Shrinkage

Shrinkage in retail refers to the loss of inventory that can be attributed to factors such as employee theft, shoplifting, administrative errors, and supplier fraud.

Shrinkage in retail refers to the loss of inventory that can be attributed to factors such as employee theft, shoplifting, administrative errors, and supplier fraud. It represents the difference between the amount of inventory a retail operation should have and what it actually has available for sale.

To calculate shrinkage, the following formula is often used:

Shrinkage (%) = (Recorded Inventory - Actual Inventory) / Recorded Inventory x 100

Here's what each term means:

Recorded Inventory: The inventory level according to the accounting records.
Actual Inventory: The inventory level that is physically present, as determined by a physical count.

Shrinkage is important for retailers because it directly impacts profitability. High levels of shrinkage can indicate problems with theft, inventory management, or process inefficiencies. By monitoring shrinkage rates, retailers can identify and address these issues to improve their bottom line. Reducing shrinkage can lead to more accurate inventory records, better customer service, and increased sales.