As more large retailers, including Walmart, Home Depot, Target, and others, voice their worries, the fight against inventory shrinkage—the loss of goods from retail theft, organized crime, damage, and vendor fraud—has gotten more intense.
Porch pirates have been a problem for a while, but these businesses now have to contend with a more serious threat: theft that affects every aspect of their business.
Retail Giants Rally Against Inventory Shrinkage
The chorus of concern resonates across the retail landscape, underscoring the persisting headache caused by inventory shrinkage. Home Depot (HD), Target (TGT), and Walmart (WMT) have each voiced their challenges in recent earnings calls, shedding light on the extent of this issue.
Brian Cornell, CEO of Target, highlighted the retailer’s struggle against an “unacceptable amount of retail theft and organized retail crime.”
In November of the previous year, Target’s CFO, Michael Fiddelke, revealed that merchandise disappearance had resulted in a staggering $400 million blow to the retailer’s gross profit margin.
Addressing the matter during Target’s Q2 earnings call, Cornell emphasized, “Shrink in the second quarter remained consistent with our expectations but well above the sustainable level where we expect to operate over time.”
Walmart US CEO John Furner echoed the sentiment, acknowledging that shrinkage had experienced an increase in the current year and the previous one. This challenge, however, is not evenly distributed across the nation.
The impact of retail theft has significantly affected profit margins. Home Depot’s CFO Richard McPhail noted that their second-quarter gross margin dropped by 8 basis points from the same period the previous year due to the pressure from shrink. McPhail acknowledged that shrink had consistently posed a challenge over the past quarters and years, emphasizing the company’s daily efforts to address it.
According to the National Retail Federation’s (NRF) National Retail Security Survey, retail shrinkage posed nearly a $100 billion problem for the industry in 2021, representing a substantial increase from $45.2 billion in 2015.
This alarming surge in losses underlines the gravity of the situation.
David Johnston, NRF’s Vice President of Asset Protection and Retail Operations, noted that the current scenario is unprecedented. “The retailers are not crying wolf. They are highlighting a major issue out there,” he stated.
The threats extend beyond shoplifting, as organized retail crime and employee theft have also become growing concerns, according to the NRF.
Moreover, violence has infiltrated the landscape. Target reported a staggering 120% increase in theft incidents involving violence or threats of violence in the first five months of 2023.
Marty Andrews, Vice President of Loss Prevention at VF Corporation, emphasized that the problem starts from the moment merchandise leaves the warehouse and continues until it reaches the retail store.
This sentiment was echoed by Marq Claxton, Director of Political Affairs and Public Relations at the Black Law Enforcement Alliance, who highlighted the increasingly violent nature of theft.
The situation gained further attention after a “flash rob” at a Nordstrom in California resulted in thieves getting away with approximately $300,000 in merchandise. Claxton indicated that these types of robberies have become highly lucrative for criminals.
The complexity of the problem necessitates a delicate balance for retailers. While some have resorted to locking up higher-ticket items and implementing security measures, this approach comes at a cost. Walmart CEO Doug McMillon stressed the importance of consumer engagement and interaction in the retail environment, emphasizing that locking merchandise hampers these aspects.
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Innovative Strategies Against Inventory Shrinkage: Retailers Take Action
Despite the inconveniences, precautions like locked-up merchandise are deemed necessary. Johnston from the NRF noted that the alternative, where merchandise disappears off the shelves, can be even more disruptive for consumers.
To mitigate the issue, retailers are looking at various approaches. Some have turned to self-checkout, while others focus on reducing inventory growth.
This collective effort to tackle shrinkage requires collaboration among various stakeholders, including government bodies, communities, retailers, and consumers.
In response to the mounting problem, state attorneys general have formed organized retail crime task forces, and Congress has passed legislation requiring online marketplaces to implement measures against retail-related crime.
The efforts underscore the gravity of the issue and the need for comprehensive action to curb inventory shrinkage.
As retailers grapple with the multifaceted challenge of inventory shrinkage, the landscape serves as a reminder of the necessity for collective vigilance and concerted efforts to protect both merchandise and the retail experience itself.
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