Chains are using theft to mask other issues, report says

Retailers are over-stating the impact of theft, new report claims

Chains are using theft to mask other issues, report says

Retailers claim that theft is on the rise. Some data from retailers, along with videos of violent robberies in stores and looting appear to support this claim.

This is a good deflection. It can be used to mask weak demand, poor management, and other problems that are currently affecting business. It also forces legislators to act.

According to a recent report by retail analysts from William Blair, the "actual increase" in theft rates at stores across the country does not "correspond with the increase in company comments and actions" on theft. Retailers are becoming more vocal about the issue, partly to compel government action.

Theft is affecting retailers more than before the pandemic. Retailers say that theft is more visible, more violent and puts employee safety in danger.

Retailers are also affected by a number of issues, including inflation and rising costs. Theft is only one of the structural problems that chains face, including the move to online shopping as well as an over-expansion in brick-and mortar retail.

In a report released this week, William Blair retail analyst Dylan Carden and Phillip Blee stated that 'Companies also likely use the opportunity to divert attention away' from low profit margins caused by higher promotions and poor stock planning in recent quarters. Many retailersmisjudgedhow much merchandise they needed to carry and now have a glut.

Discussion on shrinkage

Analysts noted that the total shrink - merchandise losses caused by external and internal thefts, damaged products and inventory mismanagement, among other mistakes - accounts for just 1,5% to 2% in retail sales. This percentage has been stable for many years, even though retailers have raised the alarm about theft more than ever.

According to a survey of 177 retailers, the National Retail Federation reported that shrinkage, or retailer losses, increased by 19% in 2017. The National Retail Federation said that retailers' losses, also known as shrink, increased 19% last year to $112 billion. This was based on a survey of 177 retailers.

Analysts say that this loss of profits is not significant and does not justify closing stores. They found that in nine major retailers who have increasingly cited theft as an increasing problem, shrinkage as a percent of sales only increased by 0.4% between 2022 and 2022.

Analysts said: 'We think there's a disconnect...between what's expected to be an increase in shrinkage and the attention that it's gotten.'

Walgreens' finance chief James Kehoe admitted in January that he had cried too much about thefts and other losses last year. Kehoe has left Walgreens.

Alex Vitale is a professor at Brooklyn College of Sociology who studies policing. He said that business leaders have turned retail theft into an'moral panic,' in order to mobilize stronger police and criminal justice responses.

He said: 'It shows how certain crimes at certain times are mobilized beyond their immediate impact and used to fuel a series of political, social, and economic debates.'

What is the excuse for a call to report earnings?

Nevertheless, many chains are referring to theft as a national crisis, especially when organized groups steal merchandise and resell it online.

The Chamber of Commerce reported that mentions of "organized retail crime" on earnings calls of companies increased by 43% between January and August compared to a year earlier.

In a report released this week, the U.S. Chamber of Commerce (the primary business lobbying group) stated that 'Communities in the United States are experiencing a historically high level of crime. This alarming trend requires a robust response.

New laws are being passed in cities and states that will punish shoplifting and organized retail crime more severely. Former President Donald Trump (the Republican candidate for 2024) has said that shoplifters must be shot.

Close your target

Target announced last month it would close nine stores in major cities because of 'theft, organized retail crime and unsustainable business results'.

Target's recent closures of smaller stores in New York City, San Francisco, Oakland and Seattle, as well as Portland, may have been more due to their underperformance. Local crime statistics raise further questions about Target’s reasoning.

According to a report by Popular Information journalist Judd Legum, the stores that Target will be closing in New York and San Francisco have lower theft rates than other locations nearby.

William Blair analysts stated that they believed companies such as Target may be using the narrative about shrinkage to take wider action in the lagging areas of their business. We must acknowledge that there could be ulterior motives. Target could be closing stores in order to boost overall margins. This includes poor inventory management that came to a head after supply chain disruptions in 2022.

Target has not directly shared any data regarding these store closures. Target's spokesperson stated that organized retail crimes have increased by 50% in their stores since 2021. The company said that thefts involving violence and threats have also increased.

Unintentionally, other retailers' strategies such as low staffing and self-checkout have made shrink worse. Costco's management stated that this year shrink had increased, 'in part due to the introduction of self-checkout'.

Five Below reported that the shrinkage at stores with self-checkout lanes is higher. The company intends to increase the number manned cash registers at new stores.

Punitive policies

Businesses are also calling for stronger criminal penalties for thieves, and for the police and prosecutors crackdown on theft.

The group has called on local and state governments to aggressively pursue organized retail crime. They also want to lower the threshold for thefts to become felonies and reverse policies that eliminate cash bail.

According to the Chamber of Commerce of America, 12 states have either created new laws, revised existing ones, or enhanced penalties for organized retail crimes.

It's not certain that lowering the threshold for felony theft will be an effective deterrent.

Pew Charitable Trusts conducted an early study on this topic in 2017. They examined crime trends in 30 states which raised their thresholds for felony theft between 2000 and 2012 Pew concluded that the increase in thresholds had no effect on property crime rates or larceny.