Shrink

Definition

Stock that the books say exists and the shelves say does not.

Why It Matters

In any business whose price is partly its inventory, shrink is the difference between what you are buying and what you are paying for. It comes from theft, breakage, spoilage, and miscounting, and only the last of those is recoverable. A seller who has not counted recently is not hiding it so much as not knowing it, which is why a physical count at closing is normal in retail deals and reads as diligence, not distrust. Price the count, not the ledger.

In numbers: A store carrying $400,000 of stock at 2% shrink loses $8,000 a year, and a count that comes in 5% light takes $20,000 off what the inventory is worth at close.