Retail shrinkage costs the average retail store owner turning over $1,000,000 (1 million dollars) per year $23,000.

Some experts say the actual figure could be as high as 3.5-4% and could actually cost the average retailer between $35,000 and $40,000 per year, per store.

Further details: 18th Annual Retail Theft Survey conducted by Jack L. Hayes International.

Over your typical 5 year lease period that equates to a loss of between $100,000 and $160,000

Inventory shrinkage is a large and growing challenge for retailers.

in spite of increased efforts by retailers to combat the problem, inventory shrinkage has been increasing as a percentage of retail sales. This raises the question of whether the problem is being addressed sufficiently, or with enough precision or persistency.

Increasingly, retailers are realising the opportunity they have to turn their shrinkage reductions efforts into a competitive advantage initiative. Retailers that are employing the right technologies and that are determined to address the challenge in a consistent manner, are enjoying a real competitive profit advantage that translates into lower prices, more help in stores, cleaner stores, and better customer satisfaction.

Shrinkage trends and categories

The most recent global Supermarket Shrinkage Survey shows that total shrinkage amounts to 2.32 percent of sales.

Not only does the retailer lose the purchase price of the product, but additionally the cost of processing the product through the chain from the warehouse through shelving and displaying, all the way to the point of sale. Furthermore, the retailer has lost the expected margin as well. Looking at the eight-year trend, the overall shrinkage has increased from 2.09 percent since 1995, and is now retail’s largest single cost factor after employee costs.

Shoplifting

Over the last 10 years, there has been a reduction of approximately 23% in shrinkage due to shoplifting.

Experts in retail shrinkage put this down to extra security measures such as CCTV systems and EAS systems.

Internal shrinkage

The primary cause of retail shrinkage is employee-caused shrinkage, or ‘internal shrinkage’, which is any act of intentional or non-intentional deception performed internally by any employee of the company. From 1995-2002, retailers have seen this single most important category increase from 51-57 percent, as a percentage of the overall shrinkage.

General employee-caused shrinkage.

General employee-caused shrinkage has been decreasing, which is particularly interesting as it goes against the trend of rising employee-caused shrinkage. Increased CCTV monitoring, store surveillance and the controlled access technique has had positive impact. However, while the drop in this category appears promising, it is countered by an almost equal rise in cashier-caused shrinkage.

More than 2/3 of all reported instances relate to merchandise theft by an employee. Almost one half is reported to occur through the ‘front door’, which is yet another reason to increase the focus on the front end.

Loss prevention technologies like Electronic Article Surveillance (EAS) and CCTV have been very effective in delivering a positive ROI on retailer’s shrink reduction efforts.