The loss of merchandise in a retail store through theft or damage is referred to as shrinkage or sometimes just shrink. The average shrink percentage in the retail industry in 2010 was about 1.5% of sales costing U.S. retailers over $35.28 billion in losses according to the National Retail Security Survey on retail theft.

Below we will show you the top 4 sources of inventory shrink and how you can protect yourself from the #1 source.

1. Employee Theft

In 2010 employee theft topped the list at a whopping %45 of total inventory shrinkage. In fact, employee theft was the top source of inventory shrinkage in all previous annual NRSS studies dating back to 1991. This translates into a hefty price tag of $15.9 billion paid by US retailers.

Unfortunately, 10 out of 21 types of retailers reported employee theft rates well above %45. The good news is, this type of theft can be lessened through surveillance and awareness.

Find out how to protect yourself from employee theft.

2. Shoplifting

The second largest source of inventory shrinkage is shoplifting at %31 costing US retailers $10.94 billion last year. This type of substantial profit loss to retailers ends up in raising product prices to off set these losses. In todays highly competitive retail pricing arena, an increase in prices can potentially damage your spot in the market.

Shoplifting can be prevented by surveillance systems, awareness programs and increased customer service.

3. Administrative Error

The third largest source of inventory shrinkage is administrative and paperwork errors at %14. Mistakes such as, but not limited to, markup and markdown errors cost US retailers about $4.94 billion.

Administrative errors can be greatly reduced by proper training and quality POS and back office software.

4. Vendor Fraud

The fourth largest source of inventory shrinkage in 2010 was vendor fraud at 4% costing retailers $1.41 billion. Vendor fraud is when vendors steal store or competitor’s merchancise while they stock their companies products. The good news is, this form of loss was among the smallest categories of inventory shrink.

“According to the National Retail Federation’s 2011 Holiday Consumer Intentions and Actions Survey, conducted by BIGresearch, holiday shoppers say they plan to shell out an average of $704.18 on holiday gifts and seasonal merchandise, down slightly from last year’s $718.98. The NRF is still forecasting overall holiday retail sales to grow 2.8 percent during the months of November and December to $465.6 billion.

With lists in hand and a set budget in mind, people this year plan to shop around with a variety of retailers for holiday gifts and merchandise. Department stores, with unique private-label offerings, will see an increase in traffic over last year (56.9 percent vs. 54.5 percent last year), as will clothing or accessory stores (35.2 percent vs. 33.6 percent), drug stores (21.1 vs. 18.9), and grocery stores and supermarkets (48.8 vs. 46.7), and most will head to discount stores (66.1 vs. 65.1). Crafts and fabric stores will benefit from those looking to make personal and thoughtful gifts (17.5 vs. 16.1 percent).

When asked which one factor will be most important when shopping this holiday season, sales or price discounts largely win out (41.6 percent), but customer service (6.0 percent vs. 5.3 percent last year) and quality of merchandise (14.6 vs. 12.7) are continuing to become more vital components in consumers’ decision making processes, highlighting the growing importance of value when it comes to gift and everyday shopping.”

Check out the whole article at Progressive Grocer!