Retail theft is getting worse

Target CEO Brian Cornell offered a sober warning to investors during the company’s post-earnings conference call on Wednesday.

“The unfortunate reality is that violent incidents are increasing in our stores and across the entire retail industry,” Cornell said. “Beyond safety concerns, deteriorating deflationary rates put significant pressure on our financial results.”

Then he gave an amazing number. “We expect the downturn to reduce our profitability by more than $0.5 billion compared to last year,” Cornell said, using the industry term for lost inventory. Cornell’s comments highlight the growing challenge across the retail sector.

“Shrinkage was an obvious problem that still persists, but it’s an industry issue,” Wells Fargo analyst Edward Kelly said in a research note.

The problem surfaced regularly in February, when retailers disclosed their results for the holiday quarter. Retailers from TJX Cos. (Stock ticker: TJX) to Dollar General (DG) losses due to theft, and in some cases had a greater impact on earnings than in the past.

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“So almost every conversation we had today centered around deflation,” BMO Capital Markets analyst Simeon Siegel wrote when discussing TJX’s fourth quarter. “This was new.”

The number of retailers grappling with the downturn is sure to rise again this reporting season.

The National Retail Federation said deflation was a nearly $100 billion problem in 2021, the latest year for which data is available. Barron We noted earlier how industry stars like Costco Wholesale (COST) have succeeded by taking the situation seriously.

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Loop Capital analyst Laura writes: “While inventory shrinkage has always been viewed as a ‘cost of doing business’ in the retail industry, shrinkage levels have increased significantly for many chains since the onset of the ongoing COVID-19 pandemic, directly impacting profitability. Champine in a late March note discussing this issue.

On Wednesday, New York City Mayor Eric Adams announced a comprehensive plan to combat shoplifting, saying complaints have jumped steadily in recent years.

But New York isn’t the only place affected. In 2021, Walgreens Boots Alliance (WBA) cited theft in several store closures in San Francisco, a city where (AMZN) also closed its flagship Whole Foods location over concern for worker safety. (Many retailers tell regular employees not to confront shoplifters, due to the potential for serious accidents.)

Although retail earnings season only got underway in earnest this week, at least four The companies have already discussed losses from theft in their phone calls. TJX said it is “laser focused on our deflationary and survival initiatives[s] to look for additional ways to mitigate the impact.” Home Depot (HD) noted Tuesday that its gross margin was down from a year earlier, mainly due to contraction.

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Walmart (WMT) didn’t provide any specific numbers, but CEO Doug McMillon addressed the issue on the earnings conference call Thursday. His language echoed the goal, as he said Shrink was “a challenge for us, it was really a challenge for all hashes… And it’s also important to note that hash can’t solve this problem on its own.”

The problem goes beyond ordinary people taking things they can’t afford. Although the prevalence of self-discharges, staff shortages, and price hikes have likely led to more theft, and theft by employees has long been a concern, these factors are often not the primary driver of the problem.

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Target (TGT) noted that “theft and organized retail crime are increasingly pressing issues,” noting the most common problem that stolen goods are not available for other customers to purchase.

The emergence of organized theft groups predates the pandemic, but the increase in online shopping that has resulted from Covid-19 has made it easier to profit by selling stolen goods. Last year, the Biden administration asked Congress to pass legislation encouraging online marketplaces to tackle the sale of stolen goods on their platforms.

The NRF echoed those two points last month, noting an uptick in the presence of organized theft in recent years, saying “criminal groups are becoming bolder and more violent in their tactics and using new channels to resell stolen goods.”

Write to Teresa Rivas at [email protected]

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