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Concept
Shrinkage (accounting)
Summary
In accounting, inventory shrinkage (sometimes shortened to shrinkage or shrink) occurs when a retailer has fewer items in stock than in the inventory list due to clerical error, goods being damaged, lost, or stolen between the point of manufacture (or purchase from a supplier) and the point of sale. This affects profit: if shrinkage is large, profits decrease. This leads retailers to increase prices to make up for losses, passing the cost of shrinkage onto customers.
In 2008, the retail industry in the United States experienced shrinkage rates of around 1.52% of sales. During the same year, retailers in Europe and Asia Pacific reported average shrinkage of about 1.27% and 1.20% of sales, respectively.
According to the 2008 National Retail Security Survey conducted at the University of Florida, a shrinkage rate of 1.51% translates to 15.5 billion to employee theft and $12.9 billion to shoplifters). Theft, both internal and external to the company, continues to be the driving force behind retail inventory shrinkage, at 78.3% of all shrinkage in 2008. Of that portion, 42.7% is attributed to employee (also known as internal) theft and 35.6% was due to external theft, known as shoplifting.
The prevention of this type of shrinkage is one reason for security guards, cameras and security tags. Other causes of shrinkage include:
Administrative errors such as shipping errors, warehouse discrepancies, and misplaced goods
Cashier or price-check errors in the customer's favour
Damage in transit or in the store
Paperwork errors
Perishable goods not sold within their shelf life
Vendor fraud
Recalled items
Returns and exchanges especially if the item returned or exchanged is not resellable
Shrinkage in retail that is 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, or simply removing cash from the register.
Official source
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