Retail giant Target announced on yesterday (18 May) that it predicts a significant rise in stolen and lost merchandise this year due to organised retail crime, amounting to an estimated $500m more than the previous year.
The company’s inventory loss, known as shrink, was calculated to be around $763m in the last fiscal year based on financial filings, reports CNBC. However, with the anticipated increase, the shrinkage for this year is expected to surpass $1bn.
Quantifying theft can be challenging as shrink includes inventory loss resulting from various causes, including employee theft and damage.
Target CEO Brian Cornell acknowledged this issue during the company’s fiscal first-quarter earnings call. He stated that retailers, including Target, face the dual challenge of increasing theft alongside slower sales and more price-sensitive shoppers.
Cornell described retail theft as a “worsening trend” that emerged last year and expressed concern over the rise in violent incidents at Target stores.
The worsening retail shrink problem
Organised retail crime has become a pressing issue within the industry, with some companies attributing its growth to the proliferation of online marketplaces that enable thieves to sell stolen goods, such as electronics and makeup anonymously.
Major retailers, including Home Depot, Walmart, Best Buy, Walgreens and CVS, have addressed the problem, highlighting the worsening shrinkage.
While it is difficult to verify the extent of organised retail theft and its growth, data from the National Retail Federation (NRF) indicates that shrink cost retailers $94.5bn in 2021, up from $90.8bn in 2020.
However, retailers anonymise and share this data, making fact-checking challenging. External retail crime accounts for only 37% of these losses, equivalent to approximately $35bn, according to the NRF.
Several factors contribute to shrinkage, including Covid-related concerns, temporary store closures, and damaged products.
The disruptions caused by the pandemic may have reduced foot traffic for both shoppers and thieves. Moreover, shrinkage is not solely attributed to shoplifting and employee theft but also includes damaged items like furniture and expired food.
Target has become more vocal about organised retail theft in response to excess inventory and disappointing margins.
The company faced challenges meeting Wall Street’s earnings expectations in consecutive quarters last year. Consequently, Target took proactive measures such as cancelling orders and marking down items to address unwanted merchandise lingering in its stores and warehouses.
Cornell emphasised that increased theft is the primary driver behind Target’s worsening shrink. During an investor call, Cornell chief financial officer Michael Fiddelke stated that shrinkage reduced the company’s gross margin rate by one percentage point in the fiscal first quarter compared to the previous year.
Target is actively working on reducing theft by implementing protective fixtures and adjusting product assortments in certain stores.
Additionally, the company is collaborating with politicians, law enforcement agencies and retail industry trade groups to develop policy solutions.
Some retailers and trade organisations have advocated for the INFORM Consumers Act, a law intended to enforce verification processes to prevent the easy resale of stolen or counterfeit goods on online marketplaces. The law was included in Congress’ omnibus spending package in late 2022 and relies on the enforcement efforts of state attorneys general.
Cornell highlighted that Target’s priority is to keep its stores open in markets experiencing theft problems. With approximately 1,900 stores nationwide, Target serves suburban areas and major cities like New York City and San Francisco.