As of publication, we are in the most important month of the year for retailers. And while many have been cautious in their public-facing expectations, the resilience of the economy and of consumers suggests some reason for hope. Yet one headwind that has troubled the sector for several years is not expected to lessen.
In its most recent earnings call, Target CFO Michael Fidedelke warned that "Growth in shrink remains a significant financial headwind." Shrink is defined as the difference between the amount of inventory a retailer has and the amount its records indicate it should have, and Fiddelke told analysts following the company's third quarter earnings results that inventory shrink continued to grow YoY.
Fiddelke’s warnings mesh with those of executives at other major retail chains, many of whom have also reported an increase in shoplifting and theft – particularly violent theft and profit-driven shoplifting committed by organized groups (as opposed to the shoplifting of goods for personal use, committed by those of limited financial means).
Words like “shoplifting,” “theft,” and “shrink” have come to be mentioned increasingly frequently in earnings calls and reports, and the retail industry as a whole has called on government officials and law enforcement for help. “Retail crime, violence and theft continue to impact the retail industry at unprecedented levels,” wrote the National Retail Federation in its 2023 Retail Security Survey, asserting that the problem is worsening across all retail segments and in locations around the United States.
The latest figures from the NRF show that the retail shrink rate increased to 1.6% (roughly $112.1 billion) in 2022, up from 1.4% in 2021. Current shrink levels are reportedly almost double pre-pandemic levels, and many retail chains blame this on an increase in organized retail theft.
The NRF attributed part of this to the expanding opportunities presented by platforms that make it easy to set up an online storefront and resell stolen goods, and it successfully lobbied for the passage of the Inform Act in June 2023. The legislation requires such marketplaces to verify the identities, addresses, and contact information of high-volume sellers and to disclose such information to potential customers. The NRF also continues to lobby Congress to pass the Combating Organized Retail Crime Act (H.R. 895/S. 140), which would establish a dedicated group within the Department of Homeland Security to combat the problem of organized retail theft.
Yet despite these legislative efforts, a survey of 97,000 U.S. retail locations representing 177 retail brands showed how shrink stemming from organized retail crime is still a growing concern for retailers.
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