Why not study your stock shrinkage now?




Now you have done your stocktake.

It is a simple calculation for you or your accountant to do to determine your stock shrinkage. 

(stock shrinkage)= (opening stock) - (closing stock)+(purchases) -(Total sales at cost price) 

Generally what we do now calculate it as a percentage of sales, so it becomes = (stock shrinkage)/(Total sales) x 100% 

Although often people use, shrinkage by stock value which we do in two steps.

(Average stock holding) =((opening stock) - (closing stock))/2 

(shrinkage by stock value)= (stock shrinkage)/(Average stock holding) x 100% 

So now you know your stock shrinkage, so you have an idea of how big a problem you do have. 

As a punt, I would say that it will be about 1.4%, but it does vary a lot.

One client of ours reported that it was less than 0.1%, which is the best figure I have ever seen. I have also seen a shop which a receiver told me it was 6%, which is no wonder a receiver was there. 

I do suggest that you do these calculations because if you do not know it, what can you do to fix it? Some significant reasons would be.

1) Customer theft - The five-finger discount

2) Damage - We had one furniture shop that was recording huge numbers of damaged goods somewhere between receiving and customer delivery.

Goods that suffer a significant damage problem should be moved to a safer place. I know a shop that after calculating their damage rate stopped handling glass products.

3) Supplier fraud - Which is all too often, although many suppliers claim they are accidents, I am not so sure. The result though is that a supplier bills you for goods shipped, but for some reason, you did not get.

4) Staff theft - I have seen retailers in tears when they discovered what a valued staff member has done. In my experience, this is zero or 100% of the problem. If you have some virtual products, e.g. lotto or telco this can be a measure here. As a rule, experts say that it accounts for half of all retail shrinkage which means that its the most important item. 

5) Administrative errors - are pricing mistakes and sloppy bookkeeping.

For the others as a first guesstimate, most people assume that each of the above factors is equal.

In the retail world, shrinkage is a part of life but, does not mean you have to give away so much. 

Depending on your margins, a 1.4% stock shrinkage could amount to a 20% loss in profits. 


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