accounting Accounting, also known as accountancy, is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...

, inventory shrinkage (sometimes shortened to shrinkage or shrink) occurs when a

retailer Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and ...

has fewer items in stock than in the

inventory Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline primarily about specifying the sha ...

list due to clerical error, goods being damaged, lost, or stolen between the point of

manufacture Manufacturing is the creation or Production (economics), production of goods with the help of equipment, Work (human activity), labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary secto ...

(or purchase from a supplier) and the

point of sale The point of sale (POS) or point of purchase (POP) is the time and place at which a retail transaction is completed. At the point of sale, the merchant calculates the amount owed by the customer, indicates that amount, may prepare an invoice f ...

. This affects

profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory inter ...

: 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.''National Retail Security Survey'' (2009) University of Florida During the same year, retailers in Europe and Asia Pacific reported average shrinkage of about 1.27% and 1.20% of sales, respectively.''Global Retail Theft Barometer 2008''

Causes

According to the 2008 National Retail Security Survey conducted at the University of Florida, a shrinkage rate of 1.51% translates to $36.3 billion in annual loss ($15.5 billion to employee theft and $12.9 billion to shoplifters).

Theft Theft is the act of taking another person's property or services without that person's permission or consent with the intent to deprive the rightful owner of it. The word ''theft'' is also used as a synonym or informal shorthand term for som ...

, 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 Theft is the act of taking another person's property or services without that person's permission or consent with the intent to deprive the rightful owner of it. The word ''theft'' is also used as a synonym or informal shorthand term for som ...

and 35.6% was due to external theft, known as

shoplifting Shoplifting is the theft of goods from an open retail establishment, typically by concealing a store item on one's person, in pockets, under clothes or in a bag, and leaving the store without paying. With clothing, shoplifters may put on item ...

. The prevention of this type of shrinkage is one reason for

security guard A security guard (also known as a security inspector, security officer, or protective agent) is a person employed by a government or private party to protect the employing party's assets (property, people, equipment, money, etc.) from a variety ...

cameras A camera is an optical instrument that can capture an image. Most cameras can capture 2D images, with some more advanced models being able to capture 3D images. At a basic level, most cameras consist of sealed boxes (the camera body), with a ...

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 Shelf life is the length of time that a commodity may be stored without becoming unfit for use, consumption, or sale. In other words, it might refer to whether a commodity should no longer be on a pantry shelf (unfit for use), or no longer on a ...

* Vendor fraud * Recalled items * Returns and exchanges especially if the item returned or exchanged is not resellable

Loss at the POS terminal

Shrinkage in retail that is caused by employee actions typically occurs at the

(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. These questionable transactions are called POS exceptions. Traditionally, POS fraud is fought by surveillance staff monitoring a POS terminal or by manually searching in surveillance video recordings. Modern POS systems can have automatic alerts when specific exceptions are detected. Also exception reports and listings based on employees, refunds,

price override A price override is a feature of a retail management system which allows an authorised person to change the automated price of a product or service, in order to apply a discount. Price overrides occur for a variety of reasons. One common reason i ...

s, terminals etc. are possible to detect with modern systems. Modern networked based POS systems can also include network video to POS exception listings, giving quick access to detailed information of what has happened. In the United States the National Retail Security Survey is published annually as part of th
Security Research Project
at the

University of Florida The University of Florida (Florida or UF) is a public land-grant research university in Gainesville, Florida. It is a senior member of the State University System of Florida, traces its origins to 1853, and has operated continuously on its ...

. The Security Research Project endeavors to study various elements of workplace related crime and deviance with a special emphasis on the retail industry. Since theft is hidden, no study can be completely accurate. Inventory management systems allow for better control over inventory and will inform companies of the source of the inventory shrinkage, saving costs associated with stock-outs or excess inventory. Shrinkage figures can be calculated by: * Beginning Inventory + Purchases − (Sales + Adjustments) = Booked (Invoiced) Inventory * Booked Inventory − Physical Counted Inventory = Shrinkage * Shrinkage/Total Sales x 100 = Shrinkage Percent

References

{{reflist Inventory Theft Accounting

Causes

Loss at the POS terminal

See also

References