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How is organized retail theft impacting businesses? What is shrink?

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  • Staff Report 

A surge in shoplifting incidents has forced retailers such as Walmart, Target, Dollar General, and Home Depot to implement stringent security measures, affecting the shopping experience for customers. Bloomberg data reveals a significant rise in missing inventory discussions in recent quarterly earnings calls, underscoring a prevalent concern amongst retailers – shrinkage. The industry term refers to the loss of profits due to discrepancies between listed and actual inventory.

Retailers are facing profit declines from shrinkage, driving increased prices and even store closures. Home Depot’s gross margin fell 33.7% in Q1, primarily due to shrinkage. Ulta Beauty revised its full-year guidance reflecting pressure from inventory shrinkage. Target anticipates a shrink-related reduction in 2023 profitability by over $500 million if current trends persist. The retail industry, at large, is attributing shrinkage to organized retail theft, resulting in the resale of stolen items on platforms like Amazon and eBay. A report from the National Retail Federation (NRF) noted a 26.5% increase in organized retail crime incidents in 2021.

In response to rising theft, retailers have reduced store hours and enhanced security measures, leading to locked merchandise and increased reliance on technology like smart shopping carts and self-servicing cabinets. However, such measures are perceived to be impeding the shopping experience, with nearly 43% of surveyed shoppers expressing unwillingness to purchase locked merchandise, according to a 2021 report from the Loss Prevention Research Council.

There is controversy over the interpretation of available data, with critics questioning whether losses are being overly attributed to organized crime. NRF data indicated a rise in shrink losses from $90.8 billion in 2020 to $94.5 billion in 2021, although the average shrink rate dropped from 1.6% to 1.4%. This discrepancy suggests that the increase in dollar losses may be due to inflation rather than an increase in shrink or theft. To mitigate the increasing trend of organized retail theft, lawmakers have introduced the bipartisan Inform Consumers Act requiring online marketplaces like Amazon and eBay to verify seller information.