Retail Shrinkage

National Retail Federation (in the US) is reporting that retailers lost a staggering $33.5Bn last year due to shrinkage. Shrinkage, as you are aware, is loss of inventory (and resulting revenue) which comes from theft in stores by employees, customers and vendors, administrative errors and in many cases even vendor fraud. Despite the staggering number, there is a bit to cheer about this time. Retailers take heart in the fact that shrinkage has actually fallen by 0.07% of overall sales in the last two years.

One would attribute the decrease to the industry’s ever alert mechanisms to prevent crime in the stores, in the warehouses or on the road. After all, theft happens due to available opportunity and as retailers keep themselves ahead of deviant minds the opportunities dwindle.

The largest components of shrinkage are shoplifting, and different types of fraud which happen in the stores. Shoplifting contributed to $11.7Bn, and employee theft contributed to $14.4Bn. The employees very often under ringing an item and then give the item to an associate or keep it themselves (phenomenon called “sweethearting”).The other very common mechanism is the return fraud wherein a used or never sold item is returned to the store. Of course, a used item, can hardly be put back on the shelf.  Vendor fraud and operational errors and vendor fraud cost retailers $1.3Bn and $4.9Bn respectively.

Though shrinkage has dropped just that wee bit in the North America, there is no data to show a drop in India. Neither is there clear data to even show even how much shrinkage really happens across the industry. Our struggles, of course, are different and the tribulations vary.

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