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Is the Recent Retail Shrink Crisis as Bad as It Seems?
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With seemingly endless reports coming in about retail shrink each day, it feels like theft is out of control in America. Some of these recent reports include:
- Home Depot tracking down a crime ring
- San Francisco PD launching blitz operations against retail theft
- Mounting theft losses from shoplifting, flash mobs, and organized crime
- Numerous videos of flash mob robberies
- Las Vegas tackling organized retail crime
Target has recently announced the closure of nine stores and named retail theft as the culprit. Additionally, many retailers across all spectrums, including “Home Depot, Lowe’s, Dollar Tree, Dick’s Sporting Goods, and Ulta, have raised concerns about disappearing inventory, known as ‘shrink.’”
According to Newsweek, retail companies are now seeking additional police help, such as by asking them to record all details of any robbery. Meanwhile, law enforcement agencies in multiple states and counties are receiving grants or allocating funds to specifically target retail theft. California, for instance, recently made the “largest-ever investment to combat organized retail crime.”
The National Retail Foundation added that “retailers are seeing unprecedented levels of theft coupled with rampant crime in their stores, and the situation is only becoming more dire.” This is following the NRF’s last annual survey, which involved 177 retail brands and said that “when taken as a percentage of total retail sales in 2022, shrink accounted for $112.1 billion in losses, up from $93.9 billion in 2021.” That’s a 19.4 percent spike.
The survey stated that “internal (employee) theft reported in at 29% of shrink loss,” and “process, control failures and errors came in at 27%.” Their data also concludes that there is not much direct evidence that organized retail crime by itself has drastically increased compared to previous years, since 36% is attributed to external theft.
Some industry experts question the claims of retailers who argue that losses from shrinkage are significantly impacting their profits, with many believing “other factors are also at play,” according to The Washington Post. This skepticism arises especially when considering the current consumer trend of reducing nonessential expenditures and opting for more affordable alternatives in response to rising inflation. And earlier this year, Walgreens’ leadership revised statements from 2021, indicating that organized retail theft wasn’t the sole cause for shutting down five San Francisco locations.
FreightWaves reported that major companies such as Walmart and CVS have adopted unconventional and expensive strategies to tackle theft. Meanwhile, the NRF is urging Congress to allocate more federal resources to fight organized retail crime.
FreightWaves also explained that “some aren’t entirely convinced the retail theft is really that bad. Industry data on the problem is hard to solidify, and it hasn’t exactly shown a massive upswing in shrink either. Others say retail theft, while certainly an issue, might be overstated as an excuse to write off mediocre sales — or harebrained strategy shifts.”
The managing director at GlobalData Retail, Neil Saunders, told FreightWaves that retail theft is real but explained that it might also be a scapegoat for bad choices and supply chain issues. S&P Global Ratings retail analysts also added that retailers might be exaggerating their retail theft numbers this year as a result of failed inventory management and merchandise execution.
Whether or not retail theft is at the root of many retailers’ excuses to close up shop, one thing that does seem to be more unanimously agreed upon by experts is the severity of recent thefts. Ranging from flash mob burglaries to dangerous altercations between thieves and employees, theft seems to have escalated compared to years past and shouldn’t be ignored.
Discussion Questions
Do you agree with the skepticism regarding retailers attributing their losses solely to shrinkage, and if so, how might broader economic trends be influencing retailers’ claims about theft-related losses? Do you think retail theft will be under control by this holiday season and going into next year? Does there need to be more accountability on consumers and the outlets allowing for easy sale of aftermarket possibly stolen goods?
Poll
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Mark Ryski
Founder, CEO & Author, HeadCount Corporation
Lucille DeHart
Principal, MKT Marketing Services/Columbus Consulting
Theft is an issue and one that deserves to be taken seriously. There has been an upswing in the cost of theft, but as per the NRF data, it is not as dramatic as is sometimes made out – especially as a proportion of sales. One of the issues is that the terms theft and shrink are used interchangeably. Shrink is a much wider concept that, as well as theft, includes all kinds of operational failings that have nothing to do with crime. Most retailers do not break down or quantify shrink, so it is very hard to understand what is actually driving the numbers. All that said, retail crime needs to be prosecuted and shoplifters – especially organized gangs – brought to book. Retail crime is not victimless and it comes with serious costs attached, some of which can expose staff to violence.
Good points on the components of shrink. Maybe the media is overplaying the organized retail crime story, but if stores are closing because of retail theft, it is a real issue. In cities where retail theft is getting out of control, stores are locking up merchandise which makes shopping very inconvenient and weird. We can’t ignore the retail crime issue.
I would add that not only is their confusion between the various categories of shrinkage, there’s confusion between the categories of theft: flash mobs get a lot of attention, but are but a tiny part of it;
good-bad-old (conventional) shoplifting is a bigger problem, but internal theft and pilferage is the elephant in the jail-cell.Absolutely agree with Neil. Shoplifting rings are not new, nor should they be ignored. Theft is a component of total shrink, but many factors go into the calculation including the efficiencies and accuracy of the software being used to track inventory. Downtrending sales also aggravate the results. During wobbly sales performance, shrinkage is a particularly aggravating thorn in the side of the retailer.
I believe there are a number of factors at play here with shrinkage being one major factor. Closing underperforming stores is simply good business and changing economic conditions are another in the closings, but shrink is center stage because it sells in the media.
Retailers are moving to a model with fewer people in the stores. They’re leveraging technologies like self-checkout and robots because it saves money. The downside is that it increases the openings for opportunistic theft. I certainly understand why we are doing it, but I also feel we need to leverage other technologies to protect ourselves. AI solutions that protect assets like advanced checkout video monitoring and RFID-enabled serialized inventory are just a few. Savvy retailers need to invest in these supporting solutions to reap the rewards. You can’t sell from a closed store!
It’s hard to deny that theft is a significant issue for retail, in general – from innocuous leakage at the self-check out to the extreme and terrifying flash mobs – but I do agree that some retailers are using these occurrences as an excuse to make hard decisions, like closing stores or as the reason for delivering poor financial results. It’s worth noting that, according to the survey, 29% of theft was related to employees and 27% to failures in processes – that’s 56% related to things that are internal to the retailer. Retailers are taking steps to enhance their loss prevention efforts and that includes locking-up goods, increasing in-store security and tightening up their internal controls, and over time this should all help reduce the theft problem. That said, retail theft is never going away completely and as long as there is public interest, the media will continue to amplify these events and bring more attention to the problem.
Maybe it’s sometimes hard to know exactly which straw broke the camels back, but add up all the variables, and some stores are just no longer viable. It’s one thing to talk about shrink overall as not being a huge issue, but when it’s location specific it quickly rises to the top of the list for considering a store closing. Location specific data is what matters most, not the general overall conversation.
Clearly shrink and retail theft are among the reasons for a retailer’s lackluster performance and ultimately driving decisions about store closures, etc. However, there are other contributing factors that should not be overlooked and must be considered to not only weather the holiday storm, but establish firm footing for 2024 and beyond:
This type of crime will continue to escalate as long as the governing laws stay favorable to the criminals. Smash and grab seems to be considered a victimless crime with bail-free release in many cities. This, coupled with employer rules to not engage, create the perfect climate for theft. Cities need to take this more seriously as it is their responsibility to enable safe business environments. The shoplifting sprees are not exaggerated. Retailers like Target have been, excuse the pun, targeted for theft. Brands like Lululemon prohibit employees from even verbally detracting criminals. Crime prevention has become a burden for regular shoppers as many products are under lock and key or under glass. It has been proven (cosmetics) that open sell environments are more successful, so the industry is moving in the wrong direction.
I’m one of the skeptics. Treat employees better and watch shrink get reduced.
By the way, the top 3 causes of shrink (and have been forever) are employee theft of cash and merchandise, administrative errors and customer theft. ORC is rather down the list.
With internal theft and process control failures making up more than half of the shrink number, we are missing the second half of the story; the increased spending by retailers to combat theft and broken processes. This increased spending on additional labor, processes, and systems is also a direct drag on the bottom line. Combine the increased spending on these systems and process, including the increased use of EAS tags, CCTV, digital storage, network capacity, and BI tools with the actual shrink $ and the problem is real and a growing impact to the profitability of certain locations.
There are some eye-opening facts behind the concerning developments with retail theft, the impacts on the retail pharmacy industry, and the unfortunate fact that retailers are starting to abandon major US cities:
However, while the rise of retail theft is very concerning, we must consider that losses attributed to shrink are incorrectly intertwined with criminal acts. There are operational inefficiencies and challenges across the global supply chain that lead to product damages, loss, and systemic issues related to inventory management that have had an impact on retailer’s bottom line that frequently need to be taken into account.
There are no immediate solutions for the rise of retail theft despite the best mitigation strategies implemented by Costco, Lowe’s, Best Buy, Tractor Supply Company, and others. Unfortunately, despite the recent news reports and viral social media posts, retail crime is not widely considered a serious enough offense for law enforcement to provide more of a presence in areas that recent thefts have impacted. The last thing we want to do is to put the accountability on store associates, as it leaves them in situations where they could be injured and their livelihoods impacted.
The short answer is theft/shrinkage is happening, and it must be brought under control. When you hear that Target and other retailers feel the best solution is to simply shut down a store, you should be concerned about the situation being out of control. Yes, it impacts profits, and the only way to negate that is to increase prices. The problem is that increasing prices may make a company less competitive and vulnerable to customers who are more loyal to a lower price than the store.
Certainly a group like the NRF has a strong reason to dramatize, since that’s their purpose…passing legislation (“Everthing’s great, but pass this law, just in case” isn’t a winning message.) Specific numbers, or retailers actually telling us that’s why they’re closing stores is a little harder to dismiss. And some of the loudest skepticism comes from the usual apolgists; it might be hard to imagine someone actually being “pro-crime”, but I’ve seem pople who do their darnedest to earn that title.
I think, there is some validity to the skepticism regarding retailers attributing all their losses solely to shrinkage. While theft is definitely a concern, it’s possible that other factors, such as poor management or supply chain issues, may also be contributing to the losses suffered by the retailers. Additionally, broader economic trends, like rising inflation and changes in the spending habits of customers are also playing their role in these losses, so retail theft might not be the sole culprit for some store closures.
As for whether retail theft will be under control by the holiday season and next year, it’s challenging to predict. Efforts to combat theft are underway, but it may take time to see significant improvements. Regarding accountability, it’s essential for both customers and retail outlets to ensure they aren’t involved in the sale of potentially stolen goods. Ultimately, responsible shopping and vigilant store practices can help reduce the market for stolen items, contributing to a safer retail environment.
Theft has always been an issue. The problem is now amplified because of the slowdown in the business due to lack of foot traffic as people from home. You can afford the shrink when the store is busy, but not when the store is not. The other issue is Organized theft is on the rise (I always say there is a difference between someone swiping a sandwich, and someone swiping 10 lipsticks and multiple meds). What should have happened early on was for politicians and law enforcement to treat organized retail crime in the same way organized drug and gang activities, and also educate the public of the difference. It now takes time to break the fencing and distribution network and we won’t see results for a while. Social media and relentless coverage by mainstream media for clicks also doesn’t help with public perception.
Retail theft used to be around corners and fixtures, out of sight. But it’s plain as day, especially here in Seattle since 2020. I’ve watched several brazen thefts at drug stores, my wife frequently sees stacks of clothes go out the door at an upscale mall, and just last week I witness 4 uniformed security guards at an upscale grocer scurrying after random thieves looking to grab food. These events are real.
Retailers are under duress, having to either let merchandise go freely out the door per corporate mandates to avoid confrontations, or they’ve significantly upped spending on security. So,what are retailers to do? Absorb it all and boost retail prices? Wait for the government to hire more police officers and enforce the law? Stores will close to protect their store teams and bottom line if crime is allowed to continue at this rate.
For smaller, independent store owners, they will suffer the most the longer this plays out.
Time to get to work on this issue.
I’m with Saunders on this one. Shrink in retail has many root causes, and putting it all on organized theft rings seems all too convenient.
Sure, the smash-n-grabs on the news are sensational. Systematic theft of detergent pods is a development that was hard to predict.
But using these incidents as a reason to treeclose stores seems awfully convenient.
Retail theft is an ongoing issue and there is validity to the sentiment that it has gotten worse with the implementation of lenient shoplifting laws. However, it’s not the main factor causing shrinkage: post-pandemic, consumers are more reliant on eCommerce platforms for shopping and with inflation impacting budgets, many are cutting back on nonessential spending.