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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Wrestling with Total Loss

In 2017, Adrian Beck, professor in the criminology department at the University of Leicester, published a piece in Security Journal outlining a new conceptual typology regarding loss. Beck argues that “shrink” is an antiquated term that lacks a clear definition in the retail industry. [Editor’s Note: Beck published a piece   Read More

Physical Inventory Control Methods

“What is the single most important measure of the success or failure of your company’s loss prevention efforts?”

If you were to ask senior retail executives this question, the answer you would likely hear is, “Our shrinkage results.” This would not be surprising, as shrinkage affects profitability, shareholder return, resource allocation   Read More

The 60-Second Guide to Total Retail Loss

A recent report from the Retail Industry Leaders Association advocates a radical new way to think about how to understand and measure retail loss.
Shrink No Longer Cutting the Mustard

There is no agreed definition of what constitutes “shrinkage.”
Most estimates are based only upon measures of merchandise losses where the   Read More

Can a Retail Buyer Help Reduce Shrink?

While the perception of shrinkage among the loss prevention industry has evolved from thinking about loss strictly in terms of theft to the consideration of all causes of inventory discrepancy, this change in approach hasn’t necessarily diffused into all of the other teams in a retail organization. Retail buyers are   Read More

What to Do about OOS in Retail

In the mature and highly competitive retail sector, ensuring that the right product is on the right shelf at the right time is critical. Yet the problem of shelf out-of-stocks (OOS) remains as stubborn as ever. Could the loss prevention team be the key to unlocking this new sales opportunity?

This   Read More

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