Target says organized retail crime-fueled losses have shot up

Target said Wednesday that organized retail crime will fuel $500 million more in stolen and lost merchandise this year compared with a year ago.

Target’s shrink totaled about $763 million last fiscal year, based on calculations from the company’s financial filings. With the anticipated increase, shrink this year would surpass $1 billion.

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It can be difficult to quantify theft, since shrink includes inventory losses from other causes, such as employee theft or damage, too.

CEO Brian Cornell called out the challenge on the company’s earnings call, saying the retailer and others are grappling with rising theft on top of slower sales and more price-sensitive shoppers. He described retail theft as “a worsening trend that emerged last year,” and said violent incidents have increased at Target’s stores.

“The problem affects all of us, limiting product availability, creating a less convenient shopping experience, and putting our team and guests in harms way,” he said on an earnings call with investors.

Organized retail crime has become a hot-button issue in the industry, and some companies have blamed the growth of online marketplaces that allow thieves to anonymously sell electronics, makeup and other items they stole from stores. Home Depot, Walmart, Best Buy, Walgreens and CVS are among the major retailers that have spoken about the problem, saying that shrink has gotten worse.

“The country has a retail theft problem,” Home Depot CFO Richard McPhail said on a call with CNBC on Tuesday. “We’re confident in our ability to mitigate and blunt that pressure, but that pressure certainly exists out there.”

Yet it’s hard to verify if organized retail theft has grown and if so, by how much. Shrink cost retailers $94.5 billion in 2021, up from $90.8 billion in 2020, according to the National Retail Federation. Its data is anonymized and shared by retailers, so it cannot be fact checked.

External retail crime accounts for only 37% of those losses, or about $35 billion, the NRF data shows.

There are other caveats. Covid fears and pandemic-related temporary store closures disrupted 2020, potentially tamping down foot traffic for both shoppers and thieves. Plus, shrink comes not just from shoplifting and employee theft, but from damaged products such as dinged furniture and expired food.

Target has become more vocal about organized retail theft, as it has struggled with excess inventory and its margins have disappointed. It missed Wall Street’s earnings expectations for three consecutive quarters last year. Unwanted merchandise sat around in its stores and warehouses, before the company took aggressive action to cancel orders and mark items down.

Cornell, however, has stressed that more theft is the driving Target’s worsening shrink.

Chief Financial Officer Michael Fiddelke said on company’s investor call Wednesday that shrink reduced the company’s gross margin rate in the fiscal first quarter by a full percentage point compared with a year ago.

Cornell said Target is trying to reduce theft by installing protective fixtures and adjusting assortment in some stores. He said the company is working with politicians, law enforcement and retail industry trade groups to come up with policy solutions.

Some retailers and trade organizations pushed for the INFORM Consumers Act, a law that’s intended to require verification so thieves can’t easily sell stolen or counterfeit goods through online marketplaces. It was included in Congress’ omnibus spending package late last year and relies on enforcement by state attorneys general.

Cornell said the company is “focused on keeping our stores open in the markets where problems are occurring.” It has roughly 1,900 stores across the country, which are located in suburban areas and major cities including New York City and San Francisco.

— CNBC’s Gabrielle Fonrouge contribute to this report.