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Shrinkage can be caused by various factors, including inventory loss due to theft or shoplifting, employee mistakes in handling or recording stock, damage to products during storage or transit, and discrepancies in accounting or inventory management systems. Environmental factors, such as changes in humidity or temperature, can also contribute to physical shrinkage of materials. Additionally, changes in consumer demand can lead to overstocking, resulting in unsold inventory that may eventually be written off.

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