Why is shrinkage a concern for businesses?

Shrinkage is a concern for businesses primarily because it results in a loss of inventory that is not accounted for through sales. It can occur due to various factors including theft, damage, mismanagement, or administrative errors, leading to a decrease in the overall profitability of the business. When inventory is lost without a corresponding sale, it indicates inefficiencies and potential vulnerabilities within the operations of the company. This loss can also increase costs, as businesses may need to invest more in replacing lost inventory, impacting the bottom line significantly. Therefore, accurately tracking and managing shrinkage is critical for maintaining financial health and operational efficiency within the organization.