Where your stock goes: cutting loss, damage and theft

Shrinkage is the gap between the stock your records say you should have and the stock that is actually on the shelf. You bought it, you paid for it, and it never turned into a sale.

In a small shop the gap is easy to miss. A missing bottle here and a split bag there look like nothing. But the cost comes out of profit, not out of sales. If your margin on a product is 30 percent, then losing $30 of stock at cost takes the profit from about $100 of sales to nothing. That is the real size of the problem: loss is expensive because you have to sell a lot to earn the money back.

The good news is that most shrinkage is boring and fixable. It rarely comes from one dramatic event. It comes from small, repeated gaps in how stock is received, stored, sold and counted. This guide walks through the causes, then through the habits that close them. If you are not yet recording stock at all, start with how to track inventory in a small shop.

When owners dig into where stock went, the answers fall into five groups. Knowing which is biggest in your shop tells you where to put your effort.

Damage

Dropped bottles, crushed boxes, leaking containers, goods spoiled by heat or damp, and products chewed by pests. Damage often happens in the stockroom or at delivery, where stock is moved in a hurry. It is usually honest and visible, which makes it the easiest cause to record and the easiest to reduce with better storage.

Expiry

Anything with a date can become unsellable on the shelf. It is the slow-moving products that catch you: a case bought on a good deal, a new flavour that did not take off. Expiry is closely tied to over-buying, so the fix is often on the ordering side. See what to do about slow-moving and dead stock.

Theft

Theft covers customers, staff and sometimes suppliers' delivery staff. It is the cause owners worry about most and, in many small shops, not the biggest. Treat it seriously, but do not assume it explains every gap before you have ruled out the other four.

Admin errors

A sale rung up at the wrong price. A product sold as a similar one so the wrong line goes down. A delivery recorded twice, or never. A count written down wrong. A free sample or an item taken home that nobody noted. These errors are the quiet majority in many shops, because they look like loss on paper while stock may in fact be fine, or sit on the wrong line.

Supplier short-ships

The order said 24, the box held 22, and you recorded 24 because that is what the delivery note said. Short deliveries, wrong items and substituted sizes show up later as mysterious missing stock. They are entirely preventable at the door.

The single most useful habit is also the simplest. Whenever stock leaves the shelf for a reason other than a sale, take it off your records straight away and write down why.

A short, fixed list of reasons is enough. Using the same words every time lets you add them up later.

• Damaged: broken, crushed, spilled or spoiled.
• Expired: past its date and taken off the shelf.
• Lost or stolen: you know it is gone and you do not know where.
• Correction: you found a record mistake and fixed the number.
• Count difference: the shelf did not match during a count.
• Returned to supplier: sent back for credit or replacement.

Do this at the moment it happens, even if it takes ten seconds. A loss written down at 3 pm is a fact. A loss remembered on Saturday is a guess.

A month of reasons becomes a map. If "damaged" is big, look at storage and handling. If "expired" is big, look at ordering. If "count difference" is big, look at receiving and ringing up. If "lost or stolen" keeps growing on the same few products, you have found where to look.

Take a shop with about $12,000 of stock at cost. Over a quarter, a full count shows the records were out by $300 at cost. That is 2.5 percent of stock. The owner starts logging reasons and, after one month, has this picture.

The surprise is the bottom row. Unexplained or stolen is only a tenth of the loss. Damage and expiry together are about two thirds of it, and both are fixable: store heavy cases low, and stop reordering the slow dairy lines in big quantities. Checking deliveries at the door deals with the short-ships.

Suppose those changes cut damage and expiry by half and stop most short-ships. That saves about $45 a month at cost. With a 30 percent margin, earning $45 in profit needs around $150 of extra sales ($45 divided by 0.30). Over a year, the saved $540 equals about $1,800 of sales you did not have to chase.

Records tell you what should be there. Only a count tells you what is. The longer you leave between counts, the harder it is to find out when and why a gap opened.

You do not need to close the shop. Count a small group of products often. Pick your fastest sellers, your most expensive items and anything that has gone missing before, and count them weekly. Do a wider count of everything a few times a year. How to do a stock count without closing the shop shows a method for it.

• Count the same products on a rotation, so every line is checked a few times a year.
• Count before you open or after you close, when nobody is buying.
• Have someone other than the person who receives stock do the count, so each check is independent.
• Write down the difference, not just the new number, so you can see the pattern.
• Investigate repeat offenders. Two misses on the same product in a month means something is wrong, and it is worth a day of watching.

Receiving is where you either keep or lose control of stock. Once a box is in the stockroom, you will almost never open it and recount.

1. Check against what you ordered

   Compare the delivery note to your order, then compare the goods to the note. They can differ in either direction.

2. Count while the driver is there

   Count cartons, and open and count a sample of the contents. A short count after the driver has gone is hard to dispute.

3. Look for damage and dates

   Check for broken items, leaks and short expiry dates. Refuse or note anything that is not right on the delivery note.

4. Record what you received, not what was ordered

   Enter the real quantity on the same day. If 22 came and you ordered 24, record 22 and follow up the other two with the supplier.

5. Put it where it belongs

   Move stock straight to its shelf, with older units in front. Stock left on the floor in the back is stock that gets damaged or goes missing.

Most staff are honest. The aim of access rules is not to treat them as suspects. It is to remove temptation and to make mistakes easy to trace, which protects the honest ones too.

• Separate selling from adjusting. The person at the till should be able to sell without being able to change stock levels.
• Limit who sees costs. A cashier does not need to know what you paid or what you earn on each product.
• Know who did what. If a sale is voided, a refund is given or a number is corrected, there should be a record of who and when.
• Keep refunds and voids on record. An unrecorded refund is a favourite place for cash and stock to leak.
• Rotate counting duties. Do not let one person receive, store, sell and count the same product with no check.
• Set a clear rule for staff purchases and samples, and record them as sales or as a named reason, never as nothing.

Talk to your staff about why you are recording losses. Present it as fixing the shop's numbers, not catching people. People who understand the point are more likely to help.

Because damage and expiry are so often the largest causes, a tidy stockroom pays back quickly.

• Keep heavy cases on low shelves and glass away from edges and walkways.
• Stack by product so counting a line takes seconds.
• Put new stock behind older stock, every time.
• Keep stock off the floor, away from damp, direct sun and pests.
• Keep fast sellers within reach of the counter and slow ones higher or further back.
• Check short-dated products weekly and move them forward or mark them down before the date, not after.

Assuming it is theft

Accusing someone on a hunch damages trust and usually misses the real cause. Rule out admin errors, damage and short deliveries first. Use records to show where the gap sits, then decide what to do.

Quietly fixing the number

Changing a quantity to match the shelf with no reason makes the books tidy and teaches you nothing. Always record the reason, even if the reason is "unknown".

Only counting once a year

A yearly count finds a year of problems at once, with no way to tell when each began. Small, regular counts find them while they are still easy to trace.

Over-buying to chase a discount

A cheaper unit price is no saving if a third of the case expires. Buy what you will sell before the date, not what the supplier offers.

Giving everyone full access

A shared login, or one that shows and edits everything, makes it impossible to trace an error and puts your costs in everybody's hands.

• Agree a short list of loss reasons and tell everyone who handles stock.
• Record every damaged, expired and lost item on the day, with its reason.
• Check and count every delivery before the driver leaves.
• Choose 10 products to count weekly: top sellers, high-value items and past problem lines.
• Write down the difference at each count, not only the new number.
• Add up your loss reasons at the end of the month and find the biggest one.
• Move short-dated stock to the front and mark it down early.
• Review who can change stock, issue refunds and see costs, and tighten it where it is too open.
• Fix one cause at a time, then compare next month.

Shopkeepa is built so stock changes are never silent. Stock is kept as a record of movements, and every change, including damaged, expired, theft or loss, correction and count, is saved with its reason. When you do a quick count, differences are recorded as their own entry rather than overwritten.

Owners and cashiers get different access, so staff can sell without seeing costs, profit or settings. Refunds and voids stay on record. See inventory tracking for how stock is recorded. Shopkeepa is in development, and early access shops will help shape it.