How to Reclaim Lost Profit Dollars

Completing physical inventory is one of the most tasky, time-sensitive retail projects. With unfavored (dreaded?) responsibilities like this, we want to get it over with and move on!

Same here.

And yet, I want you to spend more time thinking about this because there’s lost profit within your control to reclaim.

 Do you know where to look?

Learn to create a bridge between your 2024 annual shrink results and your plan for bottom line growth in 2025.

🧭 Four Pillars of Merchant Method™: What you measure improves
📚 Merchant Skills: A friendly approach to retail science
✏️ Your Assignment: Creative responses to cold, hard facts
📌 Bulletin Board: Preserving profit in your small business

🧭 FOUR PILLARS OF MERCHANT METHOD
Earn a measurable improvement

Let's focus on the Profit pillar to help you discover how you can take meaningful action to improve your future profitability.

New to the Merchant Method or need a refresher? Get oriented.
 
📚 MERCHANT SKILLS
Why science comes before art

Merchant, one of your many talents is creativity.

Finding a creative approach to work around limitations is something you manage on a daily basis. However, evaluating a worthwhile path to reclaim lost profit from shrink starts with a scientific approach.

After you complete your annual physical inventory count, do this:

#1 Measure Accuracy: How close were your results to your expected number? Your target number might be as significant as your annual shrink rate goal for last year or as tactical as how many times you planned to count the contents of a bin in order to confirm units on hand. In both instances, accuracy at a detailed level improves accuracy at the company level.

#2 Manage Exceptions: Every inventory-based business has variations in unit ownership between recorded and physical inventory. What SKUs are outliers when compared to your overall business? Is there a pattern of a 1-2 unit loss across many SKUs? If you want to improve efficiency and decrease lost profit, get curious about these exceptions. They’re a forgotten mirror that reflects our operational behaviors.

# Study Outliers: Not every SKU is worth investigating but there are operational patterns worth studying over time. How do you decide which to pursue? Get curious.

• Is there a basic material or SKU you often own too much of? Is it worth incurring a higher cost for a smaller quantity to improve your turnover and cashflow?
• Is there a product subcategory or vendor that you want to track over 6 months? Is there something new you’re trying or something you might want to retire?
• Did you notice multiple point-of-sale entries for the exact same SKU? How clear are your expectations for working with your point-of-sale?

These steps should lead you to one or more hypotheses that you can use to pursue a more profitable year.

✏️ YOUR ASSIGNMENT
Find something you want to improve

​Based on your 2024 shrink, choose something you want to improve this year — it can be outcome- or process-driven.

Use a blend of science and art to focus on it for the first half of 2025.

Remember: Use evidence to develop a brand-aligned action plan, and measure both qualitative and quantitative results over time.

📌 BULLETIN BOARD
Other considerations for managing shrink
​
Check out these videos on loss prevention in the retail industry and how to preserve profit as a values-based business owner.

• Bias in Loss Prevention
• Loss Prevention that Builds Top Line Revenue, Bottom Line Profit, and Brand Equity
• Preserving Profit by Preventing Internal Loss