Shrink is inevitable. The frustrating part is that it isn't always obvious where it comes from.
Shoplifting is a well-known contributor, but it’s not the only source. Shrink also comes from employee theft, administrative errors, vendor issues, damaged merchandise, and inventory discrepancies. It all ends up looking the same on a report: inventory is missing, and the numbers don't add up.
In this article, we'll focus mostly on the inventory management side — and how doing it right can help reduce shrink.
According to the NRF's 2023 National Retail Security Survey, retailers attributed 27% of shrink to process, control failures, and errors — nearly as much as external theft. That's a lot of "missing" inventory that was never stolen.
Process and control failures are where inventory management plays the biggest role. Maybe inventory came in short from a supplier. Maybe a transfer between stores was never completed. Maybe an item was counted incorrectly during a cycle count, and nobody noticed until months later. On their own, those issues may not seem like much, but across thousands of products, inventory numbers can slowly drift away from reality.
Better inventory management helps retailers catch problems earlier and keep small issues from turning into bigger losses.
Regular cycle counts are a good example. Instead of waiting for an annual physical inventory to find out something is wrong, retailers can check smaller groups of products throughout the year. If something comes up short, there’s a better chance of figuring out what happened while the details are still easy to trace.
The same applies to receiving inventory. When shipments are checked as they come in, it's much easier to catch missing or incorrect items before they affect inventory counts, customer orders, and future decisions.
None of this eliminates shrink outright — theft and mistakes will still happen. It’s the nature of retail. But cycle counts and receiving checks help close the gap between when something goes wrong and when someone notices, which is often the difference between a quick fix and a mystery months later.
Good inventory management software can't stop shrink by itself.
But it does make it easier to see what's happening.
Every sale, transfer, adjustment, return, and receiving transaction leaves a record. When inventory starts looking off, you're not starting from scratch trying to remember what happened months ago. You have a history you can work from. Of course, that's all much easier to track when systems are connected through a unified commerce platform.
Unified commerce also makes it easier to spot patterns. Maybe one store consistently has more inventory adjustments than the others. Or one department always seems to have receiving discrepancies. Those patterns are worth paying attention to because they usually point to a process that can be improved.
"Without accurate inventory and visibility into it, you'll never be able to identify shrink (or quantify it appropriately)" - JR Anderson, Director of Account Management at FieldStack
Without good inventory data, all you really know is that something has disappeared.
Better inventory visibility shows up in a few more concrete ways: knowing which locations need attention, tying activity back to individual employees, and holding vendors accountable for what they ship.
For multi-location retailers, a company-wide shrink number doesn’t tell the full story. One store can be doing well while another store is constantly struggling with missing inventory, odd adjustments, or process challenges.
With store-level inventory data, it’s easier to identify where issues are occurring and focus attention where it needs to be.
This is a big one.
Employee and internal theft accounts for a significant portion of shrink, with NRF reporting that retailers attributed 29% of shrink losses to internal theft in its 2023 National Retail Security Survey.
When sales, adjustments, receiving, returns, and other inventory activity are tied to specific users, retailers have a clear record of what happened. That doesn't eliminate employee theft, but it can make unusual activity easier to identify and investigate.
Shrink doesn’t always start at the store level. Errors in receiving, missing items, or incorrect shipments can all affect inventory accuracy.
Improved tracking allows retailers to compare their expectations of a vendor against the actual results. Over time, it makes it easier to find recurring issues and fix them.
If your current retail software can’t give you a full picture of your inventory across locations, then you could be losing more to shrink than you realize.
We can help.
FieldStack is an all-in-one retail management platform that helps retailers manage everything from POS and eCommerce to inventory forecasting and customer management. With real-time inventory tracking, cycle counts, transfers, and reporting built in, it's easier to keep inventory accurate and spot problems before they turn into bigger ones.
See how FieldStack can help you fight retail shrink. Schedule a call today.
Retail shrink is the loss of inventory that happens when products go missing or can't be accounted for. Your system and your actual inventory numbers will show two different things.
The biggest causes of retail shrink are external theft, employee theft, administrative errors, vendor issues, and damaged or misplaced merchandise. For most retailers, shrink is caused by a combination of these rather than a single issue.
The more accurate your inventory is, the easier it is to identify where shrink is happening. Staying on top of receiving, transfers, cycle counts, and inventory tracking helps reduce the operational issues that contribute to shrink.
An inventory discrepancy means there's a difference between what's in your system and what's physically on hand. Shrink is the inventory that's actually been lost. In other words, every case of shrink creates a discrepancy, but not every discrepancy turns out to be shrink.
That depends on your business, but cycle counts should be part of your regular routine, not just something you do once a year. High-volume or high-value products are often counted more frequently, while slower-moving inventory may only need to be counted periodically.