Simply stated, shrinkage is the difference between the inventory the spa has on hand and what it should have on hand. In the retail industry, an estimated 1.54 per cent of annual sales losses are due to inventory shrinkage. According to the 2004 National Retail Security Survey, specialty apparel is the category with the highest shrinkage, at 2.93 percent, while department stores run around 1.51 percent. But where is the merchandise going? Losses break down as follows: 47 percent internal/employee theft, 34 percent shoplifting, 14 percent paperwork errors, and 5 percent vendor fraud.