For any retail business owner, inventory is money. When that inventory vanishes without a sale, whether due to theft, administrative errors, or supplier fraud, it is known as shrinkage. It is the silent profit-killer that keeps many store owners awake at night.
While eliminating loss entirely is the ultimate goal, it is rarely realistic. Every physical store faces some degree of inventory discrepancy. The critical question, however, is not just how to stop it, but how to benchmark it. How do you know if your losses are within a standard range or if your business is bleeding revenue?
This guide breaks down what constitutes an acceptable shrink rate, how to calculate your own figures, and the specific technologies available from Milestone to help you secure your stock.
To determine if your store is performing well, you need to look at industry averages.
According to the National Retail Security Survey (2023) by the National Retail Federation, the average shrink rate across the retail industry in the United States of America increased to 1.6% in FY2022, up from 1.4% the previous year. Just note that the average shrink rate across the retail industry in South Africa might be higher.
However, "acceptable" can vary significantly depending on your specific vertical:
Low Margin / High Volume (e.g., Grocery): These businesses often tolerate higher shrinkage due to spoilage, but generally aim for figures closer to 2-3%.
High Margin / Low Volume (e.g., Luxury Goods, Electronics): These sectors should aim for a much lower rate, ideally under 1%, as the loss of a single item represents a significant financial hit.
Generally speaking, if your shrink rate is sitting below 1.5%, your loss prevention strategies are likely effective. If your rate climbs above 2%, it is a clear indicator that your current security measures (or lack thereof) are negatively impacting your bottom line.
You cannot manage what you do not measure.
To calculate your store's shrinkage rate, you need two figures: your Book Inventory (what your records say you should have) and your Actual Inventory (what a physical count reveals you actually have).
Here is the step-by-step calculation:
Subtract the total value of your physically counted inventory from the value recorded in your system.
Book Inventory Value − Physical Inventory Value = Shrinkage Value
Divide that shrinkage value by your total sales for the period, then multiply by 100 to get a percentage.
(Shrinkage Value ÷ Total Sales) × 100 = Shrinkage Rate %
For example, if you have R100,000 in sales and your physical count reveals you are missing R1,800 worth of stock, your shrink rate is 1.8%.
If your calculation reveals a percentage that is higher than the industry average, it is time to upgrade your security infrastructure.
At Milestone, we have over 28 years of experience helping South African businesses protect their assets.
Here are three proven solutions we offer to combat retail shrinkage:
RFID technology offers a significant leap forward in inventory accuracy.
Unlike traditional barcodes that require line-of-sight scanning, RFID tags allow you to scan hundreds of items in seconds. This technology links tags to a database containing product details. By providing real-time visibility into your stock levels, RFID highlights exactly when and where items go missing, allowing you to close gaps in your security immediately.
Electronic Article Surveillance (EAS) remains one of the most effective visual deterrents against external theft. This system involves tagging merchandise and installing detection antennas at store entrances.
If a shoplifter attempts to leave with a tagged item that hasn't been deactivated at the point of sale, an alarm sounds. This forces potential thieves to think twice before targeting your store.
For retailers looking for the cutting edge of loss prevention, Veesion is a game-changer.
This AI-driven software integrates with your existing CCTV systems to detect suspicious gestures associated with shoplifting in real-time. Rather than relying on facial recognition, Veesion analyses body movement. When it detects theft-related behaviour, such as someone concealing an item in a jacket or bag, it sends an immediate alert to your security team or store manager, allowing you to stop the theft before the suspect leaves the premises.
View the Veesion AI Anti-Shoplifting Solution here.
Retail shrinkage is a complex challenge, but it is not one you have to face alone.
At Milestone, we are committed to helping you safeguard your profits with customised solutions that fit your business needs. Don't let shrinkage dictate your margins.
Contact us today to discuss a retail shrinkage security solution for your store.