Signal From Noise

The Shrinkage Problem: Retail Theft Could Lead to Investment Opportunities

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 la...

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