Defining Shrinkage

The purpose of this chapter is to reflect upon what we understand the term ‘shrinkage’ to mean and how it is being used and measured by the retail sector. This may seem like a rather obvious set of questions but as we outline below, currently there is little consensus and interpretations vary widely between different parts of the retail industry and between different countries about what the term shrinkage means. This has made benchmarking highly problematic, and as we will discuss in the next chapter, seriously undermines the efficacy of the various surveys that are regularly undertaken to try and ascertain the scale and extent of the problem. This chapter will look at the ways in which shrinkage has been defined looking particularly at what is generally included or excluded and how it is measured. We will then consider the various typologies used to describe shrinkage and go on to suggest that a more meaningful way of considering the problem is to categorise it in terms of its maliciousness (those types of shrinkage which are a consequence of malicious activity compared with those which are due to non-malicious actions), particularly when considering ways of reducing its impact on retail companies. The chapter will then go to reflect upon the various ways in which shrinkage is valued and presented both internally and externally, before concluding with some suggestions on how a more standardised interpretation of the term might be developed.