It’s more than shoplifting. It’s organized retail theft. That’s been a common narrative for the past few years.
During May, retailers such as Target, Dollar Tree, Home Depot, T.J. Maxx, Kohl’s and Foot Locker collectively identified inventory shrinkage, retail theft or both as contributing factors behind their reduced profits or negative impacts on gross margins.
In its previous fiscal year, Target incurred a loss of approximately $763 million due to shrinkage. Furthermore, the company has projected that shrinkage will have an even more significant impact in its ongoing fiscal year, with an estimated reduction of over $1 billion from its profits.
During the conference call, Target’s Chairman and CEO, Brian Cornell, expressed deep concern regarding the escalating issue of retail theft. Cornell emphasized the far-reaching impact this problem has had on numerous merchandise departments nationwide. Cornell underlined that the situation was not exhibiting any signs of improvement but worsening with time.
“The unfortunate fact is violent incidents are increasing at our stores and across the entire retail industry. And when products are stolen, simply put they are no longer available for guests who depend on them,” Cornell said. “Left unchecked, organized retail crime degrades the communities we call home. As we work to address this problem, the safety of our guests and our team members will always be our primary concern. Beyond safety concerns, worsening shrink rates are putting significant pressure on our financial results.”
See also: Target Faces Profit Losses, Rethinks In-Store Operations Amid Rising Retail Crime
During the first quarter, Foot Locker experienced a 4% drop in its margins compared to the corresponding period of the previous year. The company attributed this decline to a dual impact caused by substantial discounting and a rise in retail theft.
The impact on merchandise margins was primarily driven by heightened promotional activity, according to the company. It remains uncertain whether retail theft influenced these results or if promotions were the primary factor behind the loss in profits.
See also: Foot Locker Reports Rough Q1 as It Readies New Formats, Loyalty and Omnichannel Strategy
Home Depot also disclosed a modest decrease in its gross margins, which the company attributed to a combination of factors. One contributing factor was consumers deferring their renovation projects. Additionally, Home Depot acknowledged that there was increased pressure from shrinkage, further impacting their gross margins.
See also: Home Depot’s Sales Fall as Consumers Hold Off on Renovations
Previously, prominent retailers including Walmart, Best Buy, Walgreens, Lowe’s, and CVS have openly acknowledged the substantial challenges posed by shrinkage and retail theft.
In April, Walmart closed four of its stores in Chicago, citing annual losses amounting to “tens of millions of dollars.” While the retailer did not explicitly state that the closures were due to retail theft, individuals on social media quickly drew connections between the decision and the escalating crime rates observed in the region.
Based on data provided by the Chicago Police Department, thefts have surged by 25% in 2023 compared to the previous year. Additionally, robberies have experienced an 11% increase in the same period.
In 2022, Walmart’s CEO Doug McMillon issued a cautionary statement about the potential negative impact of theft incidents in their stores nationwide, highlighting the possibility of store closures as a consequence. As a result, Walmart has made the decision to shut down a total of 21 stores located across 12 states and the District of Columbia.
See also: Retail Crime Epidemic Sparks Store Closures Including Target, REI and Walmart
However, some retailers have expressed that the problem of retail theft has stabilized.
After tackling the challenge of retail theft, Best Buy announced that shrinkage levels have stabilized and returned to pre-pandemic levels. The company said its electronic goods stores were already equipped with strong security measures to deter potential thieves.
In January, Walgreens Chief Financial Officer James Kehoe said the company’s concerns about retail theft may have been exaggerated, as shrinkage levels had stabilized over the past year. During an earnings call with investors, Kehoe remarked, “Maybe we voiced our concerns too strongly last year.”
According to Kehoe, shrinkage accounted for approximately 3.5% of sales last year. However, as of January, that number had decreased to around the “mid-twos” percentage range. Additionally, Kehoe stated that the company is contemplating a shift away from employing private security guards as a potential response to the improved shrinkage situation.
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