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9 loss prevention tips that drastically reduce shrinkage

July 15, 2025

Table of Contents

Retail businesses face a constant challenge: making sure the products they order, stock, and display actually make it into customers’ hands through legitimate sales. 

In many cases, however, inventory disappears without a sale. As you know all too well, this is called shrinkage – and it’s one of the biggest threats to retail profitability. 

Shrinkage quietly reduces margins. It often goes unnoticed until inventory counts or financial reports reveal discrepancies. For many retailers, this adds up to six- or seven-figure annual losses.

Understanding where loss prevention shrinkage comes from is the first step toward reducing it. In this guide, we’ll walk through 9 strategies to reduce loss prevention shrinkage and how platforms like Solink help loss prevention leaders detect, prevent, and resolve issues faster.

For a higher level overview of the strategies you can put into place and the importance of video data analytics, check out our ultimate guide to loss prevention in 2025.

Understanding retail shrinkage

Retail shrinkage refers to the loss of inventory due to causes other than legitimate sales. This can include theft, fraud, damage, or administrative errors. It’s calculated as the difference between what inventory systems show and what’s physically on hand.

According to the National Retail Federation, the average shrink rate in U.S. retail is between 1.4% and 2% of total sales. For a business generating $1 million annually, that’s $15,000 to $20,000 lost each year, often without a trace.

Shrinkage harms your business by:

  • Cutting directly into net profit
  • Creating inventory accuracy issues
  • Leading to price increases that hurt customer loyalty
Tackle shrinkage head-on with these loss prevention tips
Learn how to cut shrinkage and protect your business with these expert tips.

Most common causes of inventory shrinkage

Shrinkage doesn’t happen in a vacuum, it’s the result of compounding vulnerabilities across people, processes, and systems. Whether it’s merchandise quietly slipping out the door or errors buried deep in your back office workflows, understanding what’s driving shrink is essential to stopping it.

By identifying the top contributors to loss prevention shrinkage, loss prevention and operations leaders can better target their strategies and resources—solving for root causes, not just symptoms.

With that in mind, here are the four primary sources of shrinkage and how they typically show up in retail environments:

  • External theft accounts for approximately 35-40% of total shrinkage. This includes shoplifting by individuals and organized retail crime groups who target stores to steal and resell merchandise.
  • Internal theft makes up about 25-30% of shrinkage. Employee theft happens in many forms, from taking cash from registers to stealing merchandise or giving unauthorized discounts to friends.
  • Administrative errors contribute roughly 15-20% of inventory loss. These unintentional mistakes include pricing errors, inventory miscounts, and paperwork problems that create discrepancies between recorded and actual stock.
  • Vendor fraud represents about 5-10% of shrinkage. This occurs when suppliers deliberately short-ship orders, send damaged goods, or create billing discrepancies.

Understanding these sources helps retailers focus their loss prevention efforts where they’ll have the most impact.

9 loss prevention strategies to reduce shrinkage

1. Strengthen employee screening and training

Careful hiring practices help prevent internal theft before it starts. Background checks and reference verification can identify potential risk factors in an applicant’s history.

Once hired, employees need clear training on inventory procedures and loss prevention. Regular sessions keep security awareness high and demonstrate the company’s commitment to reducing shrinkage.

Training topics should include how to spot suspicious behavior, proper inventory handling, and the financial impact of shrinkage on the business and employee wages or bonuses.

2. Upgrade your passive video to video intelligence

Passive cameras no longer cut it. Vision intelligence platforms like Solink use AI-powered video analytics to detect unusual behavior in real-time – alerting teams to theft patterns, operational issues, or POS anomalies.

Solink goes beyond surveillance by:

  • Connecting video to POS data
  • Detecting no-sale events, void fraud, or after-hours activity
  • Automating incident documentation
This proactive approach helps you detect shrink before it impacts your P&L. And the best thing about it? You can leverage Solink’s intelligent video management system (VMS) without the need to replace your existing security camera infrastructure. All the benefits of intelligent video, and a fraction of the cost.
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3. Optimize store layout for visibility

A well-designed store layout naturally reduces theft opportunities. Low shelving units and clear sightlines make it harder for shoplifters to conceal their actions. Place high-value or frequently stolen items in visible areas near staff stations rather than in corners or blind spots. Use mirrors to improve visibility in areas that can’t be directly observed.

Good lighting throughout the store eliminates shadows where theft might occur unnoticed. This simple fix improves both security and the shopping experience for your customers.

4. Implement POS security and payment controls

The point-of-sale system is where many forms of theft occur. Implementing controls at registers can significantly reduce internal theft and catch errors.

Effective POS security measures include:

  • Requiring manager approval for voids, returns, and price overrides
  • Assigning unique login credentials to each employee
  • Setting register drawers to open only during legitimate transactions
  • Reconciling cash drawers at shift changes

Modern POS systems can also flag unusual patterns, like an employee with a high number of voided transactions or returns processed without merchandise present.

Solink for example, integrates directly with your POS system to help LP teams detect and investigate:

  • Refunds without merchandise
  • Excessive price overrides or voids
  • Drawer openings outside of transactions

5. Secure high value items with RFID technology

Radio-frequency identification (RFID) tags provide electronic protection for merchandise. These tags trigger alarms if they pass through store exits without being deactivated at checkout. RFID technology also improves inventory accuracy by allowing quick scanning of stock without handling each item individually. This makes discrepancies easier to spot and address quickly.

For especially valuable items, consider locked displays that require staff assistance to access. This adds a layer of security while still allowing customers to see products.

6. Conduct regular inventory audits

Regular stock counts are essential for identifying shrinkage early. Many retailers use cycle counting, checking different sections of inventory on a rotating schedule, rather than disrupting operations with full inventory counts.

When discrepancies appear, investigate promptly to determine the cause. Look for patterns in the missing items, timing, or location that might point to specific problems.

Inventory management software makes this process more efficient by tracking stock levels automatically and highlighting unusual changes that might indicate theft.

Interested in learning how to conduct an LP audit? Check out our blog, Completing a loss prevention audit is easy when done this way.

7. Engage customers and encourage reporting

Attentive customer service is a powerful loss prevention tool. Greeting customers as they enter and checking in with them throughout their visit makes potential thieves aware they’re being noticed.

Train employees to maintain a helpful presence throughout the store, especially in high-risk areas. This approach improves both security and customer satisfaction. Clear signage about security measures and consequences for theft can also deter shoplifters without creating an unwelcoming atmosphere for honest customers.

8. Use data-backed insights for to prevent shrink

Effective loss prevention relies on good information. Collecting and analyzing data about when, where, and how shrinkage occurs helps target prevention efforts.

Key metrics to track include:

  • The highest shrink categories
  • Which stores or shifts drive the most loss
  • Repeat refund abuse or ORC tactics

This information helps identify whether problems stem from specific operational issues, particular products, or potential internal theft patterns.

9. Balance security with positive customer experience

Loss prevention shrinkage strategies shouldn’t drive away honest customers. Solutions like Solink are designed to be non-intrusive yet highly effective.

Examples:

  • AI-flagged events are reviewed by LP, not frontline staff
  • Video reviews happen remotely – no need to confront customers
  • Automated spot checks verify compliance without disrupting the floor

Solink helps retailers maintain a safe, trusted environment while optimizing margins.
Reduce shrinkage with expert loss prevention tips
Discover proven strategies to cut down on shrinkage and protect your profits.

Measuring the ROI of loss prevention efforts

Calculating the return on investment helps determine which loss prevention strategies are working. The basic formula compares the reduction in shrinkage to the cost of implementing controls.

For example, if a store reduces annual shrinkage by $20,000 after spending $8,000 on new security measures, the net benefit is $12,000, and the ROI is 150% ($12,000 ÷ $8,000 × 100).

Most retailers find that well-implemented loss prevention measures pay for themselves within 6-12 months through reduced shrinkage and improved inventory accuracy.

In fact, based on estimations from a third-party study that surveyed 150 decision-makers in the retail, hospitality, logistics, and financial services, users of Solink save an average of $1,500+ per month per location, averaging more than $18,000 annually in direct ROI.

To learn more, read the full report – The Business Value of Solink.

Moving forward with effective loss prevention

The most successful approach to reducing shrinkage starts with understanding your specific challenges. Conduct a thorough review of current inventory procedures, shrinkage patterns, and existing security measures.

Based on this assessment, implement the strategies that address your biggest vulnerabilities first. Small improvements often lead to significant reductions in loss.

Remember that loss prevention is an ongoing process, not a one-time fix. Regular evaluation and adjustment of strategies keeps pace with changing theft tactics and business operations.

Video intelligence platforms like Solink can help by connecting video footage with transaction data, making it easier to identify and address the root causes of shrinkage in your business.

Interested in learning more about how Solink’s video security and data analytics can drive ROI for your business? Book a demo with the Solink team today.
Stop shrinkage in its tracks with these loss prevention strategies
Learn how to implement effective measures to drastically reduce shrinkage in your store.