Indian retail is increasingly seeing shrinkage or the loss of inventory due to shoplifting by customers, theft by employees, vendor fraud and supply chain errors, the Economic Times reported.
Tata-owned Trent Ltd said in its annual report that shrinkage swelled to 0.41% of sales in the financial year 2023-24 from 0.22% in 2022-23, primarily due to significant volume growth, according to the article.
Trent’s sales volumes almost doubled year-on-year in 2021-22, 2022-23 and 2023-24. Trent owns the Westside and Zudio chains.
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At V-Mart Retail, this has gone up from 0.4% in 2022-23 to 0.5% in 2023-24, according to the Economic Times.
“Shrinkage has gone up in the industry and has become a whole new challenge,” V-Mart Retail managing director Lalit Agarwal told the Economic Times. “Whenever business goes up, it tends to go up. Also, the new generation wants more even when times are tough. We try to ensure it remains under control.”
The All India Mobile Retailers Association (AIMRA), which represents cellphone retail stores, said several of the large and regional retail chains have reported a surge in shrinkage, mostly by employees, according to the article.
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While five years back, it used to be around ₹50,000 to ₹1 lakh per month for the retail chains, it’s now around ₹5-10 lakh per month, AIMRA chairman Kailash Lakhyani told the Economic Times.
Shrinkage goes up during events such as the Indian Premier League (IPL) and the festive season when some employees try to make a quick buck by selling store inventory in the grey market, at times to fund bets, Lakhyani said.
“Retailers file police complaints and claim insurance, but still it’s a pain,” he added.
Shrinkage disclosures for most Indian retailers including listed ones are a taboo for them unlike their western counterparts.
“They may not publicly disclose the numbers if it reflects poorly on their operational controls and security,” Devangshu Dutta, chief executive at Third Eyesight, a retail sector consultancy told the Economic Times. “Shrinkage goes up when there is economic tightening and high inflation as India has gone through in the last couple of years,” he said.
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Shrinkage is the highest in apparel, shoes and fashion categories, retailers said, followed by gadgets like mobile phones, smartwatches and headphones where the risk-reward ratio is higher due to small pack sizes and the high value of the goods.
Retailers are going in for stricter audits to rein in such losses. Cellphone and electronic stores have started doing them on a daily basis.
Shoe retailer Woodland has set up local audit teams, unlike the centralised ones earlier, so that shrinkage can remain under control at 0.2% of sales, Harkirat Singh, MD of Woodland told the Economic Times.
If it goes out of control, staff can get penalised, Singh added.
Still, Retailers Association of India chief executive Kumar Rajagopalan said shrinkage till 0.5% of sales is manageable as globally it is 1.5-2%.
“We are not yet at the alarming stage. In India, the return rate of a product is high and sometimes those products are not in the condition to be sold again, adding to the burden,” he said. RAI is a grouping of organised retailers.
In a 2023 retail security survey by the US-based industry body National Retail Federation, the average shrink rate in 2022 increased to 1.6% from 1.4% in 2021. That represented $112.1 billion in losses in 2022, up from $93.9 billion in 2021.