Target (TGT) has become a target for major thefts, and it's taking a huge chunk out of profits.
The retailer estimated in its earnings release Wednesday that inventory shrinkage — mostly the theft of merchandise — would clip profits by a whopping $500 million this year. Factoring in an about $700 million profit hit from inventory shrinkage in 2022, Target is on pace to see $1.2 billion in profits go up in smoke, due primarily to organized retail crime.
Target Chairman and CEO Brian Cornell says the problem is getting worse, is nationwide, and across various merchandise departments.
"The unfortunate fact is violent incidents are increasing at our stores and across the entire retail industry. And when products are stolen, simply put they are no longer available for guests who depend on them," Cornell said on a call with reporters.
"Left unchecked, organized retail crime degrades the communities we call home. As we work to address this problem, the safety of our guests and our team members will always be our primary concern. Beyond safety concerns, worsening shrink rates are putting significant pressure on our financial results," he said.
The problem of organized retail crime has only grown worse in recent years, as thieves look to secure goods and sell them cheaper to consumers in an age of elevated inflation.
Goods stolen from stores, which contributes to inventory shrinkage, led to $94.5 billion in losses in 2021, up from $90.8 billion in 2020, according to a late-2022 study by the National Retail Federation (NRF).
About 32.8% of companies surveyed called out organized retail crime as becoming "much more" of a concern in the last five years.
In a report released last month, an NRF analysis of 132 crime groups that conducted booster operations between 2014 and 2022 found that 16% used at least one violent tactic in stores. Those tactics include smash and grab, use of firearms or other weapons, battery, flash mob tactics, or threats of violence against store employees.
“Organized retail crime has been a major concern for the retail industry for decades, endangering store employees and customers, disrupting store operations and inflicting billions in financial loss for retailers and the communities they serve,” said NRF CEO Matthew Shay. “These concerns have grown in recent years, as criminal groups have become more brazen and violent in their tactics and are using new channels to resell stolen goods."
The contentious situation has caused big retailers to vacate certain high-crime cities such as San Francisco in 2023.
Nordstrom (JWN) recently followed Whole Foods in exiting a key location in San Francisco, citing concerns over worker safety.
Independent news site The San Francisco Standard has tracked 20 closures of household-name stores in the city since 2010, including Office Depot.
Target declined to say whether it would close stores in high-crime cities. Cornell said he doesn't want to close locations, given their importance to the community.
As Target decides whether to vacate these hotbeds of crime, it said would look to improve worker training and add more "asset protection" employees to the locations. The company — similar to other big-box chains — has also resorted to locking up items like mouthwash to reduce theft.
"So it is widespread, and I can tell you, as I talk to my retail peers, is that it's a common theme across all of retail. It'll vary by market, individual store, but the trends have been very persistent. And year on year we continue to see increases [in theft]," Cornell said.