Target expects organized losses fueled by retail crime to jump by $500 million this year

Confiscated merchandise, to prevent theft at Target store, Queens, NY.

Lindsey Nicholson | Global Image Collection | Getty Images

Target said Wednesday that organized retail crime will fuel an additional $500 million in stolen and lost merchandise this year compared to last year.

Target’s stock loss, called shrink, totaled about $763 million in the past fiscal year, based on accounts from the company’s financial filings. With the expected increase, the contraction this year will exceed $1 billion.

It can be difficult to quantify theft, since downsizing involves losing inventory for other reasons, such as employee theft or damage as well.

CEO Brian Cornell called out the challenge on the company’s fiscal first-quarter earnings call, saying the retailer and others are grappling with rising theft rates as well as slowing sales and more price-sensitive shoppers. He called retail theft “a worsening trend that emerged last year,” and said violent incidents had increased at Target stores.

“The issue affects all of us, limiting product availability, creating a less convenient shopping experience, and putting our team and guests in harm’s way,” he said on the call.

Organized retail crime has become a hot issue in the industry, and some companies have blamed the growth of online marketplaces that allow thieves to anonymously sell electronics, makeup and other items they steal from stores. Home Depot, Walmart, Best Buy, Walgreens and CVS are among the major retailers who have spoken out about the problem, saying the downturn is getting worse.

“The country has a retail theft problem,” Home Depot CFO Richard MacPhail said on a call with CNBC on Tuesday. “We’re confident in our ability to mitigate and relieve that pressure, but that pressure is definitely out there.”

However, it is difficult to ascertain whether organized retail theft has increased, and if so, by how much. It costs retail businesses $94.5 billion in 2021, up from $90.8 billion in 2020, according to the National Retail Federation. The data for it is anonymized and shared by retailers, so it is not possible to verify facts.

NRF data shows that outside retail crime accounts for only 37% of those losses, or about $35 billion.

There are other caveats. Coronavirus concerns and temporary store closures related to the pandemic have disrupted 2020, potentially limiting foot traffic for both shoppers and thieves. In addition, shrinkage comes not only from shoplifting and employee theft, but also from damaged products such as broken furniture and expired food.

Target has become more vocal about organized retail theft, as it has experienced overstocking and its margins underwhelmed. It missed Wall Street’s earnings forecasts for three consecutive quarters from last year. Unwanted merchandise sat in its stores and warehouses, before the company took drastic measures to cancel orders and locate items.

However, Cornell stressed that more theft is a deterioration of the leadership objective.

Chief Financial Officer Michael Videlek said on the company’s investor call Wednesday that the downturn lowered the company’s gross margin rate in the first quarter of the fiscal year by a full percentage point compared to a year ago.

Cornell said Target is trying to reduce theft by installing protective gear and adjusting assortment in some stores. He said the company is working with politicians, law enforcement and trade groups in the retail industry to come up with policy solutions.

Some retailers and trade organizations have pushed for the INFORM Consumer Act, a law intended to require verification so that thieves cannot easily sell stolen or counterfeit goods through online marketplaces. It was included in Congress’ sweepstakes package late last year and is dependent on implementation by state attorneys general.

Cornell said the company is “focused on keeping our stores open in markets where problems are occurring.” It has approximately 1,900 stores nationwide, which are located in suburban areas and major cities including New York City and San Francisco.

CNBC channel Gabriel Vonrog Contribute to this report.

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