By The Vanguard
NEW YORK, NY – CNBC is reporting that retailers “who blame organized theft for lower profits could be overstating crime’s impact to cover up internal flaws or self-inflicted problems.”
The network said while large retailing corporations have “blamed disappointing bottom lines or shrinking margins in part on roving bands of organized gangs that ransack their shelves,” it may not be the whole story.
“Behind closed doors, retailers are facing other issues they can better control, including theft by their own employees, that are contributing to losses, according to two sources who advise major retailers. They spoke on the condition of anonymity because they’re not authorized to speak publicly about clients,” CNBC said.
“Some companies have since identified theft from employees as a major contributor to losses, even as they blame external theft in public, said one of the sources,” noting losses from self-checkout theft have also become a major issue,” added CNBC.
Retailers, including Target and Foot Locker, “could be using retail crime as a crutch to obscure internal challenges,” experts told CNBC.
“Shrink has been going up but sometimes it’s very difficult to unpack how much is down to theft and how much is down to internal retailer issues and stumbles,” Neil Saunders, a retail analyst and the managing director of GlobalData.
“In the age before shoppers found deodorant and candy bars locked up in drugstores across America, employee theft largely drove shrink, said Patrick Tormey, an adjunct professor at the Lehman College School of Business, who spent more than 40 years in the retail industry,” according to CNBC, adding that fact may not have changed that much despite retailer claims.
“The theme that comes back the most right now is internal theft … they’re realizing that a lot of [losses] come from there,” said one of the sources to CNBC who advises retailers. “If there’s an occurrence of external theft they would steal let’s say 10 bucks worth of merchandise, but if it’s internal theft, it’d be 40 bucks.”
CNBC reported “Retail workers have access to entire cases of merchandise in backrooms and it’s ‘relatively easy’ to take large quantities of goods without anyone noticing. The theft can also go undetected for a long period of time because it’s not as noticeable as a shoplifter who is in public view.”
Internal theft also happens at warehouses and in aisles where online orders are prepared, one of the people said. In some cases, a worker may know the person receiving the goods and may add extra merchandise into a shipment, one CNBC source added.
“It’s a little bit like organized crime in some way, but not like mafia-style, just a few people [working together],” said the person.
Sonia Lapinsky, a partner and managing director with AlixPartners’ retail practice, told CNBC that retailers have struggled to properly staff stores over the last few years. They can’t always find the right workers, and some have also felt pressure to lower staffing levels to control costs.
“Folks are notoriously working multiple jobs these days and just feeling the pressure and having to pick up jobs everywhere,” said Lapinsky. “If this is not something that they’re necessarily loyal to, or see as a long-term place, then there’s probably more risk of theft as well.”
David Johnston, the vice president of asset protection and retail operations at the National Retail Federation, said to CNBC “employee theft has long been the largest contributor to shrink and staff have at times been involved in organized theft rings,” adding “internal theft is now ‘second place’ to external theft.”
Two company advisors said, “Retailers have another self-made problem that can lead to more stolen goods. Self-checkout machines also increase the risk of theft, and they have become a major source of losses. The machines come with increased costs. In some stores with high rates of theft, losses are outweighing the investments companies made in them.”
“You create a problem where there wasn’t one,” one of the people said.
Retailers started to blame organized theft for lower profits as the industry’s performance started to suffer.
Janine Stichter, a retail analyst and managing director at broker-dealer BTIG, has been covering the retail industry since 2008. She didn’t really hear companies talk about shrink in their earnings calls until about a year and a half ago—right around the time the economy started to soften, she said.
“It’s really kind of hit a fever pitch,” said Stichter.
“I think there is a bit of bandwagoning at the moment,” said Saunders from GlobalData. “I think one of the things that happens is somebody mentions it and it then becomes a bit of a buzzword and then everyone pays attention to it and it suddenly starts getting called out.”
CNBC said “Target rattled investors when it said it was on pace to lose $1 billion this year from inventory losses driven by stolen goods. Two days later, Foot Locker said ‘theft-related shrink’ contributed to a four-percentage point drop in its gross margin.”
“This has been a multiyear dynamic in the industry. We are not immune to it. It’s increasing. You’ve heard Target talk about it and others. And so, it’s having an increased impact on Foot Locker,” CEO Mary Dillon said on a call with analysts. “We’ve seen a significant increase of theft from stores and usually through this lens of an organized retail crime type of action.”
But, CNBC added, “three analysts who cover Foot Locker told CNBC the vast majority of that drop likely came from promotions. At the time, the company was grappling with high inventory levels and soft sales, forcing it to rely on discounts to drive revenue.”
Foot Locker did not return repeated inquiries from CNBC about how much of its margin hit came from promotions and how much of it was due to shrink.
Tormey, the Lehman College professor, said retailers have thrown around the words shrink and theft so often, investors “chalk it off as a sign of the times,” which can allow companies to use it as a “crutch” for poor merchandising, store design and other internal flaws.
“It’s just a quick aspirin for the headache, so to speak,” said Tormey. “It’s a lot harder to pin down exact numbers so they can use it and people just kind of nod their head, ‘Oh, yeah, it’s a shame,’ without really [questioning], was it your employees stealing from you? Was it shoplifting? Was it vendor misconduct? You know, are you a sloppy retailer?”
CNBC said, “Over the last two decades, Target had not mentioned shrink hitting its margins during earnings calls until August 2022, when the company and other retailers were buried in inventory they were having trouble unloading, according to FactSet.”
“As [CEO Brian Cornell] mentioned, this is an industrywide problem that is often driven by criminal networks, and we are collaborating with multiple stakeholders to find industry-wide solutions,” Target’s finance chief Michael Fiddelke told analysts. “For example, because stolen goods are often sold online, Target strongly supports the passage of legislation to increase accountability and prevent criminals from selling stolen goods through online marketplaces.”
“Target is not always the best at managing its own inventory. It does tend to have a lot of out of stocks at stores, it does tend to have a supply chain that’s quite fragmented and it’s very easy for things to be misallocated and mis-accounted for within that,” said Saunders. “I’m sure bundled in with their number there’s a lot of things where Target has just lost stuff, broken stuff, put stuff in the wrong stores, put it in the wrong location, can’t find it.”
I am not surprised that retailers blame shoplifting instead of their own incompetence for their poor financial results. They need to stop deceiving investors and the public. They need to better reward their low level employees and offer real career ladders.
The problem is theft in general, organized or not. When stores have to lock down product behind glass enclosures they’re basically killing their business.
A 162 year old S.F. business “Gumps” recently cited rising crime as a major contributor as to why they might soon have to close the store and add to that all the other stores who have already shut their doors.
Cited “rising crime” may or may not be dispositive. The actual data doesn’t necessarily match the claims. And there’s another much bigger factor – the overall decline of brick and mortar retail. Bottom line: I think we have to be much more careful here than we’ve been.
San Francisco is in a “doom loop” which I’m not sure can be saved anytime soon. Progressive policies are a major contributor to its demise along with several other large cities across the country. Short of a total city hall upheaval and voting in people who will make the hard decisions I don’t see much hope.
Talking points are nice. The reality is that Boudin didn’t change much – not nearly as much as the pandemic – and it’s been over a year of Jenkins and the problems are getting worse. My theory is cost of housing combined other disruptions.
San Francisco housing has always been overly expensive but you didn’t see the problems like you do today until progressive policies took hold. It’s like a cancer that needs to be removed in order to save the once great city.
Pandemic probably hit harder than elsewhere especially since it pushed tech businesses to remote.
Which progressive policies would you say are specific to SF that have caused the problem in your estimation?
Housing prices in San Francisco didn’t skyrocket until the past several years. People are fleeing San Francisco because they can no longer afford to live there or have lost their jobs. Growing cities have affordable housing because they welcome development with open arms unlike California cities with restrictive zoning and NIMBY obstructionism. These are the facts Jack. It’s not rocket science.
No more Republican lies and misinformation.
https://finance.yahoo.com/news/lost-home-equity-san-francisco-homes-are-selling-for-220000-less-than-a-year-ago-153041282.html
It’s even worse in the commercial market:
https://www.sfgate.com/local/article/350-california-sf-office-building-has-sold-18087040.php
The actual problem is lack of executive accountability. Organized shoplifting is used as a convenient punching bag (feeble excuse). Stop blaming the bogeyman!
Gumps could very well be lying about why their business has gone down the tubs. It hasn’t done well for many years
What we have here are self-described “progressives” trying to blame retailers themselves for the theft and lawlessness that their progressive policies have created.
Not just one policy, but a whole host of them (e.g., shutting down prisons, tolerating homelessness and open drug use, handcuffing the police (so to speak), reducing sentencing, presenting fake statistics, etc.
But despite their best efforts, it’s not working to sway public opinion at large. You can see this in major media sources – even the YIMBY media. They’re not buying it. Only the true extremists do.
This relatively small group of extremists live in their own bubble. Their time in the sun has already passed, again. It ended with the effort to make George Floyd’s birthday a national holiday, so to speak.
It’s actually a cycle, in which there’s periodic concern regarding the “rights” of those creating problems for others, vs. society’s predictable and logical reaction regarding the results.
Nothing new here. Other than cell phone videos.
Strange take
Your response is direct evidence of the ideological bubble you occupy.
It is “outside” of broader societal norms.
Or a sign of how absurd I view your comment starting with the opening line which seems not to recognize that the report didn’t come from “self-described progressives”
My comment is directed at you – I didn’t even read the article.
In any case, this is only one article that you’ve searched for and posted, in regard to your ongoing campaign. This campaign yet another way that you’re a hazard to Davis and society at large.
I can find a whole host of other articles (from mainstream media) which paint an entirely-different picture.
We could talk about potential bias at CNBC, as well. But it’s possible that even they have reported on the problem in other articles.
“My comment is directed at you – I didn’t even read the article.”
Wow, what an admission. Why am I wasting my time, you didn’t even read the article.
And yet, in skimming through it – I knew in advance what it would say.
But that is a good question, regarding the Vanguard articles themselves.
I increasingly view your efforts (and those in your bubble) as a hazard to society – in just about every possible way.
And it’s not just in regard to views, but how you demonize those whom you disagree with.
Conservatives demonize LGBTQ+ and many African Americans literally all of the time.
I forgot to include liberals/progressives in the mix of people being demonized by conservatives.
Walter, I hate to break the news to you, but you’re a conservative when it comes to Affirmative Action, efforts to curb climate change, and support for sprawl.
Good points Ron.
Those constitute lies Ron.
According to the Chronicle, Baltimore has around 2.4 times the drug overdose death rate of San Francisco. But Baltimore’s rate of homelessness is less than thirds of San Francisco’s. Big answer: housing. You guys need to look at data.
The data showing that folks should move to Baltimore to die of an overdose, but at least they’ll have housing when doing so?
Or, are you actually taking it further than that, by claiming that housing causes overdoses?
Interesting theory. 🙂
I wish I could post graphics like that in the comments. I would probably get carried away. Occasionally I ponder where did these people come from.
Housing prices in San Francisco didn’t skyrocket until the past several years. People are fleeing San Francisco because they can no longer afford to live there or have lost their jobs. Growing cities have affordable housing because they welcome development with open arms unlike California cities with restrictive zoning and NIMBY obstructionism. These are the facts Jack. It’s not rocket science.