Both major and minor retailers are seeing a staggering rise of unthwarted shoplifting across the United States. Just recently, Target Corp. released a statement saying that because of the spike, they expect to see a reduction in gross margins for the entire industry, totaling more than $600 million dollars. While shoplifting has always been an issue in the retail sector, analysts are now saying that the problem has grown so large it is beginning to have a substantial effect on profit margins and, in turn, requiring businesses to invest more in inventory tracking and security.
By Suzanne Kapner; March 12, 2023
“We definitely had an uptick since last year,” Macy’s Chief Executive Jeff Gennette told analysts earlier this month. “It’s an industrywide trend.”
Target Corp. TGT -0.11%decrease; red down pointing triangle said in November that it expected the problem, known in the industry as shrink, to reduce gross margins for the recently completed fiscal year by more than $600 million. TJX Co.’s and Macy’s Inc. also called out higher shrink rates in recent calls with analysts.
“Theft is growing at a faster rate than sales,” said Dean Rosenblum, a senior U.S. retail analyst at Bernstein Research. Mr. Rosenblum said theft is becoming a big enough problem that it’s starting to affect margins, which is why retailers are talking about it more frequently.
Retailers typically conduct a physical count of their inventory once a year and compare it to what is recorded on their books. The difference is known as shrink, a broad term that encompasses not just internal and external theft but also process failures that could lead to inventory being lost or recorded inaccurately.
In an interview, Mr. Gennette said the shift in shoppers returning to stores after a surge in online buying during the pandemic is partly responsible for the uptick. “More theft happens in stores,” as opposed to warehouses that fulfill online orders, he said.
He added that a jump in organized retail crime in certain areas of the country is also a factor. “These are crime levels we haven’t seen before,” Mr. Gennette said.
Shrink rates declined in 2021 and are broadly in line with historical levels, after rising in 2020 and 2019, according to a survey of 63 retailers conducted by the National Retail Federation and the Loss Prevention Research Council. Figures for 2022 aren’t yet available.
Retailers calculate shrink differently and many don’t report thefts to the police, leading to imprecise measurements, said Cory Lowe, a senior research scientist with the Loss Prevention Research Council.
Even though shrink in 2021 has fallen back to 2018 levels, according to the survey, external theft, which includes organized retail crime in addition to regular shoplifting, has become a bigger piece of the pie. Organized retail crime, involving rings that steal from stores in bulk and then peddle the goods online, cost retailers nearly $720,000 for every $1 billion in sales in 2019, the most recent year the NRF published such figures. That was an increase of 50% from 2015, it said.
“Seven years ago, internal theft was the largest category of loss by retailers,” said David Johnston, the NRF’s vice president of asset protection and retail operations, referring to theft by employees. “Now, it’s external theft.”
Retailers are combating the problem by adding security guards and cameras to stores, locking up goods and making use of facial recognition software to help identify repeat offenders.
Mr. Gennette said Macy’s is using radio frequency identification tags to better track inventory, adding more security personnel to stores and securing high-end brands with locked cables and sensors.
TJX finance chief John Klinger told analysts in February that an unexpected increase in shrink hurt margins by 0.60 percentage point in the recent quarter. That follows higher shrink charges in the same quarter a year ago. The company said it expects shrink to remain similar to current levels for the next two years.
New legislation signed into law by President Biden last year, called the Inform Consumers Act, will make it harder for criminals to resell stolen goods online. The Combating Organized Retail Crime Act of 2023 currently making its way through Congress seeks to pool expertise and provide more tools to prosecute criminals and recover stolen goods.
Retailers and shoppers say there is a fine line between deterring criminals and annoying honest customers.
“Retailers are locking up everything from shaving cream to soap,” said Oni Powell, a 46-year-old office manager who lives in Porter Ranch, Calif. “These should be things that are quick and easy to grab and go. But now I’ve got to find an employee to unlock them for me.”
Some retailers said they may have gone too far in their theft-prevention measures.
“Maybe we cried too much last year,” Walgreens Boots Alliance Inc.’s WBA 0.44%increase; green up pointing triangle finance chief James Kehoe told investors in January. “We’ve put in incremental security in the stores. Probably we put in too much and we might step back a little bit from that.”
Macy’s used to keep German shepherds in its Manhattan flagship for security sweeps, but discontinued the practice in 2015, the company said.
In 2021, a Michigan man sued the city of Detroit and its police chief for wrongfully arresting him based in part on facial recognition technology that erroneously matched him to surveillance camera footage from a Shinola store where several watches had been stolen. The case is ongoing.
A month ago, New York City police asked shoppers to take off their face masks before entering stores, a measure intended to help them better identify criminals. The plea came after four unidentified men stole roughly $1.1 million of goods from a Queens jewelry store.