We’ve been hearing a lot about shrink and its prevention, as with Walgreen’s supposedly shrink proof store.
What is shrink, or shrinkage, really?
Let’s get technical: “Shrinkage is the difference between recorded inventory on a company’s balance sheet and its actual inventory,” says Investopedia.
Shrinkage is due to five major causes: (1) customer theft, aka shoplifting; (2) employee theft; (3) administrative errors; (4) fraud, including vendor fraud as well as fraudulent returns; (5) operational losses, such as breakage or food expiry, according to Paladin Security.
The National Retail Foundation (NRF) says that as of 2022, the current five-year average for retail shrinkage was 1.5 percent.
“When taken as a percentage of total retail sales in 2021, that shrink represents $94.5 billion in losses, up from $90.8 billion in 2020.”
Often when people talk about shrinkage, they simply mean customer theft.
Maybe this isn’t so smart.
Paladin tells us that customer theft accounts for 35 percent of shrinkage losses. (The NRF figure is 37 percent.)
But then there’s employee theft. According to Paladin, it accounts for 33 percent of shrinkage losses. (The NRF gives a figure of 28.5 percent.)
The NRF also says that of its survey participants, 74.1 percent reported either “somewhat more” or “much more” external theft over the past five years, while 56.9 percent said they had seen “somewhat more” or “much more” internal theft over the same period.
So, employee theft is nearly as great a problem as the much-publicized customer theft.
Why do employees steal? Some people, of course, are just crooked. Sometimes it’s a matter of need. It can also occur because they don’t think they’re being treated fairly: “Employees justify stealing when they believe the employer has overworked and underpaid its employees,” notes the website of Rancho Mesa, a commercial insurance brokerage specializing in risk management.
It’s hard to separate these two causes, because an employee who is in genuine need is likely to feel underpaid and thus hostile to the employer. “Employees may feel the employer owes them,” says the Rancho Mesa site.
All of this may seem to be of rather remote concern to produce growers and shippers. But there’s also cargo theft. The NRF report tells us: “The greatest percentage of participating retailers experienced cargo
theft while shipments were ‘en route from distribution centers to stores’ (47.4%); this was followed by cargo theft at stores (42.1%) and while shipments were ‘en route from manufacturers to distribution centers’ (35.1%).”
In short, shrinkage occurs at every point of the supply chain. Produce, being so perishable and of comparatively low monetary value, is no doubt less susceptible to cargo theft than manufactured goods, but keeping an eye out for shrinkage in any form is undoubtedly a good practice.