This is the second installment of a three-part series focusing on organized retail crime. In this segment, we explore the claims made by retailers regarding the impact of theft on their business and the actions being taken by companies and policymakers to address the issue. To read the first story, click here.
According to CNBC, retailers who attribute lower profits to organized theft may be exaggerating the impact of crime to hide internal flaws or self-inflicted problems. During recent earnings calls, major companies have attributed disappointing financial results to organized gangs stealing from their stores. However, insider sources suggest that retailers are facing other issues, such as theft by their own employees, which are contributing to losses. Although retailers publicly blame external theft, some have internally identified internal theft as a major contributor to shrinkage.
Furthermore, self-checkout theft has also become a significant problem for retailers. While some retailers may be experiencing higher rates of shrinkage due to poor hiring practices and self-checkout machines, others, like Target and Foot Locker, might be using retail crime as an excuse to conceal internal challenges.
Neil Saunders, a retail analyst and the managing director of GlobalData, pointed out that although shrinkage is a genuine problem that affects profit margins, the way it is reported lacks transparency and sometimes serves as a scapegoat for overall poor performance.
According to Patrick Tormey, an adjunct professor at the Lehman College School of Business with over 40 years of experience in the retail industry, employee theft continues to play a significant role in shrinkage, despite what companies claim publicly. Internal theft is often more detrimental than external theft because employees have access to entire cases of merchandise and can steal in larger quantities without being noticed. Internal theft can also go undetected for extended periods of time since it is less conspicuous than shoplifting. Theft is not limited to the store floor; it also occurs in warehouses and during online order preparation. Some employees may collaborate to add extra merchandise to shipments.
Sonia Lapinsky, a partner and managing director with AlixPartners’ retail practice, highlighted the challenges retailers face in properly staffing stores in recent years. The pressure to lower staffing levels and the prevalence of workers holding multiple jobs have increased the risk of theft.
David Johnston, the vice president of asset protection and retail operations at the National Retail Federation, acknowledged that employee theft has historically been the main cause of shrinkage and that staff members have sometimes been involved in organized theft rings. Nevertheless, he believes that internal theft now takes second place to external theft.
Self-checkout machines have also exacerbated the theft problem for retailers. The increased risk of theft associated with self-checkout machines has led to significant losses for some companies. The costs of implementing these machines can sometimes outweigh the benefits, particularly in stores with high theft rates.
Janine Stichter, a retail analyst and managing director at BTIG, pointed out that retailers began to emphasize organized theft as a factor affecting profits when the industry’s performance started to decline. Home Depot, Best Buy, and Walgreens were among the first retailers to discuss the impact of theft. Now, many companies are blaming theft for reduced margins. However, some experts believe that companies are jumping on the bandwagon and using retail crime as an easy explanation for poor performance.
In May, Target shocked investors when it announced that it was on track to lose $1 billion due to inventory losses caused by stolen goods. Foot Locker also attributed a drop in its gross margin to “theft-related shrink.” Analysts and records suggest that while theft was a contributing factor, other issues like high inventory levels and soft sales were more significant in driving profit decline.
Overall, retailers have often used shrinkage and theft as buzzwords to explain financial setbacks. This allows them to avoid addressing deeper issues like poor merchandising and store design. Tormey likens it to a quick fix for a headache. However, it is crucial to ascertain the exact causes and numbers behind shrinkage before attributing it solely to theft.
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