How to Reduce or Prevent Retail Employee Error

The theory of constraint states that there is a single variable that when addressed can significantly improve the performance of any organisation. I would argue that in the retail industry, the single variable that is responsible for the success/failure of most retail businesses is the quality of their staff. What makes the difference between a successful Tesco and a failed Woolworth is the quality of the staff in both organisations.

Employee error in pricing, accounting and receiving, accounts for an estimated 18% of all retail shrinkage. This is a significant profit drain in some retail organisations in an industry where margin are significantly low. The most important factor that needs to be taken into consideration when calculating employee error is not the amount that results from the error itself however, how much additional sale will be required to cover for the loss.

The key causes of employee errors are lapses in policies and procedures, inadequate or non-existence training and lack of structural approach to the problem by top management.

Controlling employee errors requires the implementation of some simple but effective policies and procedures such as accurate accountability for all merchandise, receipts, damages, markdowns, and promotional activities.

Examples of Employee Errors

Sales Floor Errors:

  • Incorrect product pricing
  • Product damaged during stock replenishment or through customer breakage
  • Failure to correctly account for damaged product or known losses
  • Failure to minimise vendor credit opportunity
  • Poor product rotation
  • Failure to recognise large holes in inventory
  • Creating unnecessary danger to customers
  • Using store inventory for operating supplies

Backroom Errors:

  • Perfect product accidentally thrown into compactor
  • Backroom inventory are damaged
  • Product lost in the backroom

Cashier Errors:

  • Cashier processes sales of one department into another department
  • Cashier guess at product or mistake similar products for one another
  • Careless money handling practices
  • Damage to products during till transactions or due to poor bagging
  • Failure to properly correct scanning errors
  • Using scales incorrectly or having scales calibrated incorrectly
  • Blind scanning of customer orders
  • Accepting counterfeit money
  • Misunderstanding sales promotions or scanning sequence of promotional items
  • Improper use of multiple items key or failing to scan individual items

a)      How to Reduce Employee Error

Ensuring employees receive adequate training and understand the organisation’s policies & procedures, equipment and job description is the surest way of reducing employee errors. In addition, regular oversight is essential for keeping track of employee progress.

When properly implemented the following methods can lead to a drastic reduction in employee error:

1. Embrace New & Existing Technology

Closed Circuit Television (CCTV), Electronic Article Surveillance systems (EAS), Direct Store Delivery Receiving systems (DSD), Point of Sale (POS) Data Mining Software and Merchandise security Tags are a few of the technologies used within the retail industry. These technologies have succeeded in

  • reducing store shrinkage by almost 50%
  • CCTV has aided in the reduction of shoplifting by 31%
  • Automated cashier performance systems have reduced cashier related shrinkage by 25%
  • Automated DSD systems have reduced receiving shrinkage by approx 35%.

The effective use of technology combined with robust policies and employee participation can dramatically reduce shrinkage within any organisation. However, I must caution that technology on its own cannot produce the desired results, employees have to be thoroughly trained to operate and utilise these technologies.

2. Loss Prevention training

A poorly trained temporary cashier who cannot tell the difference between a Granny Smith and Royal Gala apple may charge a customer the lower price for fear of upsetting the customer. Now if that same cashier had been thoroughly assessed during product knowledge training they would have been made aware of the fallback systems that are there to help them in these circumstances i.e product identification code sheets.

Most employees do not see the bigger picture of their actions and how they impact upon the organisation. All new and existing retail employee needs to be given loss prevention training in order for them to have an understanding of what loss prevention is and how it affects the organisation and them as individuals.

If employees are not taught to report incidents of damage or theft, they could see them as insignificant. Teaching employees the importance of inventory control and reporting any incidents of damage or suspected theft will assist a great deal in inventory accuracy and ultimately reduce shrinkage

3. Policies and Procedures

Standardised policies and procedures are essential for the smooth operation of any organisation, especially in the retail environment where staff turnover is relatively higher than in other industry sectors. A clearly formulated policy that is rigorously audited for procedural compliance will ensure that all employees are operating within the organisation’s standard. Every retail organisation should aim to incorporate into their operating procedures:

  • Employees Shrinkage Awareness
  • Cashier Control
  • Backdoor Receiving Policy
  • Internal Audit and Loss Prevention Review Documentation.

4. Random Cashier Audit

Managers need to routinely select cashiers to perform till audits. The audits will identify cash control issues yet at the same time they emphasise to cashiers the importance of accuracy.  Cashier audit needs to be conducted on a weekly basis on different shifts. All findings from the audits, including cashier discrepancies, need to be entered into a cashier variance record. Small discrepancies might indicate carelessness or poor counting ability, but large discrepancies may indicate something more serious.

5. Variance Tracking & Accountability

Cashier accuracy needs to be monitored at least on a weekly basis. Those cashiers who demonstrate high discrepancies need to be monitored frequently and possibly retrained.

6. Mystery Shopping Survey

Mystery shoppers may be used to monitor the performance of store employees not necessarily to prove wrongdoing but to improve customer service.

7. Test Purchase

Test purchases are designed to challenge cashiers with potential tricky orders they may face in the future. Some of the areas to test include:

  • Cigarette sales to minors
  • Product identification
  • Price look-up
  • Items with pricing errors or scanning guarantee
  • Coupon use: expire coupon, without corresponding products
  • Scanning and use of multiple key

8. Cashier Training

All cashiers need to be able to demonstrate both their product and transactional knowledge; only after that can new cashiers be certificated to work independently.

In addition there needs to be periodic re-certification of cashiers, constant testing of their ability to use new technology and identify new products.

In a store with a turnover of £10 million and 2% shrinkage level, 18% employee error shrinkage will amount to £36,000 per annum. In the same token if the store has a 1% net profit level, it would require an additional sale of £3.6 million to cover for that incident. How much time will it take your average retailer to make a sale of £3.6 million? That is the question retail chief executive will need to answer for themselves. Success is not an accident, it is a science. It never ceases to amaze me that someone will spend millions of pounds to open a retail store only to have it managed by managers who are not properly qualified.

One question that I would like to ask any retail executive reading this article: would you loan any of your managers the value of your store from your pocket? If your answer is yes then you are on the right track if your answer is no, you need a strategic rethink.

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