Report Reveals That Retail Chains Are Employing Theft to Conceal Underlying Problems
Some retailers have claimed that theft is on the rise, and there is evidence to support this, including data from retailers and videos of store robberies and looting. However, retail analysts and researchers, in addition to local crime statistics, suggest that stores might be exaggerating the extent and impact of theft.
Why might this be the case? It serves as a convenient distraction, diverting attention from issues like weak demand, mismanagement, and other challenges affecting their business. Furthermore, it puts pressure on lawmakers to take action.
A recent report by retail analysts at William Blair suggests that the "actual increase in rates of theft" at stores does not align with the heightened commentary and actions taken by companies regarding theft.
The analysts note that retailers have become increasingly vocal on this issue, partly to prompt government intervention. While theft is indeed affecting retailers more than before the pandemic, it has also become more visible and violent, putting employee safety at risk in some cases.
However, retailers face a range of other challenges, including inflation and rising costs. Theft is just one of several structural issues that retail chains are grappling with, such as the shift to online shopping and overexpansion of brick-and-mortar retail.
According to William Blair retail analysts Dylan Carden and Phillip Blee, companies are also likely using the opportunity to divert attention from lower profit margins resulting from increased promotions and poor inventory planning in recent quarters. Many retailers miscalculated their merchandise needs, leading to an oversupply.
The analysts point out that overall shrink, which encompasses losses from theft, damaged products, inventory mismanagement, and other errors, accounts for just 1.5% to 2% of retailers' sales, a percentage that has remained steady for years, despite retailers raising concerns about theft more than ever.
The National Retail Federation reported that retailers' losses, known as shrink, increased by 19% last year to $112 billion, based on a survey of 177 retailers. However, during the height of the pandemic, shrink as a percentage of sales decreased as stores temporarily closed and increased in 2022 as stores reopened.
The analysts argue that this impact on profits is relatively small and temporary, not a sufficient reason to close stores. They found that at nine major retailers that have emphasized the growing impact of theft, shrink as a percentage of sales increased by just 0.4% in 2022. The analysts believe there is a disconnect between the expected increase in shrink and the attention it has garnered.