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Inventory Shrinkage: 4 Common Reasons You’re Losing Inventory + Solutions | Scout Inc.

Inventory Shrinkage: 4 Common Reasons You’re Losing Inventory + Solutions | Scout Inc.

Missing inventory can be a real problem.

Anyone who has ever managed inventory knows just how stressful it can be when you notice that your inventory numbers just aren’t adding up. 

You and your team carefully planned out how much stock you would need in order to fulfill the number of expected orders, as well as how much to keep on reserve in the event you received more orders than initially expected — otherwise known as your safety stock. 

But, waking up one day to find inventory shrinkage — which is the difference between a product’s recorded stock count vs. the amount that is physically on-hand — is not an ideal situation. 

And unfortunately, it can be difficult to track down just exactly what the cause is for the inventory shrinkage. 

According to the National Retail Federation’s 2018 National Retail Security Survey, these are the top sources of inventory shrinkage and their percentage of how often they are the reason for the missing stock: 

Shoplifting/External  – 35.7%

Employee Theft/Internal – 33.2% 

Administrative and Paperwork Error (Human Error) – 18.8%

Vendor Fraud/Error – 5.8%

That’s a lot of different possibilities in terms of where the initial problem could arise.  

So, to help you out, let’s dive into these causes and talk about some potential solutions to make sure they don’t happen to you and your business. 


It may have been disappointing to learn that the top reason for inventory shrinkage is shoplifting from your supposed “loyal consumers.” But that’s just the reality we live in. 

That’s not to say that the vast majority of your shoppers aren’t to be trusted, because they should be! 

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However, you still have to make sure that you have systems in place to try and not only catch the few people who are shoplifters, but to also prevent it entirely. 

There are many different ways people will try to shoplift, including wearing items out of the store after going into the dressing room, shoving products into their purses and bags, and switching barcode tags with cheaper items. 

Here are some solutions to try and reduce this from happening in your stores. 

Have a greeter by the entrance

Take a page out of Walmart’s playbook and have one of your employees stand by the entrance. You can also place your checkout close to the entrance as well. Both of these tactics may deter would-be thieves, as they now know they have been seen and can be easily described to the authorities should they attempt to steal something, which means they are more likely to be caught. 

In addition to this, you should always have an employee assist customers by dressing rooms where they can ask how many items they are taking in and confirm that’s how many they are buying/leaving behind when they exit. 

Put up video cameras and mirrors

The key to video cameras and mirrors is to make sure that they are obvious for shoppers to see them. If they know that they are on camera or can easily be caught, they will be less likely to shoplift. 

Keep Expensive Products Locked Up

Just like how Target keeps its video games under lock, you can keep some of your items that are more likely to be shoplifted secured with glass and a lock. 

Employee Theft/Internal

The theft is coming from inside the company, I repeat, the theft is coming from inside the company! 

What may even be more disappointing than learning your customers are the most likely reason for missing inventory is that your own employees are not far behind. 

Now, that doesn’t mean you have a thief in your midst. However, it does mean that you should have the proper roadblocks in place to ensure that this doesn’t happen to you. 

Whether it’s warehouse workers or employees who work in your store, here are some steps you should take to limit the likelihood of employees stealing from you. 

Set up cameras in your warehouse 

Just like in your store itself, having cameras behind the scenes in your warehouse can be a strong deterrent in terms of employee shoplifting

Conduct inventory audits often 

If you have a reliable and compressive inventory management platform, conducting audits often should be no problem. Audits will allow you to check for any discrepancies in numbers so you can catch any thieves early in the act. 

Use checks and balances 

Having a two-person stock check system will help deter thieves from stealing from the inventory stockpile, and if you’re ever concerned about your employees working in teams, you can step in yourself to verify that everything is adding up as it should. 

Administrative and Paperwork Error (Human Error)

Accidents and mistakes happen all the time at work — but some are more costly than others. 

Admin and paperwork errors make-up a decent percentage of inventory shrinkage and no matter how careful you and your team are, they will happen from time to time. 

The key is to put systems in place that will make them less likely to happen or, even if they do occur, that system will catch it before it causes any harm. 

Upgrade your Inventory Management Solutions

The easiest and most efficient way to reduce human errors is to make sure you’re using the most up-to-date and optimized inventory management solutions. There are some great ones on the market today, including topShelf, which we offer here at Scout Software.

topShelf is a cloud-based inventory application that uses your mobile device to pick, pack, and ship your products seamlessly to customers. And, best of all, it works with your current software applications.

If you’re interested in learning more about how topShelf can help you improve your inventory management and help you avoid errors, contact us today

Vendor Fraud

Last, and in this case, least (in terms of likelihood to occur) is vendor fraud. 

Vendor fraud typically occurs when businesses allow the vendor themselves to enter the warehouse or store to stock inventory. 

When this happens, they can easily say that all the inventory has been delivered and stocked when in reality, that may not be true. 

Or, they may actually deliver and stock all the products they promised, but steal from elsewhere in your warehouse or store

Once again, having a security camera in your warehouse should almost totally eliminate the chances of this occurring. 

In addition to the cameras, you should not let vendors stock themselves. 

Unknown Causes

For the astute and number-loving readers, you may have noticed that those percentages listed near the top of this article don’t add up to 100. 

That’s because 6.6% of inventory shrinkage cases result from unknown causes. That’s right, they are a complete mystery. 

Could it be a ghost? Or perhaps bigfoot himself snuck into some warehouse late one night? 

Or maybe, just maybe, sometimes things just go missing and we aren’t sure where they went. 

However, if you start to implement some of the recommendations listed above, you’ll be well on your way to reducing your chances of inventory shrinkage.

For more tips and tricks on how to manage your inventory and stay efficient, make sure to check back often on our blog for more inventory management content!