Retail Crisis: What’s Causing Shrink—and How to Fight Back!

What Is Retail Shrinkage?

Retail shrinkage has reached record levels in 2025. According to the National Retail Federation (NRF), U.S. retailers lost an estimated $121.6 billion in shrink-related losses in 2024, up from $94.5 billion in 2022. That’s nearly 2% of total retail sales, and the trend continues upward.

The biggest contributors? Organized retail crime (ORC), employee theft, and administrative errors. NRF’s 2025 Retail Security Survey found that:

• 67% of retailers reported a year-over-year increase in ORC-related incidents.
• 40% said they had to close specific locations or reduce hours due to safety and loss concerns.
• 70% reported using new technology (like RFID, AI surveillance, or advanced analytics) to track and reduce shrinkage.

The problem isn’t just financial. Shrinkage is now affecting store operations, employee safety, customer experience, and access to goods in some communities. Urban areas are becoming “retail deserts” where major stores shut down due to theft or unsustainable losses.

Shrinkage is any unexpected loss of goods or revenue. Most retailers define it as the difference between what the inventory system says is in stock and what’s available.

Example: The system says there are four pepper grinders in stock, but only three are on the shelf. That’s shrinkage.

But that’s the result, not the cause. Shrink includes theft, human error, fraud, or poor tracking. Without understanding these causes, retailers can’t fix the problem.

Note: Shrinkage is different from total retail loss. Shrink includes only unexpected losses. Total retail loss includes expected ones, too, like markdowns or spoilage. Focus on shrinkage first.

Top 10 Causes of Retail Shrinkage

1. Shoplifting
   
   This is when someone takes an item without paying. Methods include:
   • Hiding items
   • Switching price tags
   • Skipping scans at self-checkout

   Self-checkout makes it easier. Shrink at self-checkout is around 3.5%, compared to just 0.2% at manned lanes.

2. Organized Retail Crime (ORC)
   
   Groups steal high-value items to resell. Smash-and-grab tactics and violence are common.
   
   

3. Employee Theft
   
   Employees have access to stock and cash. Staff are responsible for about 29% of shrinkage. The average case of internal theft costs over $2,000.
   
   
4. Sweethearting
   
   A type of internal theft where employees help friends or family by:
   • Giving away items
   • Faking discounts
   • Accepting fake returns
5. Administrative Errors
   
   Honest mistakes like:
   • Miscounts during receiving
   • Wrong pricing
   • Lost paperwork
6. Return Fraud
   
   Returning stolen or used items with fake receipts. It causes inventory issues and revenue loss.
   
   
7. Scan Errors
   
   Mistakes at checkout, like scanning three items instead of four.
   
   
8. Damage and Spoilage
   
   Items get damaged or expire and may not be logged correctly in inventory.
   
   
9. Cyber Theft
   
   Includes:
   • Credit card fraud
   • Data breaches
   • Gift card theft
10. Vendor Fraud
    
    Suppliers may:
    • Overbill
    • Short shipments
    • Send fake invoices
      
      

10 Ways to Prevent Retail Shrinkage

1. Strengthen Store Security
   
   Use modern cameras with:
   • HD video
   • Remote access
   • Behavior detection (e.g., loitering, item hiding)

   Add exit gates, shelf alarms, or RFID sensors.

2. Train Your Staff
   
   Educate staff on:
   • Inventory handling
   • Return processing
   • Theft prevention
3. Audit Regularly
   
   Do cycle counts weekly or monthly. Run audits on:
   • Cash handling
   • Discounts
   • Vendor transactions
4. Use RFID and Barcodes
   
   RFID tags improve tracking and trigger alarms at exits. Also helpful for fast, accurate inventory.
   
   

5. Tighten Return Policies
   • Require receipts
   • Set return time limits
   • Ban returns on opened items

   Track return data to find abuse patterns.

6. Watch Self-Checkout
   
   Staff nearby helps reduce theft. Assign trained monitors.
   
   

7. Limit Staff Access
   
   Restrict access to sensitive areas using:
   • Keycards
   • Biometric scanners
8. Use Mystery Shoppers
   
   Evaluate:
   • Employee behavior
   • Security weak points
9. Work With Law Enforcement
   
   Share reports, join ORC task forces, and provide security footage when needed.
   
   

10. Inform Customers
    
    Post signs near exits and registers. Announce surveillance via intercom to deter theft.
    
    

How NetSuite Can Help Reduce Shrink

Inventory Management

NetSuite tracks stock movement and automates cycle counts with tools like Smart Count. It also manages inventory across locations, reducing tracking errors.

Financial Tracking

NetSuite ERP links inventory with financials. It reduces manual work and errors by syncing systems. Dashboards show real-time shrink indicators for fast response.

Final Thoughts

Retail shrinkage affects profits, safety, and customer trust. You may not stop all losses, but you can control a lot of them. Identify the causes. Use the right tools and processes. Train your team. Even small steps can reduce shrink and protect your business.