Executives decry rising retail theft hurting profits (NYSE:TGT)

A common refrain during the first-quarter earnings season for major retailers was the theme of “reduction” affecting profits. The popular euphemism is for retail shoplifting, which is also causing retailers to rethink their store footprints.

The notes of the National Federation of Retailers that organized retail crime has increased since 2020 with items stolen and then fenced off through online sales, flea markets and more. The organization said in a recent report that the industry has seen “a dramatic increase” in large-scale coordinated attacks that cost the industry nearly $100 billion in 2021.

Jan Kniffen, CEO of retail research firm J Rogers Kniffen WWE, told Seeking Alpha that the main cause appears to be a collapse in societal pressures.

“Today, I would say that social pressure has dropped to the lowest levels it is today. There is no shame when the people around you find out that you are not paying your bills or that you are stealing products from a store. So the bad news is that the shrinkage is now normalizing across the country, especially in the cities,” she commented. “The legal penalties for theft have the probability of apprehension have been drastically reduced. This is a societal problem that has really accelerated during the pandemic. But it’s not going away.”

Easy target?

While Walmart (WMT) was among the retailers that cited fewer losses, especially given its exposure to groceries and products not typically targeted for organized theft, Walmart US CFO John Furner briefly touched on the issue. In his comments, he offered an assessment that echoed Kniffen’s.

“We know that many communities have been affected by [retail theft], but it’s also important to note that retail cannot solve this problem alone. It will take communities to step up and enforce the law to get this problem back under control,” he told analysts on Thursday.

Regardless of the root cause, there was no earnings call that neglected mention of the growing problem. For example, Home Depot (HD) blamed the problem on undue margin compression in the first quarter, TJX Companies (TJX) executives told analysts they are “laser-focused” on anti-theft initiatives and prevention investments of losses, while Ross Stores (ROST) also noted an increase in loss from 2022.

For retailers like Foot Locker (FL) and Target (NYSE:TGT), the issue was flagged as a very pressing one, as its product mix was highlighted as a particular target for perpetrators planning to loot retail stores. For Target, the issue was cited as severe enough to affect profitability for the year by a whopping $500 million. Following that on-and-off warning, Foot Locker executives even alluded to other retailers’ difficulties, illustrating the industry-wide nature of the problem.

“I would just say that again [theft] It’s been a dynamic industry for several years, we’re not immune to it, it’s increasing. You’ve heard Target talk about this and others, so you’re having a bigger impact at Foot Locker,” Foot Locker (FL) CEO Mary Dillon said Friday. “We’ve seen a significant increase in shoplifting, and typically through this lens of an organized retail crime type of action, more clothing than footwear, where we only have one item, but the clothes are affected.”

In fact, earlier in the week, Target CEO Brian Cornell cited the issue as a major factor in declining profits along with promotional activity.

“Beyond the macroeconomic challenges, we continue to grapple with significant headwinds caused by inventory reduction, which builds on a worsening trend that emerged last year. While the decline can be driven by multiple factors, theft and organized retail crime are increasingly pressing issues affecting the team, our guests and other retailers,” he told analysts on Wednesday. “The issue affects all of us, limits product availability, creates a less convenient shopping experience, and puts our team and guests at risk. The unfortunate fact is that violent incidents are on the rise in our stores and throughout the retail industry. And when products are stolen, simply put, they are no longer available to the guests who depend on them. And it left unchecked, theft and organized retail crime to brand the communities we call home.”

exit locations

Many retailers have resorted to increasing loss prevention measures, including blocking products throughout the store. In many cases, retailers have even chosen to close stores in troublesome locations entirely.

Kniffen pointed to the recent decision by Nordstrom (JWN) to close its doors in San Francisco. In announcing the decision to close stores in the city, store president Jamie Nordstrom said that “the dynamics of the downtown San Francisco market have changed dramatically in recent years,” prompting a recall.

Undoubtedly, not all the exits from the main cities are related to the problem of theft. For example, Walmart expressly avoided explanation by closing its Chicago stores. Instead, the company said the stores had simply never been profitable in the 17 years they’d been open, so the decision to close the locations was a longer-term decision rather than a reaction to recent spikes in theft. .

Additionally, Walgreens (WBA) provided a counterpoint in January, with executives projecting a flattening decline from the 2022 peak.

“I think the shrinkage is based on the forecast. Probably, maybe we cried too much last year when we hit numbers that were 3.5% of sales,” chief executive James Kehoe said in January. “We’re in the bottom 2, call it the mid-range 2.5%, 2.6% now and we’re level.”

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