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April 05, 2012

Types of Retail shrinkage

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.  The  four  major  sources of inventory shrinkage in retail.

1. Employee Theft: 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. The crime of shoplifting is the taking of merchandise offered for sale without paying and more than $25 million worth of merchandise is stolen from retailers each and every day. 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. One interesting way of shoplifting is to take an edible product like biscuits or a bar of chocolate and eat it in the shop itself. That way the product is consumed without paying a cent!

No matter how big or small the retail store may be, all types of retailers are susceptible to the growing problem of shoplifting.

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. Administrative errors such as shipping errors, warehouse discrepancies, and misplaced goods or  Cashier or price-check errors made in the customer's favor.

Shrinkage in retail caused by employee actions typically occurs at the point of sale (POS) terminal. There are different ways to manipulate a POS system, such as a cashier giving customers unauthorized discounts, creating fraudulent returns, manually entering values in the system or making a no-sale, which means that the cashier opens the cash counter without registering a sale.

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.


  1. What is so surprising merchandise theft happens in US despite very strick law against it.

    One time I have personally witness, a person was handcuffed and taken to jail for stealing just a banana (yes, just one banana) from the store.And, just over the last holidays I saw a woman arrested for taking few dresses out of the store without paying at the register.

    There is a line of profession in US that protects stores againt theft. What they do is they appoint people just like security guard to spot thefts and these guys stay in the store walking around amidst other customers. These guys are highly trained to catch store theifs.

    Is there any cross country study done about store theft? I guess becuase of strict law in US instances of store theft would be comparatiely lower to other countries.31 billion dollars in a 10 Trillion dollars economy looks miniscule.