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Retail Theft and Shrink Reports Have Investors Seeking Answers

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Last year saw several retailers report that their profits were being hurt by “shrink.”

That’s the industry term for lost inventory due to a variety of factors, though much of 2023’s reporting dealt with losses from a wave of retail theft.

But as 2024 begins, investors and analysts are hoping to get more answers from retail chains about this issue, The Wall Street Journal (WSJ) reported Tuesday (Jan. 9).

Dean Rosenblum, a senior U.S. retail analyst at Bernstein Research, told the WSJ that he and his colleagues want to learn more details about what is fueling the increase in shrink, what stores are doing to combat it, and whether those efforts have been effective.

“We want them to talk about what the heck is going on, what are you doing about it, and how should we bake this into their models?” Rosenblum said.

Last year, retailers absorbed about $142 billion from inventory shrink, a 25% increase from the prior year, the WSJ report said, citing figures from investment bank William Blair.

However, Dylan Carden, an analyst for the bank, told the newspaper that retailers’ more recent reports indicate those numbers might be an overstatement. He said shrink is better understood as a percentage of sales, as that measure “smooths out” the effect of inflation.

The William Blair analysis also argues that a focus on the rise of retail theft allows retailers to “draw attention away from margin headwinds in the form of higher promotions and weaker inventory management.”

Figures from the National Retail Federation (NRF) released in September showed the average shrink rate from 2022 rising to 1.6%, up from 1.4% the previous year, with external and in-house theft accounting for 65% of shrinkage.

“Retailers are seeing unprecedented levels of theft coupled with rampant crime in their stores, and the situation is only becoming more dire,” David Johnston, vice president for asset protection and retail operations at NRF, said in a news release.

The NRF also warned against a rise in violence associated with organized retail theft, with 67% of respondents saying they’d seen an uptick in aggression from thieves.

“Far beyond the financial impact of these crimes, the violence and concerns over safety continue to be the priority for all retailers, regardless of size or category,” Johnston said.

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