Inventory Shrinkage (Retail)
Short answer
Inventory shrinkage is the gap between book inventory and physical inventory — the value of merchandise lost to theft, fraud, administrative errors, vendor errors, and damage. The National Retail Federation publishes annual shrink reports tracking the industry rate.
Formula
Shrinkage (%) = (Book Inventory − Physical Inventory) / Net Sales × 100
After a physical inventory count, take what your accounting records say you should have, subtract what you actually counted, then divide by net sales for the period. Multiply by 100. The result is the percent of sales you lost to shrink.
Why it matters
Shrinkage flows directly into COGS and crushes gross margin one-for-one — every dollar of shrink is a dollar that doesn't reach the bottom line. The NRF's 2023 National Retail Security Survey put the US retail industry-wide average at approximately 1.6% of sales. Categories with high theft exposure (e.g. health & beauty, electronics) typically run higher than this average.
Benchmarks
People also ask
Common questions about Inventory Shrinkage (Retail)
What is Inventory Shrinkage (Retail)?+
Inventory shrinkage is the gap between book inventory and physical inventory — the value of merchandise lost to theft, fraud, administrative errors, vendor errors, and damage. The National Retail Federation publishes …
How is Inventory Shrinkage (Retail) calculated?+
After a physical inventory count, take what your accounting records say you should have, subtract what you actually counted, then divide by net sales for the period. Multiply by 100. The result is the percent of sales you lost to shrink.
What is a good Inventory Shrinkage (Retail)?+
A healthy inventory shrinkage (retail) is typically around < 1.0% of sales — tight operation. Specific targets vary by industry and stage; check our benchmarks above for your sector.
Why does Inventory Shrinkage (Retail) matter?+
Shrinkage flows directly into COGS and crushes gross margin one-for-one — every dollar of shrink is a dollar that doesn't reach the bottom line. The NRF's 2023 National Retail Security Survey put the US retail industry-wide average at approximately 1.6% of sales.
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