What does shrinkage refer to in the context of retail?

Shrinkage in the retail context primarily refers to the loss of inventory due to factors such as theft, damage, or errors in inventory management. Retailers experience shrinkage when products are unaccounted for, leading to a discrepancy between recorded inventory and actual stock on hand. This can happen through shoplifting, employee theft, vendor fraud, or even administrative errors during stocktaking.

Understanding shrinkage is essential for retail specialists, as it directly impacts profitability. By identifying and managing shrinkage effectively, retailers can implement loss prevention strategies, improve inventory accuracy, and ultimately enhance their bottom line. This concept is critical in maintaining the integrity of inventory and ensuring that products are available for customers, thereby supporting overall business health.