Shrink — a mismatch between inventory a retailer has on hand and what records say it should have — continues to confound the industry. But several companies in recent weeks reported that shrink is less of a problem, dropping, in at least two cases, to a low not seen since the pandemic.
“It's becoming a nonevent,” loss prevention consultant Brand Elverston, who works with major retailers and brands, said by phone. “I don't feel comfortable saying it's prepandemic levels. What I'm saying is it's down significantly from its apex during COVID and is more manageable.”
In recent weeks, executives at Kroger, Target, Dollar General and TJX told investors that lower shrink was boosting margins and profits. At Target and TJX the decline has been especially dramatic, down to pre-pandemic levels, according to the chief financial officers at both companies.
This is a sharp turnabout from a couple of years ago, when retail executives at these retailers and others lamented high levels of inventory loss, often to theft, contradicting surveys from loss prevention executives that found shrink levels had been more or less flat for years.
The issue only got more opaque in 2023 when the National Retail Federation retracted a key statistic from a special report on retail crime, after a Retail Dive investigation found an error that vastly inflated the problem. The following year the group canceled its annual shrink report, which it had published for more than three decades.
Using various benchmarks and its own data, loss prevention platform Appriss Retail calculates that the industry lost $90 billion to shrink last year; the firm is working on a comprehensive survey of the problem. These days many analysts, including some loss prevention experts, believe the causes of shrink are multilayered rather than strictly crime-related.
The lack of clarity around shrink now extends to why or how things have improved because retailers aren't providing any details. Most of the retailers contacted for this story didn’t immediately respond to requests for more information about how they mitigated their risk; TJX declined to comment. On earnings calls, most alluded to operational improvements. Target CFO Jim Lee is the only executive so far to call out “industry and community efforts to combat retail theft across the country.”
David Johnston, NRF vice president of asset protection and retail operations, credited a “balanced approach” of operational adjustments plus antitheft measures.
“Retailers reporting lower inventory shrink is an encouraging sign that reflects stronger focus on operational drivers of loss within their control such as process accuracy, inventory integrity and in-store execution,” he said in an emailed statement. “These efforts are improving overall results while retailers continue to address losses driven by external factors like shoplifting and fraud.”
Some of the operational advancement is thanks to better staffing, after a period of “rapid hiring to reopen stores” during the pandemic, according to Appriss Chief Revenue Officer Pedro Ramos.
There are still plenty of forces making shrink hard to pin down, though.
The move to change prices fast and often is poised to make it harder to analyze shrink, as seen with swiftly changing tariffs, according to Elverston. It’s especially difficult for retailers using the retail inventory method because, with every price change, that accounting system introduces errors in counting inventory on the books versus on the shelf, he said. Target, Dollar General and Walmart are among the retailers still using RIM.
Returns last year represented $706 billion of total sales, with up to 50 cents of each dollar lost in value in the process, “just to frictional costs, handling costs,” Ramos said. At least 20% of shrink is attributed to false refunds, and that continues to grow, he said by video conference.
While crime is a factor in returns-related shrink, as it is in stores, it is “an outdated angle on loss prevention,” according to an Appriss report. The only way to combat the problem is for retailers to take a holistic view of their operations, according to Ramos.
“There’s been a ton of money spent on fighting shrink,” he said. “Everybody tries to look at the world as good and bad. The world isn't good and bad. The world is this murky, complex thing with an infinite number of variables in it.”
