Retail Shrinkage

Retail shrinkage is a reduction in inventory due to shoplifting, employee theft, administrative errors and vendor fraud.. Normally associated as a percentage of loss of inventory between goods receipt and point of sale. The average rate of shrinkage as a percentage of sales for Australia and New Zealand is 1.5% . While it sounds low it costs Australian retailers billions of dollars every year.

To improve the negative effect to the retail economy across the board, and to prevent retail shrinkage in your business, it helps to be mindful of the major sources:

1. Employee Theft

Although very difficult to measure, global averages indicate that employee theft and embezzlement of accounts cause almost a third of total retail shrinkage Some of the types of employee theft include discount abuse, refund abuse and even credit card abuse. On average a single theft by an employee is eight times greater in value than theft by a shoplifter. Unfortunately, this is one loss prevention area that generally doesn't receive as much monitoring as customer theft. This problem is not as  easily identified as external shrinkage such as shoplifting, due to lack of visibility of the transaction. CCTV monitoring, good store surveillance and maintaining good relations with employee will help to restrict this practice.

2. Shoplifting

Shoplifting globally accounts for the largest portion of retail shrinkage, shoplifting or external theft takes many forms, from concealing the merchandise, altering price tags and  security tag defeat. While the average value of a single shoplifting theft is lower than a single employee theft, the frequency of such events makes this category the highest single contributor to retail shrinkage. Stealing by shoppers still costs retailers billions of dollars annually. Retailers have seen a significant increase in the rate of shoplifting attempts. This does has not necessarily lead to an increase in shrinkage as increased loss prevention measures of high value products can lead to higher apprehensions and losses of lower value products.  Most frequently used methods to combat shoplifting are security tag systems(EAS) using a range of hard security tags, security labels and loop and cable alarms.

3. Administrative Error

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

4. Vendor Fraud

The smallest percentage of shrink is vendor fraud. Retailers report vendor fraud occurs most when outside vendors mislead the amount or price of stock going into the store.

Shrinkage by business type:

Shrinkage percentages vary according to retail category. Apparel has the highest losses by percentage, followed closely by DIY/Auto, H&B/Pharmacy, Department Stores, Bookstores and Supermarkets.