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Shrinkage has multiple meanings, depending on the context Shrinkage can be defined as an Inventory recorded on a company's books but not on hand, due to theft, loss or accounting error


In retailing, shrinkage (sometimes truncated to shrink) is the loss rate of products between point of manufacture and point of sale. Sometimes shrinkage may be as high as 15% to 20% of total volume, having a major negative impact on profits. The average shrink percentage in the retail industry is about 2% of sales. Shrinkage is often considered a cost of doing business in retail

Shrinkage is for a large part due to theft or some other crime, and the prevention of this type of shrinkage is one reason for security guards and cameras. Also, some shrinkage is due to damage in transit, shipping errors, or misplaced goods

The four major sources of inventory shrinkage in the retail industry are:

  • Employee theft
  • Shoplifting
  • Administrative errors
  • Vendor fraud
  • The National Retail Security Survey is published annually as part of the Security Research Project at the University of Florida. The Security Research Project endeavors to study various elements of workplace related crime and deviance with a special emphasis on the retail industry

    Retail Theft: What's the Harm?

    Hollinger warns that it isn't just retailers who should be concerned about retail theft. Retail theft impacts everyone. Ultimately it's consumers that are hurt the most in the form of higher prices

    "An average family of four will spend more than $440 this year in higher prices because of inventory theft," Hollinger said. "Thieves also generally target hot selling items, which means those must-have toys on your child's holiday wish list are less likely to be available on the store shelves"

    The primary cause of retail shrinkage is employee-caused shrinkage, or ‘internal shrinkage’, which is any act of intentional or non-intentional deception performed internally by any employee of the company. From 1995-2002, retailers have seen this single most important category increase from 51-57 percent, as a percentage of the overall shrinkage

    Internal shrinkage is further sub-categorized into cashier-caused shrinkage and general employee-caused shrinkage. General employee-caused shrinkage is any act of intentional or non-intentional deception performed internally by any employee (including management personnel) other than the cashiers, such as theft of merchandise, cash, supplies, pilferage, etc., and accounts for 39 percent of the overall employee-caused shrinkage

    Employee Theft at Record Levels

    The study, conducted by the University of Florida with a funding grant from ADT Security Services, Inc., a unit of Tyco Fire and Security Services, discovered that retail security managers attributed more than 48.5 percent of their losses to employee theft, up from 46 percent the prior year. Internal theft by employees cost retailers a record $15 billion

    Shoplifting Also on the Rise

    Shoplifting is the secondary cause of retail shrinkage, accounting for 20 percent of the overall shrinkage. For years, shoplifting has received the most attention, primarily with deployment of CCTV systems and EAS systems. This has resulted in evidenced reduction since 1997, when it was 26 percent of the overall shrinkage

    Shoplifting was also on the rise last year with 31.7 percent of retail losses resulting from shoplifting, compared to 30.6 percent two years ago. Shoplifting was responsible for nearly $10 billion in losses last year. Employee theft and shoplifting combined continue to account for the largest source of property crime committed annually in the United States

    Other Areas of Inventory Shrinkage

    The remainder of the annual retail losses not due to employee theft and shoplifting are caused by paperwork errors and theft by vendors. Both administrative errors and vendor fraud have declined from two years ago

    Stopping Retail Theft

    "The holiday shopping season is really a make or break season for many retailers. It is also an extremely busy time, which leaves stores more vulnerable to theft," said Mike Snyder, president of ADT Security Services. "Many retailers are using security technologies such as anti-shoplifting, digital video and point-of-sale systems to help their staff zero in on theft problems"

    Among the newest security technologies being used by retailers this year to control losses due to theft:

  • Point-of-sale data mining software solutions that detect potential theft problems at the cash register and alert appropriate personnel in real-time. These data mining packages can be tied to digital video recorders to provide crisp, clear images of who sold what to whom with a click of a button and can delivered to any location around the world
  • Source tagging programs where tiny anti-theft labels about the size of a paper clip are placed inside an actual product or product package, effectively hiding it from view
  • Self-alarming anti-theft tags that broadcast an audible alarm throughout the store when a shoplifter attempts to improperly remove it from merchandise
  • "Stores that utilize security technologies generally have lower overall inventory shrinkage than those retailers who do not," Snyder said. "Technology also allows employees to focus more time on assisting customers and less on patrolling the aisles"

    Technology alone will not eliminate retail theft. Retailers who want to reduce losses should also strive to provide good customer service and promote high job satisfaction levels among its retail sales associates

    Win the battle against shrinkage

    Common problems:

  • Customers that steal
  • Employees that steal
  • Lost products along the supply-chain
  • Ordering mistakes
  • Difficulty of protecting certain products
  • A small minority of customers steal, but they can have a major impact on your profit margins. Not only can customer theft account for 48% of revenue loss (2003, European Theft Barometer), it also has a negative effect on your business due to ‘defensive’ merchandising and obtrusive ‘hard tags’ that can detract from the look of your products. Checkpoint’s advanced security solutions are proven to cut down on customer theft by up to 60%

    Protecting large retail outlets that stock a wide-range of products provides a special challenge when fighting retail shrinkage, especially when this kind of retail environment is often the most tempting target for shoplifters. Checkpoint has been applying the latest Radio Frequency (RF) technologies to shrinkage solutions since its foundation in 1968, providing breakthroughs like the first integrated Electronic Article Surveillance (EAS) tags, 3rd Generation EAS and the development of RFID technology

    Ordering mistakes can account for up to 18% of loss from shrinkage. A modern business needs an efficient ordering system that anticipates stock fluctuations, makes sure your customers find what they want and come back again when they are looking for something else

    Keys to success

    We believe that the keys to successfully combating internal shrinkage are:

  • Accurate shrinkage measuring: In order to reduce shrinkage, you have to be able to see it. Measure your shrinkage at full retail value, not only cost
  • Actions: Learn what other retailers are successfully doing. Be bold and inventive to get improved results. Stop taking actions that are not bringing results
  • Monitor and audit: Measure your progress, adjust what is not working and reinforce what is working
  • Management commitment: Make sure that your senior management team is committed to disciplines and operating practices required to reduce shrinkage
  • Adopt proven emerging technology: Select those who demonstrate evidenced results
  • Apply consistent personnel training: Use the identified incidents to tailor your training issues, and get personnel involved in the process. The new technologies provide the evidence that great majority of your personnel are honest and doing their work properly

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