If you have a retail business, you’re likely familiar with the challenges that come with retail loss. It is an issue among retail stores, but there are loss prevention strategies to ensure that your profits and inventory are protected.

What Is Retail Loss?

Retail loss, also known as shrinkage, is losing retail merchandise by theft, fraud, damage, and other instances of inventory loss. Shrinkage is damaging to retail stores because, typically, the business buys and sells inventory, so if that inventory doesn't make a profit, the business loses a lot of money.

Loss prevention strategies formulate because of this profit loss. This profit loss comes from but is not limited to employee and consumer theft, damaged goods, and administrative errors. Here are some retail loss prevention tips and examples for small businesses.

Proper Inventory Management

Business owners should understand how effective inventory management can be when discussing loss prevention techniques.

Inventory management is vital for several reasons, but understanding what you're losing is the most prominent reason.

Time and time again, you see managers and retail business owners lose track of their inventory. Time-sensitive inventory such as produce and food products with limited shelf life can expire if it's not accounted for and cycled adequately onto the shelves for the consumer to buy.

Keep track of ordered inventory and double-check to ensure every item has arrived safely and undamaged. Keep track of each item and shelf as needed.

Security Measures

When discussing the best practices for loss prevention, the focal point will be security. Essentially, a security system or systems are in place to prevent theft and fraud.

Protect Inventory From Damage

Inventory is your profit. You'll see a massive hit to your business's profit the more you lose before a customer can buy it. Of course, products will get damaged and break once they're in the hands of the consumer, but ensuring that your inventory as a retailer doesn't get damaged is vital.

For a smaller business focusing on protecting merchandise is especially important. If you have one store, all your income will come from turning a profit from as much inventory as possible, so every bit of goods counts.

Protect Products From Theft

Smaller businesses can implement numerous security methods without hiring an entire security firm to deal with theft from consumers and employees.

Essentially, if a product is fragile, expensive, or easy to steal, you may want to consider adding another layer of protection. Items that usually have an extra layer of protection, for example, are video games, medicine, and computers.

Clothing is a perfect example of something relatively easy to steal.

Retail security tags are a pretty inexpensive option when bought in bulk. The best part is these tags are reusable. In addition, these tags assure that consumers and employees are mindful of stealing this particular item. With a detective system in combination with security tags, no clothing will leave the store without the knowledge of the employees.

Paying for Security Upgrades

Retailers tend to flake on security because of the expenses, but the upfront cost is well worth the investment. The security detection system and security tags are an example of an upfront fee but ensure that all of your clothing and even products will have a more challenging time moving out the front door.

Even if your business currently doesn't have the money to cover security upgrades like cameras, glass cases, and chips, there are still options for funding. For example, retail store business loans can cover those costs and pay them back with the extra money you make from selling all your merchandise in your store.

For the pros and cons of alternative funding methods for security upgrades or, in general, check out our article on alternative business funding. Also, check out this article for more details about a business loan for retail shops.

Employee Training

Loss prevention focuses on mitigating loss on every front, even the home front. Sadly, it's not uncommon for employees to be the source of theft or negligence. However, there are a few basic things a small retail business can do to ensure minimal loss on the home front.

Train Employees to Spot Theft

Properly train employees to spot theft from both consumers and other employees. Having clear guidelines and rules during employee orientation can drastically increase an employee's ability to detect theft.

Giving employees incentives and rewards for reporting and stopping this kind of behavior is a proactive way of engaging your employees to prevent theft.

Make Sure Employees are Happy

It's essential to make sure your employees don't have a reason to steal from you. Well-paid employees tend to feel satisfied and secure in their position compared to underpaid and disgruntled employees who wouldn't care if you lost a few extra dollars as a business owner.

Satisfied employees ensure they're focused on doing an excellent job while not ruining their job position because of theft.

Returned Items

Unfortunately, customers aren't always the most trustworthy shoppers, especially with returned items. While defective products are most undoubtedly prevalent, your employees should know why customers return their items.

These consumers are known to buy a new product they already own and return their old one in the box, claiming the new one they bought was defective. Sometimes they can get away with this if customer support is negligent.

Ensure your employees check the condition of the products, the serial numbers if applicable, and most importantly, the receipts of that particular product. There are numerous methods to check if a consumer is returning the original product they bought or returning a broken one and keeping that new one.

Thieves may target customers themselves as well. Items stolen from consumers outside your store may try to be returned by the thief. Remember if you have return policies to emphasize needing a receipt for proof of purchase. Mandating proof of purchase will prevent instances such as this from happening. You'll be able to report it to the authority to hopefully stop that individual from committing an act like that again.


Retail loss is a widespread issue, but loss prevention strategies in retail are getting better every day. Remember, when investing in loss prevention, you're ensuring that you protect your inventory and future profits.

About the Author, Madison Taylor

Madison Taylor is the Brand Ambassador at ROK Financial. She is responsible for raising brand awareness and business relationships with business owners across the country. Madison loves that she plays a small role in getting Business Back To Business Through Simple Business Financing and looks forward to hearing what you think about the blogs she creates! Madison has been working in the financial space for six years, and loves it! When she is not at work, you will find her at home learning a new recipe to test out on her family or going on new adventures with her friends.