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Shrinkage

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Shrinkage Definition

This pertains to the difference between the amount of stock that you have on paper and the actual stock you have available. In other words, it’s a reduction in inventory that isn’t caused by legit sales. The common causes of shrinkage include employee theft, shoplifting, administrative errors, and supplier fraud.

You can prevent shrinkage by beefing up security in your store. Monitor customers, employees, and vendors/suppliers for suspicious behavior. Have accountability policies to reduce human error. Also, do inventory counts regularly especially when it comes to high-theft items.

Shrinkage is a word that makes every retailer cringe, and for good reasons. It is associated with any difference that exists between your recorded inventory and the amount of stock that is available in the store. In simple terms, it is a reduction in stock, which is not caused by actual sales. Usually, when a sale is made, the account of the inventory is reduced by the cost of the item, and the revenue increases by the same amount. Whenever there is any discrepancy in these numbers, a shrinkage is said to have occurred.

Before you can tackle shrinkage in your store, it is vital that you know the most significant causes of shrinkage in your store. Shrinkage is mainly caused by employee theft, supplier fraud, shoplifting, and paperwork errors. There are also some relatively unknown reasons for shrinkage that you may find difficult to identify in your store. 

Shoplifting is the number one cause of shrinkage in the retail business. Shoppers have come up with numerous ways to defraud retail stores. A study in 2017 reported that shoplifting carried out by organized thieves was responsible for about 36 percent of shrinkage in retail stores. Some of the more common ways shoppers carry out their act are; through concealment of items in their clothes; swapping or altering of the price tags on the products; and the transferring of products from one container to the other. Shoplifting has continued to increase, and retailers have begun to look for ways to curb this act. You can install security cameras and use digitized tags in your store to raise the level of security of your products.

Another cause of shrinkage in retail is employee theft. As ridiculous as this may sound, employees also take part in defrauding the stores where they work. This is second only to shoplifting on the list. Some common types are refund abuse, credit card abuse, and discount abuse. Unfortunately, this area does not receive as much attention as shoplifting even though it is the second leading cause of shrinkage. You can discourage employee theft by keeping your employees happy and keeping a good relationship with them. You can also introduce security checks at the end of every workday.

Shrinkage can also be caused by administrative errors. Pricing mistakes due to markdowns and markups can cost you a bit of cash, so you should ensure that you use easy-to-understand systems for your accounting. Supplier fraud is the fourth leading cause of shrinkage in retail stores. Some suppliers try to defraud their clients by stealing products or by supplying fewer items than invoiced. Therefore, it is essential that you only enter into business with reputable vendors, to avoid being defrauded. Then we have the small percentage of shrinkage causes that are regarded as “unknown reasons.”

Shrinkage can affect the growth of any retail business; therefore, it is crucial that you combat the problem as soon as you suspect it. The first thing to do is to identify the cause of shrinkage, so you can put measures in place to combat it.

If you have a product, we want to hear from you!

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Wholesale Distributor
Wholesale Distributor
Wholesale Distributor