Shrinkage

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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.

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