The Retail Theft Surge That Isn’t: Report Says Crime Is Being Exaggerated To Cover Up Other Retail Issues

Overhype

from the misdirection-as-business-model dept

For months, it has seemed as though retailers are under siege, raided on a daily basis by organized groups of thugs who walk off with hundreds, if not thousands of dollars of merchandise.

This has been amplified by all forms of media. Clips from security cameras circulate social media with viral spread outpacing reality. This is further amplified by news media operations, which lead reporting with the same clips, offering up the same conclusory takes on isolated instances.

This has been a boon for law enforcement. Officials have used these incidents to ask for bigger budgets, despite being unable to offer any solutions to the problem other than throwing more money at it. That they’ve failed to deter this supposed wave of retail crime fails to register with local politicians who are just as likely as everyone else to assume whatever’s gone viral must be representative of the larger whole.

While it’s true there have some particularly daring robberies at retail outlets, those instances remain outliers. For the most part, the amount of retail theft hasn’t changed much. Most increases in “shrink” (the retail term for lost property via internal or external theft) can likely be chalked up to the off-loading of checkout duties to shoppers. Self-checkouts lend themselves to theft, something that is only now being addressed by retailers now that those losses have exceeded the labor savings that come from having customers ring up and bag their own purchases.

But the amount of shrink that can be attributed to self-checkout lanes (or, rather, the lack of best practices when deploying self-checkout options) isn’t enough to explain larger retail losses. So, the narrative has shifted to portraying the nation’s retailers as being victimized on a regular basis by organized smash-and-grab operations where thousands of dollars of merchandise is stolen in a single incident.

Meanwhile, cop shops get richer and politicians are once again talking about being tough on crime. But what’s being represented as a bold new wave of criminal activity is likely nothing more than retailers hoping to hide their losses behind the public’s skewed perception of the theft problem.

A new report by retail analysts at William Blair says a lot of what’s presented as evidence of a crime epidemic is just retailers hoping their own failures will go ignored as long as everyone continues to focus on these high-profile robberies.

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.

While the report does acknowledge there are areas of the country where organized theft is causing serious retail problems, it does go on to note that retailers affected by other issues are using these instances to hide preexisting problems, as well as to lobby lawmakers for favorable legislation.

While theft is likely elevated, companies a are also likely using the opportunity to draw attention away from margin headwinds in the form of higher promotions and weaker inventory management in recent quarters. We also believe some more recent permanent store closures enacted under the cover of shink relate to underperformance of these locations.

That’s just part of it. The analysts also suggest that retailers aren’t wise to jump on the hysteria train if they don’t need to. What’s being seen now is indicative of how things are going to go for the foreseeable future, given the relative ease of moving stolen property combined with the increase in the market for stolen products, given the pressure placed on the average American household by supply chain issues and increased inflation.

Combined with this bleaker macro outlook, the capacity to steal and move stolen goods has reached an inflection point. We do not see any of these trends reversing, in fact, we believe they will likely grow stronger in the coming years, particularly given online demand for secondhand goods amid an uncertain economic backdrop.

The upshot is most closed retail stores weren’t closed because they suffered too much theft. They were on their way out well before this due to their inability to maintain profitability even without increases in shrink.

So, when company spokespeople speak to journalists or issue widely reprinted press releases, it would serve viewers well to question what exactly is prompting the actions being taken. The analysts detail Target’s recent store closures as evidence of more widespread retail misdirection that attempts to blame (perhaps nonexistent) increases in theft for store closures, rather than mismanagement by either local management or Target Corporation as a whole.

Target has not quantified the dollar or basis-point impact of theft in the stores it is closing. And it would seem a relatively small and likely fleeting hit to profits could not be telling the whole story. Indeed, there is a more cynical theory as to why some retailers are choosing to close a store to address theft. One analysis by Popular Information found that the stores Target is closing in both New York and San Francisco actually had lower reported theft rates when compared to other nearby locations (though total dollar amounts were not reported and instances of violence are harder to parse out through reports alone).

More pointedly, we would note that after making a big push into smaller format, Target has not discussed the initiative since 2020. As such, we allow that 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 now exiting underperforming stores to boost overall margins. Meanwhile, stores in downtown locations could also be seeing as much if not more of an impact from lower overall traffic patterns.

The rest of the report details statements from several retailers, most of which either say that shrink remains a manageable problem or that it has increased year-over-year, but only to meet the percentages seen pre-pandemic (2019). While there may be more cases of organized retail theft, retail theft overall simply isn’t what it seems to be when the most “reporting” is simply regurgitation of the last social media post to go viral.

Filed Under: crime reporting, retail theft, shoplifting, shrink
Companies: target