Inventory Shrinkage Rate
Percentage of inventory lost due to theft, damage, or administrative error
What is Inventory Shrinkage Rate?
Inventory shrinkage rate is the percentage of stock value lost to theft, damage, error or waste. It shows how much inventory disappears before it can be sold.
Shrinkage comes straight off profit, so it is an important retail control measure.
How this KPI is measured
- Function
- Sales
- Sub-function
- Inventory Management
- Industry
- Retail
- Type
- Lagging
- Impact
- Operational
- Unit
- %
- Measurement frequency
- Monthly / Quarterly
- Formula
- (Value of lost inventory / Total inventory value) × 100
How to calculate it
Divide the value of lost inventory by total inventory value, and multiply by 100.
For example, if a retailer has 2,000,000 of inventory and 40,000 was lost, shrinkage is 2%.
Find the loss by comparing book stock with physical counts, and split by cause, store and category where possible.
Where it is used
Protecting margin
Reduce avoidable losses.
Finding problem stores
Compare shrinkage by location.
Guiding security investment
Focus on high-loss areas.
How to improve it
Tips and common mistakes
- Not all shrinkage is theft. Process errors are common.
- Compare with your own history and store type.
- Make loss prevention part of daily routines.
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