The Biggest Revelation This Earnings Season? Retail Crime Is Eating Into Profits Like Never Before
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When Dick’s Sporting Goods unveiled a disappointing quarter on Tuesday, one big challenge led its earning release: retail crime was eating into profits.
This revelation follows a spate of illicit activity. A sampling of store-related crime just this month includes an organized ring hitting a Nordstrom store inside the Westfield Topanga mall outside of Los Angeles, getting away with $100,000 worth of goods; thieves stealing $1,000 worth of shoes and clothing at Nike’s east Los Angeles community store weeks after cops broke up a crime ring targeting the store; and Portland police nabbing 25 suspects as part of a sting operation targeting retail thieves.
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These cases represent just a small piece of the nearly $100 billion problem the retail industry is facing, according to the National Retail Federation (NRF). In its most recent yearly Retail Security Survey, the NRF found that shrink – or inventory that has been lost to damage or theft – represented $94.5 billion in losses in 2021, up from $90.8 billion in 2020. The report also found that retailers witnessed an average 26.5 percent increase in violence and aggression associated with organized retail crime incidents that same year.
“Unfortunately, organized retail crime, acts of retail theft, and acts of violence affiliated with those incidents have all increased, and it’s very concerning,” Jason Straczewski, NRF’s VP of government relations and political affairs, told FN in an interview. “It’s impacting store operations. It’s requiring significant investment of resources to protect our workers, to protect our customers, to protect our assets. Combating this activity is NRF’s top priority.”
Through all of this, many retailers continue to speak out about the issue as theft continues to eat away at their bottom lines. On Tuesday, Dick’s Sporting Goods CEO Lauren Hobart told analysts on the company’s latest earnings call that higher inventory shrink impacted its margins in the second quarter.
“Organized retail crime and theft in general, an increasingly serious issue impacting many retailers,” Hobart said on yesterday’s call. “Based on the results from our most recent physical inventory cycle, 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.”
Pressed further by analysts, Hobart added that shrink is an “industry level problem” as well as a problem for the entire country. “It’s something that we all need to work together on with our partners, with our trade organizations and with our government, honestly, to continue to address the shrink issue,” Hobart added. “We’ve all seen the stories, and it’s quite alarming what’s going on.”
And last week, Target CEO Brian Cornell told analysts on the company’s most recent earnings call that the retailer continued to face an “unacceptable amount” of theft and organized retail crime. “Shrink in the second quarter remained consistent with our expectations, but well above the sustainable level where we expect to operate over time,” Cornell said. “And unfortunately, safety incidents associated with theft are moving in the wrong direction.”
Cornell added that during the first five months of this year, Target stores saw a 120 percent increase in theft incidents involving violence or threats of violence. “As a result, we’re continuing to work tirelessly with retail industry groups and community partners to find solutions to promote safety for our store teams and our guests,” the CEO added.
So where is all this retail crime happening and why are these cities more susceptible to this type of crime? Mike Pentek, managing director at security firm Pinkerton, told FN that places with the worst retail crime have a few factors in common. “The economic uncertainty of the past few years has certainly contributed,” Pentek said. “Thieves also sometimes take advantage of legislation by intentionally staying barely under the felony limit for the total value of their thefts, ensuring that the consequences will be minimal if they’re caught.”
Pentek added that thieves have come “increasingly sophisticated,” and often target locations with less security while using technology to coordinate their plans in advance. “Retailers should routinely evaluate the risks of shoplifting at their existing store locations and allocate their resources accordingly, prioritizing the locations with the greatest risk,” the security executive said.
According to Pinkerton’s latest Crime Index (PCI), St. Louis has the highest rate of property crime, which includes retail related incidents, in the country with 5.75 times the national average. Topeka, Kan.; Albuquerque, N.M.; Kansas City, Mo.; and Nashville, Tenn. all recorded nearly five times the national average and round out the top five U.S. cities for the highest rate of property crime.
These figures are particularity interesting given that other major cities that often make headlines, like Portland, Ore. ranks number six on the PCI at 4.61 times the national average, and San Francisco and Los Angeles come in eighth and tenth at 4.08 and 2.36 times the national average, respectively.
As for a path forward, trade organizations like the NRF are placing their full support behind the Combating Organized Retail Crime Act. The bill, which currently sits in committee in the U.S. Senate, would establish the Organized Retail Crime Coordination Center within the Department of Homeland Security to coordinate federal law enforcement activities related to organized retail crime. This center would facilitate information sharing across federal, state, local and tribal agencies and support multi-agency investigations.
This legislation follows the passing of the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers (INFORM Consumers) Act, which officially became law in June. The legislation established better rules for the secure and safe e-commerce usage in the United States to protect consumers from fakes and stolen goods sold via online marketplaces. It also requires these platforms to verify identities of high-volume third-party sellers (those who make 200 sales or more in a year totaling more than $5,000) to help combat counterfeit or stolen goods from being sold.
But while retailers wait for more federal assistance, experts say technology may be their best bet for curbing crime. “Everything from license plate scanners in parking lots to catch getaway vehicles to new technology in stores that predict loitering or suspicious behavior,” NRF’s Straczewski said. “Locking up products is often the last resort for some retailers as well. But this move makes it harder for the average consumer, and it makes it incredibly frustrating for the retail associate to have to manage the store in that type of environment. This is why we need to make sure we do everything we can to make sure that our law enforcement partners have the support they need to help bring these thieves to justice.”
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