When it comes to defining shrink or shrinkage there is much variance and little agreement within the world of retailing. For instance, some researchers describe it as ‘the difference between book inventory (what the records reflect we have) and actual physical inventory as determined by the process of taking one’s inventory of goods on hand (what we count and know we actually have)’.
However, another author defines it more specifically as ‘the amount of merchandise that disappears due to internal theft, shoplifting, damage, mis-weighing or mis-measuring and paperwork errors’, while another researcher focuses more on the value of goods and considers it to be ‘the disparity between the financial value of stock acquired and sold and the financial value of stock left on the shelves’. Yet another writer offers more detail by attempting to define the elements that are non-crime, such as ‘error’, which is regarded as ‘a result of inaccurate decisions or failures’ which include mispricing goods, not accounting for them properly, not reclaiming effectively from suppliers and under/over delivery of merchandise with the wrong specification. This writer also talks about ‘processing losses’, which are instances where it may be ‘impossible to sell every item of inventory at the authorized price’, and ‘waste’ (price reductions due to product deterioration and damage) being part of shrinkage. Together these non-crime losses are grouped together under the general heading of administrative/internal error.
Finally, some researchers have developed probably the broadest definition of shrinkage to date: ‘intended sales income that was not and cannot be realized’, looking at the issue primarily as one focused on the lost profit opportunity of the merchandise brought in to a retail business. They view any loss in the intended profit (however that may be calculated) as a loss to the business, although they tend to rely upon what has been described as the ‘four buckets of shrinkage’ to categorise their losses (see below).
So, as can be seen, there is little or no general agreement on how the term shrink or shrinkage should be defined beyond a general sense that it is largely measuring the difference between the volume or value of stock that a retailer thinks they have and what they actually have.