Questions · Retail operations
What is shrinkage in retail?
The answer
Shrinkage is stock you have lost without selling it: the difference between what your records say you should have and what you actually count. It comes from theft, damage, expiry, short deliveries and recording mistakes, and is usually measured at cost as a percentage of sales for the same period.
Every shop has some shrinkage. The question is how much, where, and why. You only find it by counting the shelves and comparing the count with your records, which is why regular counts matter more than any security camera.
The formula
Use cost prices on both sides, so the figure is not inflated by your margin.
- Shrinkage value = stock value in your records − stock value counted (both at cost)
- Shrinkage % = shrinkage value ÷ sales for the same period × 100
Expressing it against sales lets you compare one quarter with the next, and one section with another, even when sales change.
Worked example
A general store’s records show ₹6,50,000 of stock at cost at the end of the quarter. The count finds ₹6,40,250.
| Step | Calculation | Result |
|---|---|---|
| Shrinkage value | ₹6,50,000 − ₹6,40,250 | ₹9,750 |
| Sales in the quarter | ₹7,80,000 | |
| Shrinkage % | ₹9,750 ÷ ₹7,80,000 × 100 | 1.25% |
The next step is to split the ₹9,750 by the reasons found at the count.
Where shrinkage comes from
| Cause | Typical signs |
|---|---|
| Shoplifting | Small, valuable, easy-to-pocket items short |
| Staff theft | Shortages linked to particular shifts, or cash drawers short |
| Recording mistakes | Wrong size billed, returns or deliveries never entered |
| Short deliveries | Shortages on items that came in recently |
| Damage and expiry | Broken or expired goods thrown away without a record |
Not all shrinkage is lost goods. Some is paperwork: a delivery never received in the system looks exactly like theft at the count. Separating the two stops honest staff being blamed and points you to the right fix.
How to reduce it
- Receive every delivery against the supplier’s bill before shelving.
- Take returns and exchanges only against the original bill.
- Count a section every week, without looking at the system figure first, and recount differences.
- Approve every adjustment with a reason, and review the reasons monthly.
- Close the cash drawer with a counted total each day.
The method for counts is in stock counts and reconciliation, and the glossary explains a stock tally. In BILL OS, a stock tally shows what is short or extra and asks for a reason before the adjustment is approved; see inventory and stock. For the full set of routines that keep shrinkage low, read our retail stock management guide.
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General information, not legal, tax or financial advice. Published by Chameron Digital.