What Is Retail Shrinkage?

The largest impact of shrinkage is a loss of profits. This is especially negative in retail environments, where businesses operate on low margins and high volumes, meaning that retailers have to sell a large amount of product to make a profit.

The more shrink you experience, the greater the chance that your business may experience a prolonged period of non-profitability. This, in turn, has a negative impact on other aspects of your business.

Definition of Shrinkage and its Impact on Business Shrinkage stems from many different issues, but the end result is always lower profit for the business. When procurement shrinkage occurs, it not only affects the financials but also impacts the reputation and trustworthiness of a business.

Acceptable levels of inventory shrinkage vary by industry and by individual businesses. Some industries, like food and hospitality, may be able to tolerate a higher shrinkage rate than, say, retail, though a mom-and-pop coffee shop would be less able to rebound than a restaurant chain…