CFOs have a margin opportunity in loss prevention

Issues like theft, administrative errors, returns and more have historically been viewed as a cost of doing business in retail, and many organizations today still choose to live with the losses. For that reason, loss prevention (LP) teams can often be looked at as more of a security function, as opposed to a growth driver.

But it’s time for CFOs to stop thinking of shrink as a department-by-department problem and burden of the LP team alone. Shrink and returns need to be addressed as part of a holistic, total retail loss concern that’s impacting the bottom line.

CFOs can foster a new approach to loss prevention that doesn’t limit shrink and returns to case counts and return rates. It views them in terms of gross margin, inventory valuation and more. It’s about turning LP into a margin opportunity.

Viewing shrink and returns as a growth opportunities

In quarterly reports and on earnings calls, retailers are increasingly talking about retail losses in the same language they use for other margin levers. It’s a sign that companies want to address returns and retail loss and uncover ways to build business.

In the UK, the fishing tackle retailer Angling Direct reported that its UK gross margin increased 130 basis points to 38% in fiscal 2026. The company attributed the improvement to factors including its product mix of own brands, supplier terms and service revenue, while noting that increased promotional activity and shrinkage partially offset those gains. Dollar General in the US reported Q4 gross margin expanded 105 basis points, with lower shrink among the primary drivers.

These two examples highlight perfectly why organizations should view LP as a P&L problem. And they showcase the right language to do it in, meaning CFOs are playing a significant role in changing how companies manage retail loss and shrink. They can become internal leaders, championing how to catch and prevent shrink and returns as a way to boost margin.

Building a framework for LP to understand P&L

Most LP leaders already understand where losses are occurring inside the company. They can report on fraudulent transactions, employee theft, organized retail crime and returns behaviors.

What they may not always have is a financial framework or knowledge that can translate shrink, returns and LP into language that a CFO can use to allocate capital toward new technology or initiatives to improve loss. CFOs, however, are uniquely positioned to handle the translation and can help coach LP to understand where shrink and returns fit on a P&L statement. If shrink and returns can influence gross margin by dozens of basis points, then they deserve the same financial consideration as pricing, procurement or marketing initiatives.

CFOs can direct LP to quantify its opportunities in terms like:

• Payback period: How quickly will an investment generate measurable recovery?
• Margin contribution: How many basis points could the initiative reasonably contribute to gross margin or operating margin?
• Run-rate impact: What does the opportunity look like once the program is fully deployed, rather than just during its first year?

CFOs will also want to know that LP can take accountability for reported numbers and performance, especially if the team is requesting more financial support for their initiatives. None of that should be an unreasonable ask of an LP team already tracking these numbers internally.

Address total loss, not individual incidents

Perhaps a larger challenge for many retail LP leaders is the ability to measure loss as a whole. For example, shrink is often handled within one part an organization, and returns is owned by another team entirely. In general, the P&L doesn’t care where the losses come from but needs them reflected together.

Appriss Retail’s 2026 Total Retail Loss Benchmark Report estimates that consumers returned $706 billion of merchandise in 2025. Of that, approximately $100 billion represented preventable loss from returns fraud and abuse. The report also estimates approximately $90 billion in total shrink, including $66 billion attributable to preventable causes.

Those numbers illustrate why a traditional shrink-only view of LP is inadequate. A retailer can reduce shoplifting while overlooking abusive returns. Individual teams may perform well while the enterprise in total continues to leak margin. CFOs are uniquely positioned to see the entire picture.

Engaging LP teams earlier in planning

CFOs should also bring LP into the financial planning conversations earlier, giving the department the context it needs and expects so that it can be measured in the same terms as other investments.

This doesn’t mean turning LP into a division of the finance department, but outlining a clean mandate for them. LP can identify where the business is losing money, quantify the opportunities and work with the functions capable of changing the underlying behavior and root causes of loss.

Technology can help, but the more important change is organizational. Don’t treat shrink as a collection of isolated incidents; connect transaction, inventory, returns and operational data so that loss can be understood to support broad business outcomes.

Retail loss deserves the same financial rigor as operations, inventory, capital expenditures and other critical line items a CFO monitors each quarter. With a renewed approach, CFOs can support LP teams by coaching them on how to become a partner in the fight to preserve margin.

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