 "retail store shopping, fmcg shopping")
The Indian retail sector is increasingly troubled by shrinkage, which refers to inventory losses caused by customer shoplifting, employee theft, vendor fraud, and supply chain errors. As a proportion of sales, shrinkage has increased at retail chains in India, according to a report in the Economic Times (ET).
The report quoted industry executives attributing this rise to an increase in thefts accompanying the growth in sales volumes.
In its annual report, Trent Limited, a Tata-owned company, reported that shrinkage as a percentage of sales increased to 0.41 per cent in FY24 from 0.22 per cent in FY23, primarily driven by significant volume growth. In FY20, the shrinkage rate was 0.21 per cent, decreasing to 0.19 per cent by FY22. Trent has experienced nearly a doubling of sales volumes year-on-year in FY22, FY23, and FY24. Trent operates the Westside and Zudio chains.
Meanwhile, at V-Mart Retail, the shrinkage rate rose from 0.4 per cent in FY23 to 0.5 per cent in FY24.
Employee actions
The All India Mobile Retailers Association (AIMRA), representing cell phone retail stores, noted an increase in shrinkage reported by several large and regional retail chains, primarily attributable to employee actions. According to AIMRA chairman Kailash Lakhyani as quoted in the report, five years ago, shrinkage typically ranged from Rs 50,000 to Rs 1,00,000 per month for these retail chains, but now it averages between Rs 5,00,000 to Rs 10,00,000 per month.
He further said that shrinkage tends to rise during events like the Indian Premier League (IPL) and the festive season, when some employees attempt to profit by selling store inventory in the grey market, sometimes to finance wagers.
The report quoted Devangshu Dutta, chief executive officer (CEO) of Third Eyesight as saying that shrinkage is a practical operational expense closely monitored by retailers. "However, they may not publicly disclose the numbers if it reflects poorly on their operational controls and security. Shrinkage goes up when there is economic tightening and high inflation as India has gone through in the last couple of years," he said.
Retailers noted that shrinkage is most pronounced in apparel, footwear, and fashion categories, with the next highest rates observed in gadgets such as mobile phones, smartwatches, and headphones. These items carry a higher risk-reward ratio owing to their compact packaging and high value.
Strict audits
Retailers are implementing more rigorous audits to curb these losses. Cellphone and electronic stores are now conducting daily audits, the report said.
According to shoe retailer Woodland CEO Harkirat Singh, the company has established local audit teams instead of centralised ones to maintain shrinkage at 0.2 per cent of sales.
