Retail shrinkage is the difference in the book value of stock and the stock physically available.
Causes of retail shrinkage
It can be ‘known’, which means the retailer is able to identify and record what happened to the goods, or ‘unknown’, an unrecorded loss, often but not always the result of theft. The majority of retailers write-off large amounts as an acceptable cost of trading, believing that investment to reduce shrinkage offers limited return.
The main causes are:
- Employee theft or fraud
- Administrative and paperwork errors
- Vendor fraud
- Cashier errors
- Damage in transit, the warehouse or the store
- Perishable goods
Overall these fall into three main categories: theft, error and waste. Although theft, either by employees or customers, gets the most attention as it is the largest contributor to retail shrinkage, the other factors should not be overlooked. In many cases, they can be reduced or even prevented through the implementation of better working practices and staff training.
Point of Sale
Shrinkage in retail due to employee actions usually occurs at the point of sale (PoS) terminal. Reducing shrinkage should be a profit growth strategy for every retailer. Even a half percent improvement could have a significant impact on your bottom line and your cash flow. As the UK’s leading independent vendor of retail software, we have developed VISION Loss Prevention. This retail data mining solution uses forensic data analytics to help pinpoint unknown shrinkage at the PoS, whether caused by cashiers – intentionally or unintentionally – or internal process failures.