Thefts in retail are on the rise – but companies are fighting back.
(Ticker: TGT) sent industry shockwaves last earnings season when the company estimated that a reduction in inventory — the industry term for a lack of inventory — would reduce profitability by $500 million. At least eight other retailers, including
(ULTA) followed suit, mentioning a sharper decline in their recent earnings releases.
“The decline caught us by surprise this quarter, and that's really the driver as we think about adjusting operating margin for the year,” Scott Settersten, Ulta's chief financial officer, said when speaking to investors in May. Ulta lowered its operating margin guidance for the fiscal year.
Shoplifting is nothing new, but in recent months theft has become “bolder and more common,” said Greg Portell, a senior partner at retail-focused consultancy Kearney.
The National Retail Federation estimates that shrinkage caused nearly $95 billion in losses in 2021, up from $90.8 billion in 2020. Shrinkage encompasses a variety of inventory losses – including customer and employee theft, administrative errors and Damages – but also theft from organized retail crime – are driving the increase in 2021, the NRF said. The groups behind this type of crime consist of professional shoplifters who resell stolen goods at cheaper prices, often on third-party marketplaces, which has become increasingly common following the pandemic-era e-commerce boom.
As theft eats into margins and impacts employees and customers, retailers are now going on the offensive and looking for ways to address the problem.
“The biggest challenge facing retail right now, I think, is the ability to keep its stores profitable, but even more important is the safety of its employees and our customers. And I think that was actually the real game changer,” said Deborah Weinswig, CEO of retail research firm Coresight Research.
Some companies are trying to avoid the problem by closing stores in locations with higher shrinkage. Those who stay invest in new loss prevention strategies. According to a recent NRF survey, nearly half of retailers said their loss prevention budgets increased in 2022 compared to the previous year.
An approach is what
CEO Richard Dreiling described the company as “defensive merchandising” in a conversation with investors in May. This strategy is most familiar to shoppers: they pack perfumes or razor blades in plastic boxes, attach electronic devices to shelves with metal ties, or lock items in clear drawers that only employees can open.
Retailers have also beefed up their security teams, hiring private security firms or off-duty police officers. According to NRF, nearly 40% of retailers said they would hire more staff for their loss prevention teams in 2022. Some companies are also tightening policies preventing store associates from contacting shoplifters to reduce potential violent confrontations. (
Others are investing in theft detection technology.
For example, the company is spending more on machine learning and data analysis tools to determine which regions or product categories are most at risk, CEO Edward Decker said at the company's annual meeting in May.
One of the most popular loss prevention technologies is RFID, which uses radio waves to identify objects that have been tagged with special readers. This is especially useful for tracking high-value items, said Matthew Guiste, global retail technology strategist at Zebra Technologies. Another popular tool is AI-based video analytics software that helps retailers spot repeat offenders or potential threats at checkouts or in parking lots.
In addition, businesses, both local and national, are lobbying for the adoption of rules that make it easier to prosecute organized retail crime. Many retailers, including Home Depot, support the Combating Organized Retail Crime Act, a bipartisan bill that is snaking through Congress that would allow federal law enforcement agencies to get involved in prosecuting organized retail crime groups. Last year, the Biden administration asked Congress to pass legislation encouraging online marketplaces to curb the sale of stolen goods on their platforms.
It will be some time before any of these new theft reduction strategies translate into company bottom lines. In fact, the cost of implementing them can weigh on profits in the short term.
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James Kehoe, WBA chief financial officer, said in January that the company spent “a reasonable amount” on theft prevention in 2022, which could have caused “disruptions” to higher SG&A expenses that quarter .
“Maybe we cried too much last year,” Kehoe said, adding that the company is spending less money on security.
But the investment helped. In January, the company's inventory decline was about 2.5% of sales, compared to 3.5% a year earlier, he added. Barrons has previously reported that a strong inventory reduction strategy is helping companies such as B. has given
(COST) a competitive advantage.
“If employees and consumers don't feel comfortable walking into a store, it will have a dramatic impact on the bottom line,” said Kearney's Portell. “So retailers have to deal with it – or close the shop.”
Write to Sabrina Escobar at [email protected]