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Top 4 Sources of Shrinkage

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The percentage of loss of products between manufacture and point of sale is referred to as shrinkage, or sometimes called shrink. The average shrink percentage in the retail industry is about 2% of sales. While that may sound low, shrinkage cost U.S. retailers over $31 billion in 2001 according to the National Retail Security Survey on retail theft. Here are the four major sources of inventory shrinkage in retail.

1. Employee Theft

According to the National Retail Security Survey, the number one source of shrinkage for a retail business is internal theft. Some of the types of employee theft include discount abuse, refund abuse and even credit card abuse. Unfortunately, this is one loss prevention area that generally doesn't receive as much monitoring as customer theft.

2. Shoplifting

Coming in at a close second is shoplifting. Customer theft occurs through concealment, altering or swapping price tags, or transfer from one container to another. While shoplifting remains a smaller inventory loss source than employee theft, stealing by shoppers still costs retailers about $10 billion annually.

3. Administrative Error

Administrative and paperwork errors make up approximately 15% of shrinkage. Simple pricing mistakes due to markups or markdowns can cost retailers quite a bit.

4. Vendor Fraud

The smallest percentage of shrink is vendor fraud. Retailers report vendor fraud occurs most when outside vendors to stock inventory within the store.

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