What does 'shrinkage' refer to within a business context?

In a business context, 'shrinkage' refers specifically to the loss of inventory that a company experiences. This loss can occur due to various reasons including theft (shoplifting or employee theft), damage, or administrative errors. When inventory is lost and not accounted for, it directly affects the company's bottom line, leading to reduced profitability and potentially impacting overall operations.

Understanding shrinkage is crucial for businesses as it helps them implement strategies for loss prevention, improve inventory management, and enhance overall operational efficiency. By addressing the factors that contribute to shrinkage, businesses can maintain healthier stock levels, ensure better financial management, and ultimately increase their profitability.