Shrinkage

AAA

DEFINITION of 'Shrinkage'

The loss of inventory that can be attributed to factors including employee theft, shoplifting, administrative error, vendor fraud, damage in transit or in store and cashier errors that benefit the customer. Shrinkage is the difference between recorded and actual inventory. According to the National Retail Security Survey, conducted by the University of Florida, shrinkage in the United States during 2009 represented 1.44% of retail sales. This percentage amounts to billions of dollars in lost inventory each year for U.S. retailers. Security guards, security tags and cameras are used by retailers in an effort to reduce shrinkage.

INVESTOPEDIA EXPLAINS 'Shrinkage'

According to the 2009 National Retail Security Survey, employee theft is the biggest contributor to shrinkage, approximately 43%, though employees are much less likely to be caught and apprehended than are shoplifters. In addition, the dollar value of employee theft incidents tends to be higher than shoplifting incidents.

RELATED TERMS
  1. Average Age Of Inventory

    The average number of days it takes for a firm to sell to consumers ...
  2. Inventory

    The raw materials, work-in-process goods and completely finished ...
  3. Beginning Inventory - BI

    The book value of goods, inputs or materials available for use ...
  4. Ending Inventory

    The value of goods available for sale at the end of the accounting ...
  5. Loss Management

    A business practice that seeks to detect, identify, investigate ...
  6. Inventory Turnover

    A ratio showing how many times a company's inventory is sold ...
Related Articles
  1. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  2. Fundamental Analysis

    Measuring Company Efficiency

    Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period.
  3. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  4. Investing Basics

    Understanding The Cash Conversion Cycle

    Find out how a simple calculation can help you uncover the most efficient companies.
  5. Retirement

    How (And Why) To Open an IRA Now

    Take these simple steps to set up an Individual Retirement Account that will save you tax money and set you up for the future.
  6. Entrepreneurship

    5 Small Business Ideas With Big Potential

    Here are five businesses almost anyone can start their own and grow as they gain experience.
  7. Personal Finance

    Why Are Tesla Cars So Expensive?

    What makes Tesla cars so expensive? Short supply and pricey parts is a good place to start.
  8. Investing

    Why Are Consumers In Hesitation?

    Diverging monetary policy globally and a stronger dollar continued to be key drivers of the recent underperformance and last week’s tumble in U.S. stocks.
  9. Investing

    What's a Run Rate?

    Run rate is a term used to denote annualized earnings extrapolated from a shorter time frame. Management uses the run rate to estimate future revenues.
  10. Professionals

    Financial Accounting

    Financial accounting is the process of gathering, recording, summarizing and reporting financial data relating to a business. The ultimate goal is to accurately report the financial picture and ...

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center