Every time you sell an item, the value of your inventory on hand is reduced by the price of that item. Conversely, whenever you place a new order of stock, the value of your inventory increases by the amount you ordered. Your shrinkage is whatever discrepancies arise between the sales and orders you have recorded and the actual value of the inventory you have on hand.
Let’s say you have €300,000 worth of inventory according to your records. You do an inventory count and find you actually have €295,000 on hand. Your inventory has shrunk by €5,000.
So to calculate retail shrinkage, we follow this formula:
Retail value of recorded inventory levels – retail value of actual inventory levels = retail shrink
To better understand the impact of shrinkage, we can calculate it as a percentage in relation to your total sales. If we want to express retail shrinkage as a percentage, we follow this formula:
Total losses ÷ total sales = retail shrink percentage
What is an acceptable inventory shrinkage rate?
According to the National Retail Security Survey 2020, the retail industry’s average shrink rate has risen to an all-time high recently, after years of holding steady.
So if retailers are losing more than ever to shrinkage, what’s the shrink rate at? What is this all-time high?
1.62%
It doesn’t take much shrinkage to make a noticeable impact on your business. So taking your €300,000 of inventory 1.62% is €4,860, can your business afford that? If you don’t know your current inventory shrinkage rate, then it is probably bigger then the average. Turbo Inventory can help you find out and reduce your inventory shrinkage, sign up today for a free trial