Shrinkage - Definition and Overview

In sales, shrinkage (also commonly referred to as shrink) is the loss rate of products between point of manufacture and point of sale. Sometimes shrinkage may be as high as 15% to 20% of total volume, having a major negative impact on profits. The average shrink percentage in the retail industry is about 2% of sales. Shrinkage is often considered a cost of doing business in retail.

Shrinkage is for a large part due to theft or some other crime, and the prevention of this type of shrinkage is one reason for security guards. Also some shrinkage is due to damage in transit, shipping errors or misplaced goods.

The four major sources of inventory shrinkage in the retail industry are:

1. Employee Theft

2. Shoplifting

3. Administrative & Paperwork Errors

4. Vendor Fraud

The National Retail Security Survey is published annually as part of the Security Research Project (http://web.soc.ufl.edu/srp.htm) at the University of Florida. The Security Research Project endeavors to study various elements of workplace related crime and deviance with a special emphasis on the retail industry.

See also: economics, marketing, product management, retail

Shrinkage is also a slang term for a decrease in penis size due to cold temperatures; the term was largely popularized by an episode of the sitcom Seinfeld.