Retail theft, or “shrink,” as business executives put it, has run wild .In waves of earnings calls , references to shrink resemble the retail industry’s upside-down version of mentioning AI.But instead of generating hype, citing shrink softens the blow of sinking profits.The most prominent mention of shrink in recent weeks came from Dick’s Sporting Goods ( DKS ).On a call with analysts following its Aug.
22 earnings report, CFO Navdeep Gupta said, “The biggest impact in terms of the surprise for Q2 primarily came from shrink.” Gupta went on to say, “The number of incidents and the organized retail crime impact came in significantly higher than we anticipated.” The company cut its full-year profit outlook in response.The theme of missing merchandise also featured in recent calls from Dollar Tree ( DLTR ), Macy’s ( M ), Home Depot ( HD ), and Target ( TGT ).Analysts say the trend reflects a real problem for retailers, and one that they are taking steps to prevent.
“Nobody wants to come out and say, ‘We are not in control,'” said David Johnston, NRF vice president of asset protection and retail operations.”To see the number of CEOs coming out and talking about shrink and loss — it’s an issue.” Dollar Tree, for instance, told investors it is installing locked cases on more items and even taking some SKUs out of stores in response to elevated theft.”We are now taking a very defensive approach to shrink,” Dollar Tree CEO Rick Dreiling told analysts this week.And as executives continue to hammer on the industry-wide threat coming from shrink, the concept has gathered momentum and can work as a crutch for explaining weaker financial performance.”There is a bandwagon effect here,” said Neil Saunders, a retail analyst at GlobalData.”When one retailer starts to call something out, others will look at it.And because everyone is interested in it, that fuels more mentions of theft.” Growing ‘shrink’ But data suggests that behind a new industry-wide excuse for business slowing down is an uptick in theft and increasing concerns for safety.Retailers say that shrink amounted to $94.5 billion in 2021, according to the National Retail Federation’s (NRF) annual of survey of companies, up from $90.8 billion in 2020.
As a percentage of sales, however, that figure came out to about 1.4% of sales, down from 1.6% in 2020.Retailers also reported a 26.5% increase in organized retail crime incidents, when groups of professional shoplifters steal and resell stolen goods.While the latest figures are nearly two years old, sustained commentary from executives suggests that shrink is a growing problem for them,.Jonathan Simon, a criminal justice professor at UC Berkeley School of Law, said businesses probably do have relatively accurate estimates of how much their inventory is shrinking due to theft.And that it’s possible retail theft has increased partially because of online resale platforms, which serve as a conduit for organized theft for profit.”But businesses also have an incentive to place more emphasis on theft as it shifts the responsibility for business shrinkage — never a good look to investors or customers — to an abstract but blameworthy factor like organized crime,” he said.The public also has a tendency to place all retail theft in the same category, he added, lumping together organized theft, survival theft by unhoused or very poor people, and teenagers and younger adults acting out by stealing.”Each of these really needs to be seen as distinct problems with distinct solutions.” Beyond the ‘smash and grab’ The dramatic crime figures and sensationalized videos that have drawn broader public attention have also invited criticism that the problem might be overblown.
In a widely covered backtrack, Walgreens CFO James Kehoe said earlier this year that the pharmacy chain ” cried too much ” about theft on a prior earnings call that was among the first to ignite concerns about retail crime.But retail industry experts insist this quarter’s references to shrink aren’t merely executives crying wolf.Janine Stichter, a research analyst covering consumer retail and lifestyle platforms at BTIG, said citing shrink figures isn’t something that you can fake for very long.Stichter sees the timing of shrink’s big moment in earnings calls, which picked up at the end of last year, as coinciding with price increases and a weaker economic environment, highlighting a link between crime and a tougher economy.
Under the strain of higher costs, consumers squeezed by inflation, and shifts in shopping habits, the industry faces a host of challenges even without the pain and risks of theft.”Shrink is clearly an issue, but so is the tremendous volatility that the consumer and retail has experienced over the last nearly four years,” said Ethan Chernofsky, senior vice president of marketing at Placer.ai , a location analytics firm.”The pandemic presented a unique set of circumstances and just when we expected a period of normalcy as the pandemic’s effects faded, a wide array of economic challenges disrupted retail ‘normalcy.'” Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy.Follow Hamza on Twitter @hshaban .
Click here for the latest stock market news and in-depth analysis, including events that move stocks Read the latest financial and business news from Yahoo Finance.
