What is shrinkage in retail?

Shrinkage is inventory a store paid for but can't sell — lost to theft, damage, returns, expiry, or counting errors. It's measured as a percentage of sales; the retail average is roughly 1.5–2%. Tracking it by reason is the first step to reducing it.

What is a good sell-through rate?

Sell-through rate is units sold divided by units received, over a period. Many retailers aim for 40–80% per month depending on category. Low sell-through signals overstock or poor product fit; high sell-through can mean you're under-ordering and losing sales to stockouts.

Guide · Retail

Inventory management for retail stores

Q: How do retail stores manage inventory?

Retailers track products by SKU, count stock regularly (cycle counts), set reorder points so best-sellers don't run out, monitor sell-through to spot slow movers, and measure shrinkage — stock lost to theft, damage, or miscounts. Software syncs this with the POS so stock updates as items sell.

Last updated July 2026 · 6 min read

Retailers manage inventory by tracking products by SKU, running regular cycle counts, setting reorder points so best-sellers never stock out, watching sell-through to catch slow movers early, and measuring shrinkage — the stock lost to theft, damage, and miscounts. The goal is to keep winners in stock and cash out of dead inventory.

Retail lives and dies on two numbers most owners can't see clearly: the sales you lose when a best-seller is out of stock, and the cash frozen in product that isn't moving. Good inventory management is really about keeping both small.

What to track

SKUs — a unique code per product (and variant/size/color) so every item is countable and searchable.
Reorder points — the stock level that triggers a reorder, tuned per product so fast sellers never run dry.
Sell-through rate — units sold ÷ units received. Your early-warning system for overstock and dead stock.
Shrinkage — stock you bought but can't sell (theft, damage, returns, miscounts), tracked by reason.
Tied-up capital — the dollar value sitting in unsold stock, especially slow movers.

Shrinkage: the quiet margin killer

Shrinkage is inventory that vanishes between buying and selling. The retail average runs about 1.5–2% of sales — on a store doing $500k a year, that's $7,500–$10,000 gone. You can't cut what you don't measure: log shrink events by reason (theft, damage, return, miscount) and the top one or two causes usually jump out fast.

Stockouts vs. overstock: the balancing act

Both cost you, in opposite ways:

Stockouts lose the sale and sometimes the customer. Prevent them with reorder points on your top sellers.
Overstock freezes cash and often ends in markdowns. Catch it early with sell-through and clear slow movers before they age.

The whole game is ordering enough of what sells and little of what doesn't — which is impossible to do by gut once you carry more than a few dozen SKUs.

Spreadsheets vs. software for retail

Spreadsheets can't keep up with a live sales floor: they don't decrement as items sell, don't warn you before a stockout, and don't tally shrinkage. The moment you connect stock to actual sales — via a POS import or barcode counts — you need software. It's the difference between a monthly guess and a live picture.

How AIM helps retailers

AIM's retail setup tracks SKUs and variants, imports your existing product catalog, runs barcode cycle counts, and reports sell-through, shrinkage, and tied-up capital in dollars. Set reorder points and get flagged before best-sellers run out; spot slow movers and clear them before they become markdowns. It runs across multiple store locations and rolls up — free to start, $14/month for one shop.

Keep winners in stock, cash out of dead stock

Free to start. Built for boutiques, convenience, specialty and online sellers.

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Frequently asked questions

How do retail stores manage inventory?

By tracking products by SKU, running cycle counts, setting reorder points, watching sell-through, and measuring shrinkage — usually synced with the POS so stock updates as items sell.

What is shrinkage?

Stock a store paid for but can't sell — lost to theft, damage, returns, or miscounts. It averages ~1.5–2% of sales. Track it by reason to reduce it.

What's a good sell-through rate?

Units sold ÷ units received. Many retailers target 40–80% per month by category. Low means overstock; very high can mean you're losing sales to stockouts.