US retailers are warning of an increase in thefts, some costing hundreds of millions of dollars as they try to trick organized criminals with more security and monitoring.
Target alerted investors that “downturn” — an industry term that includes shoplifting, employee theft and organized retail crime — will cut its earnings this year by $500 million more than in 2022.
DIY retailers like Home Depot and dollar stores including Dollar Tree said the downturn slashed their gross margins by several basis points in the first quarter, while Foot Locker was among several retailers that cited a “significant” year-over-year increase.
Retailers’ concerns about shoplifting have grown through the economic and social disruptions of the pandemic, with the industry losing nearly $100 billion to shrink in 2021, according to the National Retail Federation. But the problem has since worsened, industry members say, terrorizing employees and scaring away customers.
New York Mayor Eric Adams said the city saw a 45 percent increase in retail theft complaints last year as he announced plans earlier this month to “end running crime in our retail stores.”
More than 80 percent of American retailers experienced an increase in losses last year, according to Jack L Hayes International, a “loss prevention” advisory firm. Survey respondents expected 46 percent more shoplifters and dishonest employees to recover 70 percent more in stolen goods, but for every dollar they recovered, they reported losing more than eight dollars due to theft.
Reed Hayes, a University of Florida criminologist and director of the Loss Prevention Research Council (LPRC), said retailers are facing more frequent, costly and violent incidents this year than before.
He said this had led to a “massive” increase in spending to try to secure corporate goods and employees. One survey, from Insuranks.com, found that 56 percent of retail workers feel insecure.
LPRC is working with retailers and technology companies including Nvidia, Lenovo and Intel on responses ranging from tags to track stolen goods to AI-powered surveillance systems to identify repeat offenders and their vehicles and weapons.
Some retailers admit their efforts have not had the impact they had hoped.
Ulta Beauty CFO Scott Stirsten recently told analysts, “Going into 2023, we thought deflationary trends would moderate a little bit because of some of the investments we’ve been making behind mitigation tactics. But it hasn’t really resonated yet.”
Other retailers have responded by closing outlets altogether, with REI and Nordstrom following Starbucks in closing stores in West Coast cities. The owner of the vacated Nordstrom mall in San Francisco told local media that its exit reflected the city’s “lack of enforcement against rampant criminal activity.”
“Ultimately, deflation will be resolved through defensive trade and store closures and/or through government action at the local level,” Dollar Tree CEO Rick Drilling told analysts.
One industry-backed piece of legislation, the Consumer Reporting Act, passed Congress last year and aims to make it harder for criminals to sell stolen goods by having online marketplaces monitor bulk sellers.
Executives are pushing for more government and police action as House and Senate committees revise the industry-backed Anti-Organized Retail Crime Act, which would strengthen the ability of law enforcement agencies to prosecute criminal groups.
“Retail cannot solve this problem on its own. It will take communities stepping up and law enforcement to be able to bring this issue back under control,” John Furner, Wal-Mart’s president of U.S. operations, told analysts.
The wave of retail crime is fueling debates about criminal policy in the country’s largest cities. “Decriminalization of certain crimes, bail reforms, and progressive [district attorneys] “Theft problem is fueled,” said Mark Doyle, president of Jack L Hayes International, adding that thieves now see shoplifting as a “low-risk/high-reward activity.”
Bob Eddy, CEO of BJ’s Wholesale Club, echoed that message on the retail chain’s latest earnings call. “It’s a more pronounced problem in certain places, particularly on the West Coast, or places like Chicago or Albuquerque that have blue state or local blue governments that don’t really feel like going after crime,” he said.
As retailers await further action, they are reserving more items to secure both the high-value items that the thieves plan to sell and the cheaper products that people need to feed themselves.
“We used to say you don’t see anyone running out of spam boxes,” said the LPRC’s Hayes. “Now in parts of New York they put their junk in polycarbonate boxes.”