How to reduce shrinkage in retail and find where stock goes.

What is shrinkage in retail?

Shrinkage is measured at cost price, because that is what the missing stock cost you. Two simple formulas cover most needs:

• Shrinkage = recorded stock value − counted stock value
• Shrinkage rate % = shrinkage ÷ sales for the same period × 100

If a shop finds £1,450 of shrinkage at cost at its quarterly count, and sold £58,000 in that quarter, its shrinkage rate is 2.5%. Some businesses measure against stock value instead of sales. Either works, as long as you use the same method every time and watch the trend.

It also helps to split losses into known shrinkage, which you saw and recorded, such as a dropped jar or out-of-date yoghurt, and unknown shrinkage, which only shows up as a gap when you count.

The main causes of stock loss

• Customer theft. Small, valuable, easy-to-resell items are taken most: razor blades, spirits, cosmetics, batteries, phone accessories.
• Staff theft. Stock taken by staff, or friends served without paying or at a discount nobody approved. It is uncomfortable to think about, but it is a cause to rule out.
• Admin errors. A cheaper size or flavour keyed instead of the one sold, deliveries never recorded, cases entered as singles, prices set wrongly after a change.
• Supplier errors. Short deliveries, wrong items, damaged goods accepted at the door and invoices for more than arrived.
• Waste and damage. Breakages, spoiled fresh food, out-of-date stock and returns that cannot be resold.

How to measure shrinkage with stock adjustments and stock takes

A full count tells you the total gap, and cycle counts on your riskiest lines show it building week by week. The counting itself is covered step by step in how to do a stock take. What turns counts into answers is recording why stock changed.

Every time you correct a level, record it as a stock adjustment and note the reason in a simple shrinkage log: damaged, expired, theft seen, supplier short, keying error or unexplained. In POS2026 Stock, adjustments correct the level for each product and stay on record, and stock reports show current levels by product. After a month or two, the log shows which reasons and which products cost you most.

Watch the profit figure too. If the margin in Loss/Profit is consistently below what your prices should deliver, stock is leaving without being sold.

Stop losses at the back door

Deliveries are the easiest place to lose stock without anyone noticing, and the easiest to fix.

• Check every delivery against your order before you sign, counting cases and opening any that look light or damaged.
• Write shortages and damage on the delivery note, including the driver's copy, and ask for a credit straight away.
• Check chilled and fresh deliveries for dates and temperature before they go in the fridge.
• Match the invoice to what actually arrived, not to what you ordered.
• Record the delivery in Purchase with the quantities received, so stock rises by the right amount and the supplier's balance in Parties is correct.

Fix admin and till errors

Admin errors do not lose physical stock, but they make the records wrong, and wrong records lead to wrong orders and hidden losses. Most come from how products are set up and how the till is used.

• Give every product its own barcode or code, and stop using a general key for regular lines.
• Check that each product's unit matches how you buy and sell it, so a case of 12 is not sold as one.
• Check shelf prices against the till after every price change.
• Ask for a reason for every refund and every voided sale, and review them weekly.
• Look through the sales history for unusual patterns of discounts at particular times or on particular days.

Make theft harder

• Keep clear sightlines from the counter to the door and down the main aisles; low shelving in the middle of the shop helps.
• Greet every customer as they come in. People are less likely to steal when they know they have been seen.
• Keep high-value lines behind the counter or within view of the till, and keep display stock to a minimum.
• Use CCTV with visible signs, and check that it records and that you know how to retrieve footage.
• Lock the stockroom and the back door, and keep rubbish and recycling away from the exit.
• Have another member of staff ring up staff purchases.
• Keep cash in the till low and cash up every day; the routine is in our cash-up guide.

Tip. Staff safety comes first. Do not chase or physically stop a shoplifter; note what happened, keep any footage and report it to the police.

Cut waste and damage

• Rotate stock so the oldest sells first, and walk the chillers for dates each morning.
• Reduce short-dated items early enough to sell them; a reduced sale still recovers some of the cost.
• Buy fresh and chilled lines in smaller, more frequent orders rather than one big weekly drop.
• Store heavy and breakable items low, and unpack deliveries carefully.
• Record every item you throw away, so known shrinkage is counted rather than hidden.

For reorder points, dead stock and rotation in more depth, see how to manage inventory.