Best practices to decrease the level of inventory shrinkage

Large and medium-sized businesses tend to suffer serious profit losses because of inventory shrinkage. Compared to dead stock, inventory shrinkage is represented by any loss of products or inventory merchandise that is not caused by stock being sold.

There are many reasons or causes for inventory shrinkage, as it can happen because of stolen products from a company’s warehouse or storage facility, damage or spoilage of inventory merchandise or simply because of human error, especially by the company’s administrative department.


Mismanaging your inventory can have crucially negative effects on your profit.


Research from the National Retail Federation tracks shrinkage in retail and also tracks statistics related to loss prevention.  According to the American National Retail Federation’s 2018 National Retail Security Survey, the average and median shrinkage have continued to hold a steady level ever since 2015.

The majority of the survey respondents (58.2%) say their shrinkage is 1% or higher and the main causes are mostly the same.


Shoplifting has again surpassed theft by employees as the leading cause of missing inventory for the fourth year in a row. Still, simple shoplifting has dropped down to 35.7% from its high of 39.3% back in 2016.

Theft by employees and other types of internal theft are up slightly compared to statistics from 2017 but still shows a slight decline compared to statistics from 2015 and 2016. As per the survey, administrative and paperwork errors dropped compared to 2017, but still, show an increase over time.


Now, seeing that inventory shrinkage is something that every retail business has to face, what can you do to avoid or at least lower the negative effects? We have a few recommendations for you and your retail business so that your inventory will remain as untouched as possible by most common inventory shrinkage causes.

First and foremost, you should start implementing product codes that are very clear and simple, part of a system that can be expanded in such a way to accommodate newly added products. 

By adding specific stock keeping units or universal product codes, you will make sure that your inventory stock is correctly recorded.


Securing your stock room or storage facility is also a must! Only employees directly involved in logistics or handling your inventory should have access to it and that way it would be way easier for you to see who has been stealing from you, as the number of potential suspects will be limited.


Train your team not to steal. It’s almost hard to believe that 35.8% of inventory shrinkage is caused by employee theft and calls for immediate action. We advise on discussing the implications of theft (especially employee theft) and presenting them to all your employees.


You can try to implement loss-prevention programs, that clearly show your employees that you take the issue seriously and that limited pay increases, fewer opportunities for promotion, and layoffs are expected if the volume of theft won’t decrease at your company’s level. In addition, your employees will definitely learn how to spot theft, regardless if among other employees or customers.


Installing a surveillance camera or a whole system of cameras will enhance the security of your merchandise and will help you register all the activity happening in your storage facility.


Nventree stock and order management system

All these recommendations will ensure a high level of security for your inventory, but they can all lose their relevance without an inventory management system that allows you to manage your entire stocks, products, and orders, especially since they are posted on multiple channels, such as eBay, Amazon, Magento etc.



Comparing the numbers in your inventory management application to the physical stock count is the most basic rule that every retailer must follow in order to make sure the level of shrinkage or inventory loss is accepted and well known at the company level.


Using NVENTREE will help you sync your stock in real-time and update your stocks and automatically sync them with eBay, Amazon and some of the most popular e-Commerce websites, such as Magento, WooCommerce and Shopify. Forget the times where you were not constantly in the loop!