Retailing giant Target Corp. says theft and retail shrinkage have become “urgent” issues that are affecting the company’s bottom line.
Brian Cornell, Target’s Chairman and CEO said worsening shrink rates are putting “significant pressure” on financial results, with a reduction in profitability for the company by more than $500 million compared with last year if current trends continue.
Theft and organized retail crime are “increasingly urgent issues” that are limiting product availability, creating a less convenient shopping experience and putting employees and shoppers in harm’s way, Cornell said.
The company’s first-quarter operating income was 5.2% higher than expected – due mostly to gross margin upside from lower freight and transportation costs and efficiency efforts that offset a higher-than-expected impact from shrink.
But shrink still reduced the company’s gross margin rate by a full percentage point in the first quarter compared to a year ago, said Michael Fiddelke, Target’s Chief Financial Officer.
Target saw a profit reduction of $700 million last year from inventory shrinkage, which means the company is on track to lose $1.2 billion from shrink in a 2-year period unless trends change.
Target has seen some improvement of late in store safety, sales and available stock due to security changes, including changing the way merchandise is displayed and made available to customers, said John Mulligan, Target’s Chief Operating Officer.
“The unfortunate fact is, violent incidents are increasing at our stores and across the entire retail industry,” Cornell said Wednesday during an earnings call. “And
when products are stolen, simply put, they’re no longer available for guests who depend on them. And left unchecked, theft and organized retail crime degrade the communities we call home.”
Cornell said Target is engaging in various mitigation efforts, including “significant resource investments” to protect employees and shoppers, installing fixtures to protect merchandise and “adjusting our assortment in affected stores.”
“While we’re doing all we can to address the problem, it’s an industry and community issue that can’t be solved by a single retailer,” Cornell said.
Target is collaborating with legislators, law enforcement and retail industry partners to advocate for public policy solutions to combat organized retail crime, and the company is working to keep its stores open in markets where the problems are happening.
“At the same time,” Cornell added, “we’ll be closely monitoring the safety of our team and guests, as well as the financial impact to our business as we determine the right path forward at Target.”
A 2022 survey of major retailers recently logged an increase in shoplifting apprehensions in 2022 but also an increase in apprehensions last year for retail theft.
The 35th Annual Retail Theft Survey from Jack L. Hayes International reported on over 340,000 incidents of apprehension for shoplifters and dishonest employees, and the recovery of over $288 million from these thieves in 2022.
Eighty-one percent of the retailers reported an increase in shrink in 2022, which is reflected in their total apprehension and recovery statistics. Total apprehensions increased 45.6% and total recovery dollars from these apprehensions increased 70.5% in 2022,
Balancing Act
Many retailers returned to making shoplifter apprehensions post pandemic and focused more of their attention on external theft issues in 2022, the survey said. Shoplifter apprehensions and recovery dollars from those apprehensions increased significantly in 2022, up 50.9% and 90.5% respectively, said Mark Doyle, President of Jack L. Hayes International.
Participants were asked why their dishonest employee apprehensions and recovery dollars increased or decreased in 2022.
Those who recorded an increase responded with better trained AP/LP staff focusing on internal investigations, upgraded EBR programs yielding more internal cases, associate burnout resulting in associates rationalizing their thefts, exploitation of promotional programs to commit theft or fraud, and the tendency of associates to see shoplifters get away with theft and then try stealing themselves.
Alternatively, those who saw a decrease in employee theft specified updated EBR software that provided fewer opportunities for theft, increased use of CCTV, structural changes, fewer associates, and point-of-sale changes as potential reasons.
“This is a real balancing act for retailers right now,” Doyle told SecurityInfoWatch.com. “We know customer service is the best deterrent to shoplifting, as many shoplifters want and need privacy to commit their thefts. However, many retailers aren’t in a position to increase their payroll right now with sales being stagnant.
“There are some very positive anti-theft actions taking place, such as the INFORM Consumers Act, RFID technology combined with machine learning, artificial intelligence, facial and feature recognition, power tool activation technology, and self-service locking cases, among others.
“Reducing theft and loss will take a team effort going forward between retailers, law enforcement, and legislators.”
John Dobberstein is managing editor of SecurityInfoWatch.com and oversees all content creation for the website. Dobberstein continues a 34-year decorated journalism career that has included stops at a variety of newspapers and B2B magazines.
