What can lead to inventory shrinkage?

Inventory shrinkage refers to the loss of inventory that occurs due to various factors, most commonly theft, damage, or administrative errors. This loss can have significant financial implications for a retail business, as it results in missing stock that could otherwise be sold for profit.

Theft generally involves shoplifting by customers or employee theft, both of which directly diminish the quantity of available inventory. Damage can occur during handling, storage, or transport of products, leading to items being unsellable. Administrative errors, such as incorrect inventory counts or mislabeling, can also contribute to shrinkage, as they result in discrepancies between actual stock levels and what is recorded in inventory systems.

In contrast, accurate sales forecasting helps businesses effectively manage their inventory levels but does not cause shrinkage. Increasing product variety can lead to more complexity in inventory management but is not itself a direct cause of shrinkage. Improved customer service aims to enhance the shopping experience and may even reduce shrinkage by fostering loyalty and trust, but it does not directly cause inventory loss.