The accounting term ‘shrinkage’ is defined as the loss of products between point of manufacture or purchase from supplier and point of sale with the customer.
The average shrinkage as a percentage of sales varies 1% to 1.5% of sales.
Shrinkage and fraud remain key stock control issue for retailers. Improving end-to-end tracking of ingredients and chain of custody through new technologies such as RFID (Radio Frequency Identification Device) is a challenge for the industry.
To calculate the shrinkage for a retail outlet, use the calculation below:
Opening Stock + Purchases – (Sales * (100 – Budgeted GP %)) = Calculated Closing Stock
Calculated Closing Stock – Physical Counted Stock = Shrinkage
Shrinkage/Total Sales x 100 = Shrinkage Percent
The Centre for Retail Research has recently published The First Worldwide Shrinkage Survey from which the following tables have been extracted:
Some of the reasons for shrinkage are:-
- Damage in transit, storage or the store.
- Administrative errors such as shipping errors, warehouse discrepancies, and misplaced goods.
- Cashier or price-check errors in the customer’s favour.
- Supplier fraud.
- Employee theft
- Perishable goods not sold within their shelf life.
- Paperwork errors and EPOS glitches
Many retailers are improving end-to-end tracking through the introduction of new technologies such as RFID (Radio Frequency Identification Device).