Shrink—the silent profit killer in retail—is an ongoing struggle for businesses of all sizes, eroding profits and impacting operations. Wanting to hear directly from loss prevention professionals working in the retail industry, we recently conducted a LinkedIn poll, asking these professionals about the most common causes of shrink in their stores. Collecting this information helps us gain insight into industry trends, create future content for the magazine, engage with our supportive audience, and more.
What Is Shrink, and Why Does It Matter?
Although most of our audience has a clear understanding of what shrink is, the topic and its effect on retail crime are constantly evolving, determined by a range of contributing factors. These factors impact stores in drastically different ways. For some less experienced or new professionals in this space, occasionally asking, “What really is shrink in retail, and why does it matter?” can help keep you updated on trends and informed on the issue.
My colleague, Jac Brittain, breaks shrink down effectively in this article he wrote on the topic: “In simple terms, retail shrink—or ‘shrink’—refers to the difference between inventory levels that a retail company is supposed to have on hand based on their books, as compared to the actual inventory on hand when verified by the retailer. This reduction or loss of inventory is primarily due to factors such as shoplifting, organized retail crime, employee theft, human or paperwork errors, vendor fraud, and other related losses. Shrink can lead to the downfall of a retail enterprise, directly eating into the lifeline of profit that keeps the company in business.”
So, what does this mean for store managers? Simply put, sales are the foundation of the business. They measure success, drive operations, and determine a store’s overall health. Sales fund everything—payroll, inventory, and the day-to-day costs. While other factors play a role, when it comes to performance, sales are the ultimate indicator of success or failure.
The ultimate goal of any retail business is profit. While sales indicate potential profits, it’s the actual profit margins that determine success. Retail shrink, or the loss of inventory, directly impacts these margins. To succeed, retailers must focus on maximizing profits, minimizing losses, and improving efficiencies.
Poll Results
We heard it straight from you about what’s really driving shrink in your stores, and here’s what we found: In a recent LP Magazine LinkedIn poll, we asked retail professionals about the most common causes of shrink in their stores, and the results are in! According to 375 votes, shoplifting emerged as the top culprit, with 37% of respondents citing it as the primary cause. Close behind, employee theft accounted for 30% of responses, while administrative errors were reported by 32%. A small percentage (1%) pointed to supplier fraud as the issue.
While many immediately point to shoplifting or employee theft as the culprits, some argue that the true root of shrink often lies in operational mistakes, overlooked processes, and mismanagement of inventory.
One poll respondent said, “Only the person who never looked at operational processes and mistakes that are made there could call shoplifting or internal theft a common cause of shrink. Sorry, but if the shoe fits, wear it.”
The Complex Nature of Shrink
Shrink is a tricky beast in retail, with both internal and external factors at play. While we often hear about shoplifting and organized retail crime, it’s important not to forget that internal causes—like employee theft or simple human error—can also do significant damage. Sometimes, it’s just an inventory mix-up or a lack of training that allows shrink to sneak in without anyone noticing.
On the flip side, external theft, like shoplifting, is always lurking. But these days, thieves are getting more creative, and organized retail crime is becoming an even bigger concern. Retailers can step up their game by implementing strong, smart security systems and theft deterrents. But it’s not just about catching criminals—it’s about building a culture where everyone is on the lookout and taking responsibility.
To truly tackle shrink, it’s vital for retailers to focus on both sides of the problem. Strengthening internal controls, improving employee training, and tightening up processes can help minimize mistakes and keep things running smoothly. At the same time, staying ahead of external threats with solid security measures can help keep the shoplifters at bay.
Effective Strategies for Shrink Prevention
To reduce shrink, retailers should focus on both internal and external solutions. You can take a deep dive into shrink prevention tactics by watching a few of our webinars on-demand or visiting articles on our page. But here are just a few quick, actionable tips:
- Improve Inventory Tracking: Use real-time systems and regular audits to catch discrepancies early.
- Train Employees: Educate staff on spotting theft and handling inventory properly.
- Boost Security: Install cameras, use EAS tags, and monitor exits to deter shoplifting.
- Streamline Processes: Simplify checkout and returns to reduce errors and fraud.
- Stay Alert to Trends: Keep up with external theft tactics and adjust security accordingly.
- Leverage Technology: Use loss prevention software and surveillance tools to spot issues fast.
A Balanced Approach to Shrink
Shrink is an ongoing challenge in retail, with both internal and external factors contributing to losses. While shoplifting and external theft are always concerns, it’s equally important to look at internal processes—like employee theft, administrative errors, and inventory management. These are areas that retailers can often control or improve more directly.
By addressing both sides of shrink—tightening up internal operations and strengthening external security measures—retailers can reduce losses and improve their bottom line. This balanced approach ensures that shrink doesn’t slip through the cracks, no matter where it’s coming from.
Retailers who actively monitor their stores, implement strong internal controls, and stay ahead of external threats are better positioned to minimize shrink and boost profitability. Ultimately, focusing on the full picture, rather than just one part of the problem, will help ensure long-term success in the battle against retail shrink.