Retail Shrink is defined as the difference between the value of goods available as per the books and the actual value of goods available in the retail store. For example, a retailer might be thinking that there are 50 bottles of 500 ml Pepsi soft drink as per the records. But in reality, there might only be 48 bottles. The cost of the two missing bottles is the shrinkage value.
Retail shrink is not just about physical reduction in quantity of an SKU. Let me cite another example. A store employee can manipulate the POS by adjusting the discount % given to certain goods, thus registering an incorrect sale value in the system. Another example could be registering a fraudulent return of a product, thus incrementing the number of SKUs in the store and taking away the equivalent cash. In simple language any fraudulent activity that results in monetary loss to the retailer contributes to retail shrinkage.
A survey states that in 2011, the global retail shrinkage stands at more than $100 Billion. The sheer magnitude of the money involved explains the importance that retail shrinkage has in modern retail. There are a variety of reasons for why shrinkage happens. Some of the common causes are:
1) Shoplifting
2) Employee theft
3) Vendor fraud
4) Administrative Errors
Shoplifting is a common known factor and is being arrested by the retailers by deploying scanners in the store exits
Employee theft is a difficult factor to address. The stores can be successful in restricting the employees taking away products from the backroom of the store or the warehouse by imposing stricter physical security measures, but when employees indulge in manipulation of POS, it becomes little tricky to handle.
Vendor fraud occurs most when 3rd party vendors are allowed to stock / unstock their products inside the store.
Administrative errors occur when by mistake, an incorrect value is being entered into the store inventory management system. Such issues can be minimized by the use of electronic scanners / PDAs for entering the stock quantities into the inventory management systems.
Hope this gives a brief and clear overview of what retail shrinkage is and how it is caused.
RETAILNOVICE 