Shrinkage is the loss of inventory due to theft and fraud, accounting errors, wastage, damaged merchandise, etc.

What is shrinkage?

Shrinkage, sometimes referred to simply as shrink, is the loss of inventory. It can be caused by many factors, which are usually grouped under the following headings:

• Theft and fraud
• Accounting errors
• Wastage
• Damaged merchandise
• Other/uncategorized/unknown

Shrinkage can represent a large expense, especially in the retail and restaurant and hospitality industries.

Why is shrinkage important?

It is important to find and eliminate shrinkage because it negatively impacts revenue and profit. Different types of shrinkage require different responses. A lot of wasted produce in a restaurant could be a sign of employee error when preparing food or ordering and inventory management issues. Shrinkage in the retail environment is often caused by theft, both internal theft (employee theft) and external theft (shoplifting, return fraud, organized retail crime (ORC), etc.).