Retail theft is proving to be a heavy burden for US retailers, with losses due to inventory shrinkage – a term that encompasses theft, damage, vendor fraud, and organized crime – impacting the bottom line of major players like Home Depot, Target, and Walmart. These revelations came to light in recent earnings calls, where the CEOs of these significant retailers expressed their concerns about the escalating issue. The situation is so dire that Target CEO Brian Cornell labeled the current level of retail theft and organized crime as "unacceptable," with CFO Michael Fiddelke revealing that merchandise disappearance had cost the company a whopping $400 million in gross profit margin for the year.
According to the National Retail Federation’s (NRF) National Retail Security Survey, retail shrinkage is not a trivial issue, costing the industry nearly $100 billion as of 2021, more than double the cost from 2015. David Johnston, NRF Vice President of asset protection and retail operations, confirmed the severity of the problem, stating that "never before have I seen what I’m seeing today." The issue has evolved beyond simple shoplifting, with organized retail crime, employee theft, and even violence becoming increasingly prevalent. In fact, Target stores reported a 120% increase in theft incidents involving violence or threats of violence in the first five months of 2023.
US Retailers Grapple with the Rising Tide of Inventory Shrinkage
The Rising Problem of Inventory Shrinkage
US retailers are facing a significant challenge that is eating into their profit margins – inventory shrinkage. This problem, caused by retail theft, organized crime, vendor fraud, and damage, among others, was a common concern raised during recent earnings calls from major retailers like Home Depot, Target, and Walmart. Target CEO Brian Cornell revealed that the retailer experienced an "unacceptable amount of retail theft and organized retail crime," which led to a $400 million hit to the company’s gross profit margin in the past year.
A Growing Concern for Retailers
The National Retail Federation’s (NRF) National Retail Security Survey reveals that inventory shrinkage was nearly a $100 billion problem for the industry in 2021, more than double the cost from 2015. According to the NRF, organized retail crime and employee theft are adding to this issue. Retailers are also grappling with an increase in violent incidents. Target stores saw a 120% increase in theft incidents involving violence or threats of violence in the first five months of 2023.
The Double-Edged Sword of Retail Security Measures
Retailers are implementing measures like locking up high-ticket items and installing security systems to combat this problem. However, these actions come with trade-offs. Walmart CEO Doug McMillon noted that locking up merchandise can negatively impact customer engagement. On the other hand, the NRF argues that taking these precautions are necessary to ensure that essential items are available to customers when they need them.
The Role of Legislation and Community
More than a dozen state attorneys general have launched organized retail crime task forces to tackle this issue, according to the Retail Industry Leaders Association. Additionally, in June 2023, Congress passed a law requiring the Federal Trade Commission to implement new requirements for online marketplaces to collect, verify, and disclose information about high-volume third-party sellers.
Takeaways
Inventory shrinkage is a significant and growing problem for the retail industry. The rise in retail theft and organized crime, coupled with an increase in violent incidents, is a major concern. Retailers are implementing security measures to mitigate this issue, but these actions come with trade-offs that can impact customer engagement. It’s clear that tackling this problem will require a collective effort from retailers, law enforcement, and consumers.
