What Shrinkage Actually Costs You
A retailer turning over $500,000 per year with 1.8% shrinkage loses $9,000 annually — enough to hire a part-time employee for six months or fund a significant marketing campaign. The global retail average is 1.44% of sales according to NRF data, but food retailers typically run higher (1.8–2.5%) due to spoilage.
The Four Categories of Shrinkage
External theft (shoplifting): Accounts for 36% of retail shrinkage globally. Higher in high-street fashion, electronics, and grocery.
Internal theft (employee theft): Accounts for 28% globally. Most commonly occurs at the point of sale — voided transactions, undercharging friends, cash skimming, and inventory theft.
Administrative errors: Accounts for 21% — pricing errors, receiving errors, invoice discrepancies, and system configuration mistakes.
Vendor fraud: Accounts for 5–6% — short deliveries, substituted products, and invoicing for goods not received.
Measuring Your Shrinkage Rate
Shrinkage rate = (Book inventory value − Physical count value) ÷ Sales × 100. Book inventory is what your system says you should have; physical count is what you actually have. The difference, expressed as a percentage of sales, is your shrinkage rate. Counting stock costs money — but not counting costs more.
Cycle Counting vs. Full Stock Takes
A full stock take requires closing or operating with reduced staff while everything is counted simultaneously. Cycle counting divides inventory into sections and counts one section per day or week, so you always have a recent count without the disruption. High-value or high-shrinkage categories should be counted most frequently.
POS Controls for Internal Theft
Most internal theft at the POS follows predictable patterns:
- Voiding a sale after receiving cash and keeping the cash — flag any cashier with void rates above 2%
- Undercharging acquaintances — compare each cashier's average transaction value
- No-sale drawer opens without a transaction — track these in your POS system
- Refunds on cash transactions for goods not actually returned
A POS system that requires manager override for voids and refunds, and that logs every exception, eliminates most opportunities for these behaviours.
Receiving Controls
30–40% of vendor fraud starts at the receiving dock. Count every delivery against the purchase order. Weigh random samples of packaged goods. Require signatures on delivery notes. Compare delivery notes to invoices before approving payment. A handheld scanner connected to your POS that records received quantities in real time makes this process fast enough that there is no excuse to skip it.
