Skip to Content

Chains are using theft to mask other issues, report says

By Nathaniel Meyersohn, CNN

New York (CNN) — Retailers say theft is exploding, and some data from retailers along with numerous videos of violent store robberies and looting seem to support the claim.

But some retail analysts and researchers, bolstered by local crime statistics, say stores may be over-stating the extent and impact of theft. Why? It’s a useful deflection, camouflaging weak demand, mismanagement and other issues denting business right now. And it forces lawmakers to respond.

Across the country, the “actual increase in rates of theft” at stores does not “correspond to the increase in company commentary and actions” on theft, according to a new report by retail analysts at William Blair. “Retailers are increasingly vocal on the subject, in part to draw out government action,” the analysts wrote.

To be sure, theft is impacting retailers much more than it was before the pandemic. That’s because theft has also gotten more visible and more violent, retailers say, and has put employee safety at risk in some cases.

But a host of other issues, from inflation to rising costs, are impacting retailers, too. Theft is just one of many structural issues chains are facing, most notably the shift to online shopping and over-expansion of brick-and-mortar retail.

“Companies are also likely using the opportunity to draw attention away” from lower profit margins due to higher promotions and poor inventory planning in recent quarters, William Blair retail analysts Dylan Carden and Phillip Blee said in a report this week. Many retailers misjudged how much merchandise they needed to carry and now have a glut.

Debating over shrinkage

The analysts noted that overall shrink — merchandise losses due to external and internal theft, damaged products, inventory mismanagement and other errors — makes up just 1.5% to 2% of retailers’ sales. That percentage has remained steady for years, despite retailers sounding the alarm more than ever about theft.

The National Retail Federation said that retailers’ losses, known as shrink, increased 19% last year to $112 billion, based on a survey of 177 retailers. But shrink as a percentage of sales fell during the height of the pandemic as stores temporarily closed and grew in 2022 as stores re-opened.

This hit to profits is relatively small and fleeting — not reason enough alone to close stores according to the analysts. At nine major retailers that have increasingly cited the rising impact of theft, shrink as a percentage of sales increased just 0.4% in 2022, they found.

“We believe there is a disconnect…between the expected increase in shrink and the attention it has drawn,” the analysts said.

A top Walgreens executive seemed to indicate as much earlier this year: “Maybe we cried too much last year” about theft and other losses, Walgreens finance chief James Kehoe acknowledged in January. Kehoe is no longer with Walgreens.

Alex Vitale, a professor of sociology at Brooklyn College who studies policing, said business leaders had turned retail theft into a “moral panic” to mobilize a stronger police and criminal justice response.

“It shows us the way certain crimes in certain moments get mobilized far beyond their impact to play into a set of political and social debates,” he said.

An earnings call excuse?

Many chains, however, are calling theft, particularly by organized groups stealing merchandise and re-selling it online, a national crisis.

Mentions of “organized retail crime” on companies’ earnings calls increased 43% from January through August from a year ago, the Chamber of Commerce found.

“Communities and businesses across the U.S. are facing a historic increase in crime, an alarming trend requiring a robust response,” the U.S. Chamber of Commerce, the primary lobbying group for businesses, said in a report this week.

Cities and states are passing new laws with harsher punishments for organized retail crime offenses and shoplifting. Former President Donald Trump, the Republican presidential favorite in 2024, has said shoplifters should be shot.

Target closings

Target said last month that it’s closing nine stores in major cities specifically because “theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance.”

But Target’s recent store closures in New York, San Francisco, Oakland, Seattle and Portland may be due more to the underperformance of Target’s smaller store locations. Local crime statistics also raise questions about Target’s rationale.

One analysis by journalist Judd Legum at Popular Information found that the stores Target is closing in both New York and San Francisco had lower reported theft rates compared to other nearby locations.

“We believe companies like Target could indeed be using the current narrative around shrink to take broader action in lagging parts of their business,” the William Blair analysts said. “We have to acknowledge potentially ulterior, more opportunistic motives.” “Target could be using shrink to mask other issues, including poor inventory management, which came to a head in 2022 following supply chain disruption” and is closing stores to “boost overall margins.”

Target has not shared data about those store closures directly. A Target spokesperson said that organized retail crime increased 50% in its stores since 2021. The company also said that theft incidents involving violence or threats had grown.

Other retailers’ strategies, such as self-checkout and low staffing levels, have also unintentionally made shrink worse. Costco management said this year that shrink increased “in part we believe due to the rollout of self-checkout.”

Five Below said that shrink at stores with more self-checkout lanes was higher. The company plans to increase the number of staffed cash registers in new stores.

Punitive policies

Meanwhile, businesses are pushing for tougher criminal penalties on thieves and asking for police and prosecutors to crack down on theft.

They have called for local and state government to more aggressively prosecute organized retail crime, lower the dollar thresholds for theft to rise to a felony, and reverse policies to eliminate cash bail.

According to the Chamber of Commerce, 12 states have created new statutes, revised existing statutes, or created enhanced penalties for organized retail crime.

But it’s not clear that lowering the thresholds for felony theft is an effective deterrence.

In early research on the topic in 2017, Pew Charitable Trusts examined crime trends in 30 states that raised their felony theft thresholds between 2000 and 2012. Pew found that raising the threshold had no impact on overall property crime or larceny rates.

The-CNN-Wire
™ & © 2023 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

Article Topic Follows: CNN - Business/Consumer

Jump to comments ↓

CNN Newsource

BE PART OF THE CONVERSATION

KIFI Local News 8 is committed to providing a forum for civil and constructive conversation.

Please keep your comments respectful and relevant. You can review our Community Guidelines by clicking here

If you would like to share a story idea, please submit it here.

Skip to content