits at specified time intervals an
aspect that has reduced shrinkage. The layout of retail stores has also been modified to a unique
way in a bid to ensure the employees who man the premises are able to see a wider open space
(Zhou &Piramuthu, 2017). Human resource has also be put up in most of the businesses to
reduce shrinkage. For instance loss prevention specialists are employed to man the business
systems so as to ensure there is no comprise on the systems. This has been possible since the
specialists are able to detect any malfunction that is made in an attempt to hack the systems. In
some instances passwords are entrusted to these specialists only such that each and every cashier
will be answerable in case the business he/she presents amounts less than the required.
Shoplifting
Employees can be able to detect this cause of shrinkage through understanding its impact
to the business and the various methods used (Markey, 2015). According to the National retails
security survey, shoplifting contributes to about 38% of all losses in the retail market and it is
ranked the major shrinkage cause. It occurs when customers steal from the stores through various
methods. First, customers can swap the prices of commodities with the help of the employees.
For instance a customer can swap the price of a complete suit with that of a dress an aspect that
directly leads to lose of money and reduction of the inventory at the end of the year when stalk
taking is being contacted (Leonard, 2015). Secondly improper monitoring of the implanted
CCTV cameras gives the thieves chances to sneak commodities inside their clothes more
especially during winter seasons when people are heavily clothed. Thirdly customers can slip

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smaller items inside bigger items which when presented to the cashiers who do not conduct a
search on the items, end up charging for a single item while there are more than two or three
items. For instance watches, necklaces, smaller books, rings and underwear clothes can be
slipped into a bought jacket and only the jacket is paid for (Security investment behind fall in
retail shrinkage. (2013). Despite the advanced technology shoplifting has not yet been fully
handled since in most retail shops these gadgets have no one to monitor. Though shoplifting has
reduced, only a small percentage of thieves who fear have stoppedstealing. Employees should
therefore be vigilant to counter any suspicious characters and ensure before they pass goods over
the barcode they have investigated whether the items are multiple.
Employee’s theft
It is ranked in the second position as a cause of shrinkage and it is contributing to
approximately 34.5%. This is because employees are not screened when entering the premises
and when leaving (Avery, Mckay, & Hunter, 2012). Employers avoid doing it since it displays
lose of trust and also affects the morale of the employees an aspect that leads to most of them
taking advantage. To counter attack and reduce employee associated theft, they should be trained
on how to deal with suspicious colleagues. The supervisors should be very keen to ensure no
employee leaves the work station with items they did not report with. Warning letters should be
drafted for those who are found guilty and if the vice persists they can be replaced. This will help
to minimize the number of thieves hence a significant reduction of shrinkage. The outcomes of
theft should also be made clear so that in case an individual is caught, they will not blame the
employers for not highlighting the rules and regulations (Mishra & Prasad, 2016). The cash
drawers should be manned from a single system to ensure the amount in the drawer is equivalent
to the worth of the goods sold. If the amount is found to be less or excess then the cashier should

HOW TO DEAL WITH SHRINKAGE 5
be in a position to explain why and how. This will reduce customer and employee collaboration
to loot (Holiday Shrinkage Seen Rising 4% 2012). Over the barcode thefts will be minimized
when it is an ultimatum for each and every customer to carry a receipt of the goods they have
purchased since employees may readjust the commodities with the aim securing some cash for
personal benefits.
Register errors
Associated register errors account for 16% shrinkage in the retail industry. This occurs
when commodity prices are marked below the rightful price an aspect that leads to selling the
commodity at a loss rather than on profit (Wendy, 2015). Mainly when products pricing is done
through manual paperwork by manually reading the figures and recording, multiple errors which
lead to shrinkage occur at the same time thus posing a threat of either business selling or close
up. Complicated recording systems also contribute to these errors since the price tag on the
commodity may fail to be equivalent to that in the system thus giving employees an opportunity
to apply the higher price on the commodity. This aspect makes the employees to pocket the
thought surplus which may end up being it was the real price thus shrinkage occurs. In a bid to
win customers, many retail stores sell specific commodities at an offer which is given out for a
specific period of time. The offer is usually calculated such that a specific amount of money is
spent on it and in case the offer expires before the money is spent then it is for the benefit of the
business (Technavio Research, 2015).. Abuse of these offers always tends to cause shrinkage
since employees extent the periods of the offer leading to extra expenditure which is not
accounted for. Employees therefore should be aware that each and every offer expires at a given
time and it should not be extended because it negatively impacts the business.

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Vendor fraud
Associated vendor fraud is ranked as the forth cause of shrinkage accounting for about
7% of losses. The occurrence of this is when outside vendors are allowed into the business
premises to stock inventory. The funds are misappropriated and finally channeled into the
pockets of the various employees and vendors who may collaborate to enrich themselves at the
expense of the business (Warren, 2014). Annually more than $125,000 is lost through vendor
fraud. There are two methods used in this; first billing schemes which is achieved through
manipulation of figures for personal gains. False documents are majorly used to seek for
payments of goods that have either been paid for already or have not even been delivered. In
some instances employees can pay more than the required amounts with a specific intention of
later collecting the refund of the money from the vendor.
Secondly, vendor fraud occurs through corruption where an employee and a vendor get
into an agreement to loot due to conflicts of interests (Recession Contributes to Jump in Retail
Shrinkage, 2009). At times vendors give out bribes to employees who are aware of their schemes
in a bid to succeed in their intention. Purchases of commodities which are at the expense of the
business but favoring a vendor occur through corruption as the employees may be silenced by
unethical offers. To prevent this form of fraud, employees should be trained to restrict vendor’s
activities and interaction with employees within the business. List review and issuing sanctions
to vendors who misbehave for the first time should be practiced swiftly to avoid future regrets. A

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chain of employees should also deal with vendors which can be achieved through setting criteria
to be followed by vendors so as to receive the payments.
Summary
Retail shrinkage is an insignificant reduction in inventory due to manmade errors which
are made with the intention of channeling money to individual’s pockets at the expense of the
business. Shrinkage results from four major cause’s namely shoplifting, vendor fraud, employees
theft and register errors. Each of the four causes significantly causes long lasting negative
impacts on retail business across the globe. Loss prevention being an important aspect in keeping
the business on the move should be implemented. The technology devices that are implanted
should be manned and used appropriately. Tight security should be established in Walmart by
involving some of the staff members since a decrease in theft implies an increase in profit. A
chain of employees can be established to take care of vendors who come in to stock the stores.
This can be done through entrusting one person in each of these stages; receiving the goods,
counter checking, invoice preparation and release of payments. This will minimize corruption
compared to when one employee is dealing with the vendor in all the stages. Release of
payments should also be entrusted to a trustworthy employee to ensure a vendor is not overpaid.
Rather than conducting a search on customers only when entering the stores, search on
commodities should also be done to ensure no multiple items are paid as one. This helps to
reduce theft of smaller items which can easily be slipped into bigger items. Though employees
morale is important, the ambitions of the business should be put first so as to minimize loses.
Employee’s theft can be controlled by limiting the items allowed into the stores when reporting

HOW TO DEAL WITH SHRINKAGE 8
to work (How do you prevent shrinkage, 2018). Bags, clothing with big pockets should not be
allowed in since they contribute to employee’s theft. Paper work should be done professionally
to avoid the risk of over or under pricing commodities because at the end shrinkage will be
inevitable.
Recommendations
Employee’s education raises their awareness of the challenges the company goes or may
be going through due to shrinkage. The employees at Walmart should be educated on the
importance of honesty and that internal investigations are underway to expose any of them who
may have been or may be planning to engage in activities which are disadvantageous to the
company. Any susceptive speculations that corrupt activities or employee theft is taking place
lays the base for internal investigations and whoever will be conducting the activities at the
expense of the company will be held accountable of all the loses that have taken place. The
company however has to educate the employees about their rights so as to ensure anyone who
might be subjected to pressure or threats due to an attempt to report misconduct is held
responsible according to the rule of law.
Employees training will enable them to deal with speculative thieves who may walk in
with the intention of shoplifting. Through tight security from the personnel manning the stores,
customers with this kind of behavior are noted and held responsible of their actions. A special
employee should be in charge of the technology surveillance to man the activities of all the
persons in the store so as to raise an alarm in case he or she identifies a suspicious case. When
the alarm is raised then immediate interventions are made to prevent loss. Training will also help
the employees to deal with vendors who are fraudsters and corrupt. Through a process of dealing

HOW TO DEAL WITH SHRINKAGE 9
with different people on the same case, limits a fraudster from getting a chance to loot through
corruption or forgery.
Future implications
Walmart in future should consider developing more strict policies related to employees
conduct in a bid to curb employee theft which is difficult to detect. This will be achieved through
having occasional intelligence personnel in the company to determine any speculative aspects of
theft. The company should entrust vendor activities to trustable dealers who have a clear record
from audits and have served as vendors in different other companies. Technology should also be
manned on a daily basis and copies of what might have taken place may be in a week can be
given to employees to instill a sense that they are manned properly. Training of more counter
employees will help minimize the chances of theft since a customer who always organizes with
an employee to steal will eventually be unable to because they will get new people all together.

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References
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