A wrong on-hand count creates shrink because shrink is measured as the gap between the stock a retailer expects to have and what it actually counts 1. If the count itself is wrong, the reconciliation between the physical stock-take and book stock produces a discrepancy, and that discrepancy is reported as shrinkage even when the merchandise is physically present 2. Losses recorded this way are often not real losses; the stock is there and not missing 2.
Where the miscount comes from
- Improper physical counts in a store, warehouse, distribution center or in transit occur when personnel do not perform merchandise counts correctly 3.
- During a physical inventory count, new deliveries must be physically separated from merchandise already on-site until the count is complete, and a failure to quarantine them distorts the result 3.
- A data entry error during receiving or shipping, a missing transaction, or non-standardized processes can quickly create the same effect 4.
- Distribution center mispicks and transfer errors create a cascade of inaccurate counts, which the 2026 Total Retail Loss Benchmark Report puts at $19B, or 21% of shrink 5.
How it shows up in the numbers
The arithmetic is straightforward: records showing 500 items received against an actual count of 450 with 510 sales works out to about 9.8% of inventory unaccounted for 6. Because the cause of unknown shrinkage is not identifiable by definition, a miscount is hard to separate from theft or damage at the time 1. Usually the next count reverses it, with the lost item appearing as an extra 2.