Grand Theft Retail? Maybe…Maybe Not

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It’s the retail crisis du jour: Crime.  Specifically, in-store theft and robberies are what the industry still refers to as shrinkage. Theft seems to be rampant and it’s practically all anybody in the business can talk about.

Make no mistake about it: The stealing spree is real and it’s putting the hurt on retailers trying to figure out how to balance in-store security with an inviting shopping experience for the vast majority of consumers who are checking out with their credit cards, not merchandise hidden under their coats. Across the entire retail spectrum from high-end luxury stores to deep-down discounters and dollar stores, companies crying “Enough”

But some people believe the level of theft noise is just that: a distraction from poorly performing brands and an excuse to close stores that are just not doing very well — for whatever reason. Who is telling the retail truth? Is it door #1, #2…or #3 (all of the above)?

Store closings blamed on robberies could be “Get out of town free” cards to serve as cover for underperforming locations. Buried in all the press about significant store closings in downtown San Francisco by Nordstrom, Gap and Whole Foods blamed on crime was the fact that these stores were taking big hits from the lack of office workers in downtown.

Door #1: Crime Stories

Blame it on inflation, blame it on social unrest or blame it on a dysfunctional political climate where just about anything is fair game. Whatever the reason – and we’ll leave that for the sociologists ten years down the road – theft in stores is up.

How much? Bad enough that the National Retail Federation is declaring Oct. 26 Fight Retail Crime Day and is urging its members to come to Washington, D.C., to advocate for passage of the Combating Organized Retail Crime Act. The NRF’s 2023 National Retail Security Survey found that retailers lost an estimated $112.1 billion to shrink in 2022 up from $93.9 billion in 2021. The group said the average shrink rate in 2022 increased to 1.6 percent, up from 1.4 percent the previous year.

How bad? Bad enough that, following Target’s announcement that it would close nine stores primarily because of crime, the U.S. Chamber of Commerce issued a statement to CNN that it was “deeply concerned with increasing reports of stores closing in communities across the country due to large-scale theft and looting.” The Chamber’s Tom Wickham, senior vice president of state and local policy, added, “No store should have to close because of theft.”

How bad? The Target closings, which involve locations in New York City, Seattle, Portland and the San Francisco/Oakland Bay area, certainly seemed to have galvanized the industry in a way no other statements have. “We cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance,” Target said in a statement, using Target-speak for its employees (team) and customers (guests). “We know that our stores serve an important role in their communities, but we can only be successful if the working and shopping environment is safe for all.” Target CEO Brian Cornell said the company was taking a $500 million hit from all of this.

Many other stores are reacting similarly but to different degrees. H&M said it would be increasing in-store security and using as-yet-unidentified tech systems to combat the thefts. An NRF survey found 28 percent of retail respondents said they had to close specific stores and 45 percent had to cut back on operating hours.

Besides Target, a number of other retailing executives have told analysts in releasing financial results that this was causing problems throughout their balance sheets. “Organized retail crime and theft in general (is) an increasingly serious issue impacting many retailers,” Dick’s Sporting Goods CEO Lauren Hobart said on the company’s last call. “The impact of theft on our shrink was meaningful to both our Q2 results and our go-forward expectations for the balance of the year.”

The phrase “organized retail crime” seems to turn up throughout retailer and NRF statements, suggesting a professional, coordinated campaign. They would seem to describe trained gangs storming a store and running out with serious armfuls of expensive fashion accessories and jewelry — instead of the singular shoplifter or even store employee pocketing a watch or two as they leave the store. Both do seem to be happening, but local news shows are running endless iPhone videos of the former while the latter is much harder to catch on camera. As we said, this is serious shit, and it is perhaps worse than it’s ever been.

Door #2: Other Stories

Given all of the attention paid to retail theft – something that has been a fact of life in the industry since dry goods stores opened in lower Manhattan 200 years ago – some people are suggesting that perhaps if retailers are not crying wolf, they are at least showing modest wolf-crying tendencies.

A CNN report on the Target closings in late September said, “Crime statistics are not growing significantly more serious.” It further reported “It is not clear whether the stores were underperforming or not reaching their revenue goals. Target did not comment on this or provide data on theft at the stores.”

New York Magazine’s Intelligencer newsletter was even more skeptical when it reported that while one of the Target closings was in the Harlem neighborhood of Manhattan, the retailer was “moving forward with plans to open new locations in the Bronx, Chelsea, Union Square, Kings Plaza in Brooklyn.” And for the real skeptics, “on 125th Street, just a mile and a half from the lame-duck location in East Harlem.”

The reporter quoted a shopper in that soon-to-be-closed location who asked the obvious question (and frankly we wondered why the shopper seemed to be taking such an industry view of things): “Why are you opening a new Target if this one is being robbed? You think that one isn’t going to get robbed too? I don’t understand.”

Perhaps more than a few people don’t understand and see these store closings blamed on robberies as essentially “Get out of town free” cards to serve as cover for underperforming locations. Buried in all the press about significant store closings in downtown San Francisco by Nordstrom, Gap and Whole Foods blamed on crime was the fact that these stores were taking big hits from the lack of office workers in downtown.

A case in point about the ambiguity about store closings is the recent announcement from Starbucks that it was closing seven locations across San Francisco. Nowhere was any blame assigned to crime and instead, the company implied that business at these locations just wasn’t very good. The assumption is that the lack of daytime officer workers – and perhaps tourists scared off by the homeless situation downtown – were the real reasons for the closings. Starbucks made sure to point out it had opened three new stores in town in the past six months and was renovating four others.

The Intelligencer story in New York raised the point that “reliable data on shoplifting is extremely difficult to come by” given the fact that many such crimes are never reported to the police so they can’t be attributed to a specific occurrence. Shrink, it said, is “a catchall figure that includes merchandise stolen by both employees and the general public, lost to processing errors or evaporated without explanation.” It further put these new numbers into some valuable context. “Shrink can be misleading,” it reported, saying the NRF data was “only a slight uptick as a percentage of sales and it’s in line with analysts’ expectations.”

Some retailers are pulling back from their sky-is-falling proclamations. Walgreens’ chief financial officer, James Kehoe, said during an earnings call earlier this year, “Maybe we cried too much last year when we were hitting numbers that were 3.5 percent of sales,” The Guardian reported, citing the Walgreens’ earnings call transcript. “We’re down in the lower twos, call it, the mid-2.5, 2.6 kind of range now,” Kehoe said the drug chain may have overreacted on its anti-crime measures in its stores. “We’ve put incremental security in the stores in the first quarter, actually, probably we put in too much, and we might step back a little bit from that.”

Door #3: All of the Above

So, who’s right? Neil Saunders, the well-known retail consultant from GlobalData, told Intelligencer, “I think there is a theft problem that has to be recognized but I think there is a bit of a bandwagon effect.” In a statement that, probably unintentionally called attention to retailer’s lemming-like tendencies to copy one another, he said “Once one retailer discusses shrink, it becomes a buzzword and then investors start asking questions about it, so other executives on calls start addressing it.

“It’s very difficult to detect whether the reason for closing a store is solely down to theft or whether it’s a combination of factors. It could be, for example, that in a particular location, they don’t get the footfall or that people don’t just buy as much stuff at that store to make it viable.”

That would certainly explain Target’s decision to open a new store not all that far from the one they are closing in Harlem. And let’s not forget that Target is having a tough time across its entire store fleet with revenue down 5 percent in its last quarter.

In a way, the retailers themselves may be partly to blame for this increase in robberies. They relentlessly cut back staffing in their stores and instituted more self-checkout lanes that practically beg for deception on the part of shoppers, be they those just trying to save a few bucks or those with truly nefarious intentions. Through it all you have to mention that some of these large-scale robberies are often accompanied by violence or the threat of violence that puts store workers at risk. This is a very legitimate factor in this latest wave, however big it truly is. And in any case, retail store greeters wearing flak jackets and bearing arms is not exactly customer-friendly.

Suggesting that retailers are using store crime as a “beard” for their own lackluster business is not a popular theory and of course, it’s far from a complete analysis of what’s going on out there today. Store theft is bad…really bad, and don’t let anybody tell you otherwise. But it doesn’t tell the whole story and like retailers who perpetually blame the weather, the calendar, and the stars for their underperforming business, it is only the latest rationalization.

Theft is without doubt a big factor in what’s happening in the retail world right now. But it would be a crime to think it’s the only thing.

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