What does shrinkage refer to in a retail context?

In a retail context, shrinkage specifically refers to the loss of inventory stemming from factors such as theft, damage, or administrative error. This concept is crucial for retailers as it directly impacts profitability. Shrinkage can occur through shoplifting, employee theft, or even errors in counting stock—making it essential for businesses to implement effective measures to minimize loss.

Understanding shrinkage allows retailers to take proactive steps, such as improving security, employee training, and inventory management practices, to protect their assets. By focusing on mitigating shrinkage, retailers can enhance their financial performance and ensure better service levels for their customers.