Brian Cornell, CEO of retail giant Target, told analysts and shareholders in a May 17 conference call for its Q1 2023 corporate earnings report that an “unfortunate fact” of doing business in America right now is that “violent incidents are increasing at our stores and across the entire retail industry.”
“Left unchecked, organized retail crime degrades the communities we call home,” Cornell continued, adding, “Beyond safety concerns, worsening shrink rates are putting significant pressure on our financial results.”
What Cornell calls “shrink rates” is explained rather politely within Target’s actual earnings press release in the following way: “While there are many potential sources of inventory shrink, theft and organized retail crime are increasingly important drivers of the issue.”
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“As we look ahead, we now expect shrink will reduce this year’s profitability by more than $500 million compared with last year,” Cornell stated.
A New York Post article clarified that Target lost $800 million in “shrink” in 2023, which would cumulate the projected 2023 cost to shareholders at $1.3 billion.
$1.3 billion is an impactful figure in that year over year quarterly revenue of $25.3 billion represented a growth of only 0.6 percent, with sales growth growing by only 0.5 percent.
While the company gained 0.6 percent in operating margin thanks to a collapsing trucking market driving shipping rates down, combined with inflated prices, the press release noted, “These benefits were partially offset by higher inventory shrink.”
Despite the news, Target’s shares actually gained 2.58 percent on the day amid market-wide positive sentiment that the looming U.S. debt ceiling crisis would be resolved without much ado, closing at $160.96 compared to the prior day’s $156.91.
Target’s market capitalization is still over $70 billion dollars.
Organized retail crime has been enough of an issue that industry lobbyist group National Retail Federation (NRF) issued a report in April on the topic, where they note the trend includes a range of tactics, such as, “shoplifting, fraud, burglary, robbery, or the use of complicit insiders to steal or fraudulently obtain merchandise.”
The NRF sought to make an important distinction between organized retail crime, which it acronyms to “ORC,” and basic shoplifting, noting that ORC’s motive “is to resell stolen goods for profit” instead of for personal use.
Some notable findings the NRF found were that:
- Only 11 percent of ORC groups targeted luxury goods
- The median value of goods stolen by an individual before arrest was $5,000
- The median value of goods stolen by an ORC ring before law enforcement disruption was $250,000
- 16 percent of thefts utilized at least one “violent tactic” between 2014 and 2022
- The sellers’ market is migrating away from platforms and towards peer-to-peer methods of exchange
- ORC activity is often organized and carried out on the dark web
- However, stolen goods are rarely sold on the dark web
Crime crushing establishment retail chains has made headlines in recent months.
For example, late April reporting showed that a flagship Whole Foods that went out of business while attempting to launch an iconic venue in downtown San Francisco after only 13 months had made 568 calls to emergency services while it was operational.
April was also notable in that an organized retail theft ring operated by a trio of Chinese nationals based in New York State was busted after pilfering tens of thousands of dollars worth of goods from retail outlets in Fairfax, Virginia.
Photos published on social media by Fairfax County Police of a cache of stolen goods seized showed upwards of 25 bags with the logo of retail chain Macy’s.
Cornell told listeners that “year on year we continue to see increases [in theft],” further describing the phenomenon that has become endemic as “widespread.”
“…and I can tell you, as I talk to my retail peers, is that it’s a common theme across all of retail. It’ll vary by market, individual store, but the trends have been very persistent,” Cornell continued.
On May 9, just days prior to the company’s Q1 earnings, The San Francisco Standard reported that employees at the Target in the city’s downtown core witness “at least 10 thefts a day” where “products from cereal to nail polish and aluminum foil are regularly taken.”
“Look in some corner of the store, and you’ll see people shoveling stuff into a bag—food, cosmetics,” said one staffer who wanted to remain anonymous.
The article showed photographs of how bad the situation had become, with rows and rows fully stocked with basic items such as deodorant being locked behind glass and key.
Photographs of items not under lock and key, like cosmetic lipstick, showed empty shelves by comparison.
One worker was paraphrased as stating “they regularly see people who appear to be homeless taking food, especially cereal, and sometimes eating it in the store.”
Another was paraphrased as saying “they see empty candy bar wrappers, cans of soda and occasionally liquor bottles around the store roughly five times a day.”
Items such as beef jerky are enclosed in individual thick plastic cases.
Business Insider reported that during the conference call, John Mulligan, Chief Operating Officer, characterized the measures as “mitigation efforts” in comments to analysts and shareholders.
Mulligan was paraphrased as admitting “that layer of security does come at a cost to sales, as it adds friction to the customer experience.”
In April, a 25-year-old employee at a Chicago Target store was stabbed while confronting a shoplifter, the Chicago Sun Times reported.
In a May 12 article, Business Insider recounted an instance shared with them by an employee at a Target in Nevada, “when shoplifters loaded up a cart full of liquor and headed out the door.”
When a security guard attempted to intervene, one of the bandits lifted their shirt, revealing a gun.
“Company policy bars most Target employees from attempting to interfere with shoplifters — including brazen ‘push-out’ robberies in which carts of merchandise are wheeled out to a getaway car,” the article reads.
Target Chief Financial Officer Michael Fiddelke warned investors in an interview with Yahoo Finance in February when he reiterated that, “We know we’re not alone in seeing elevated levels of shrink and organized retail crime driving some of that theft.”
Fiddelke cautioned that the “shrink” was amounting to “hundreds of millions of dollars of headwind” that was liable to affect the company’s 2023 performance.