Walmart (WMT) managed a great first quarter, even as it suffers from profit headwinds from rising organized retail crime — just like competitor Target (TGT).
“To be clear, this is a problem for all retailers. Our main focus is protecting our partners and customers, but also protecting our merchandise. This is not a problem that one retailer – or retailers in general – can solve on their own. We need to get involved from local communities to help solve This, Wal-Mart Chief Financial Officer John David Rainey said on Yahoo! Finance Live (video above).
He was speaking after Walmart reported same-store sales growth in the first quarter on Thursday that beat expectations. It also raised its earnings per share forecast for the full year.
Rainey did not share the financial impact the store is taking from shrinking inventory, mostly due to merchandise theft.
The fact that this is happening may partly be attributed to increasing economic pressure among consumers, Rainey explained.
Target has put together a number about the problem, shocking its investor base.
The discounting company estimated in its earnings release Wednesday that the inventory shrinkage will slash earnings by a whopping $500 million this year. Counting $700 million in profits from the same cause in 2022, Target is on pace to see $1.2 billion up in smoke, primarily due to organized retail crime.
Target’s chairman and CEO, Brian Cornell, said the problem is getting worse, both nationally and across its various merchandise divisions.
“The unfortunate reality is that violent incidents are increasing in our stores and across the entire retail industry. And when products are stolen, they are simply no longer available to the guests who depend on them,” Cornell said on a call with reporters.
“Left unchecked, organized retail crime is deteriorating the communities we call home. As we work to address this issue, the safety of our guests and team members will always be our primary concern. Safety concerns aside, declining rates of deflation are putting significant pressure on Our financial results.
The problem of organized retail crime has worsened in recent years, as thieves look to secure goods and sell them cheaper to consumers in an era of high inflation.
Shoplifting, which contributes to inventory shrinkage, led to $94.5 billion in losses in 2021, up from $90.8 billion in 2020, according to a late-2022 National Retail Federation (NRF) study.
About 32.8% of the companies surveyed described organized retail crime as becoming a “much more” concern in the past five years.
In a report released last month, NRF analysis of 132 criminal groups that conducted enhanced operations between 2014 and 2022 found that 16% used at least one violent tactic in stores. These tactics include smashing and grabbing, the use of firearms or other weapons, battery, mob tactics, or threats of violence against store employees.
The controversial situation has caused major retailers to vacate some high-crime cities like San Francisco in 2023.
Nordstrom (JWN) recently followed Whole Foods into moving out of a major San Francisco location, citing concerns about worker safety.
Independent news site The San Francisco Standard has tracked 20 household name store closures in the city since 2010, including Office Depot.
Target executives refrained from saying it would close stores to mitigate the impact of crime on profit.
Brian Suzy He is the Executive Editor of Yahoo Finance. Follow Suzy on Twitter @tweet and on linkedin. Tips on the banking crisis? Email [email protected]
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