Inventory shrinkage happens when the amount of inventory listed in the accounting records exceeds the physical count of products. While a certain amount of shrinkage is unavoidable due to administrative and human errors, an excessive amount of shrinkage signals other problems such as employee theft, supplier fraud or inadequate inventory management practices.
Shrinkage, as it turns out, is at an all-time high. In its 2020 survey, the NRF estimated that the annual cost to the retail industry was approximately $61.7 billion. What’s even more alarming is that the trend is accelerating: the number of retailers reporting shrink rates of 3% or higher has doubled over the span of a year.
The cost of shrinkage directly affects brands’ profit margins. After all, an item lost is an item that cannot be sold. The loss is even bigger during times of low inventory and high demand, because an item lost is also an item that can’t be sold at full price.
At a time when supply chain issues continue to drive demand, you can be sure that brands will be keeping a very close eye on shrinkage in the warehouse.