Inventory Shrinkage

In the retail environment, the term “shrink” or “shrinkage” refers to the difference between the amount of merchandise (or inventory) that the company owns on its books, and the results of a physical count of the merchandise. Shrink can come in many forms, and impact a business in many different ways. The primary causes of retail shrink include operational errors, internal issues, and external losses.

• Operational errors can involve POS software glitches, paperwork issues and other operational missteps. These incidents typically occur when processing a transaction, receiving merchandise, shipping merchandise, or taking inventory.

• External losses can involve theft by customers (primarily shoplifting), issues involving vendors, or other incidents that pertain to those not working for the company.

• Internal losses are the result of incidents that involve store associates and other company employees who take advantage of opportunities to steal from the company.

In addition to theft issues, damage, waste and spoilage can directly contribute to a company’s losses.

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When merchandise is stolen or otherwise unaccounted for, it not only impacts the company as a result of the missing product, but also skews our inventories in other ways. This not only impacts current sales, but also affects product replenishment and future sales as well. This can have a significant impact on the bottom line, and a direct influence on the health of the company. Every year, shrink issues cost retail businesses tens of billions of dollars. This is a real and growing problem that affects all of us in a variety of different ways.

This is a much more complicated problem than simply accounting for the theft of merchandise and the direct loss of profits. Managing shrink is a critical aspect of inventory control, which involves the management of the supply, accessibility, storage, and delivery of the company’s goods. As a result, retail shrink reduction strategies require a multifaceted and broad-based approach in order to successfully manage the process.

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