Internal Shrinkage

Retailers have just completed their annual inventory. Some have discovered external shrinkage of inventories. But others have uncovered another problem.

Shrinkage is an ongoing problem for retailers,

and we're not talking about their waistlines.

In the retail world, "shrinkage" or "shrink" is the term for loss of merchandise or money, and it happens in five ways.

One is administrative and paperwork error. Mistakes in marking up and marking down account for as much as 15 percent of retail shrinkage.

Another is vendor fraud, which occurs most often when outside vendors stock inventory within the store. About 6 percent of shrinkage occurs this way.

A third source of loss -- about 7 percent -- is categorized as "unknown" since it cannot be otherwise accounted for.

The fourth source of shrinkage -- but the one that likely comes to mind first -- is shoplifting, outright stealing by customers. Shoplifting costs retailers an estimated $11-$15 billion annually, which, of course, is not good news for the rest of us either, because it contributes to the higher cost of the merchandise we buy.

As large a sum as that is, however, it's not the biggest...