Crime in the retail world makes for not so happy holiday shopping season

The holiday shopping season is arriving amid a wave of organized retail crime, with some executives having recently raised the alarm about the issue.

The National Retail Federation found in its 2022 National Retail Security Survey that total losses from shrink – the term retailers often use for theft and other types of inventory losses – increased roughly 4%, coming in at $94.5 billion in 2021. Shrink losses were "primarily driven by external theft, including theft attributed to ORC [organized retail crime]," the report released in mid-September said. 

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ORC incidents soared 26.5% on average in 2021, with 81.2% of retailers surveyed reporting "somewhat more" or "much more" ORC-associated aggression and violence year-over-year, according to the survey.

During Target’s third-quarter earnings call in mid-November, CFO Michael Fiddelke said a factor affecting Target’s gross margin is "inventory shortage, or shrink, which is a growing problem facing all retailers."

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"At Target, year to date, incremental shortage has already reduced our gross margin by more than $400 million versus last year, and we expect to reduce our gross margin by more than $600 for the full year," he said. "This is an industry-wide problem that is often driven by criminal networks, and we are collaborating with multiple stakeholders to find industry-wide solutions."

The company’s CEO, Brian Cornell, similarly described theft as an industry-wide "growing financial headwind" on the call.

"Along with other retailers, we’ve seen an increase in theft and organized retail crime across our business," he continued. "As a result, we’re making significant investments in training and technology that can deter theft and keep our guests and store team members safe."

Roughly a month and a half prior, executives at Rite Aid cited shrink as an issue the pharmacy chain has been dealing with. Their comments came during Rite Aid’s September quarterly earnings call. 

Heyward Donigan, who has served as Rite Aid’s CEO since 2019, said the pharmacy chain experienced "unexpected headwinds" from shrink, "particularly in our New York urban stores." The company’s front-end gross profit was "impacted by a $5 million increase in shrink," according to CFO Matt Schroeder. 

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Meanwhile, Chief Retail Officer Andre Persaud said at the time that the "headline here is the environment that we operate in, particularly in New York City, is not conducive to reducing shrink just based upon everything you read and see on social media and the news in the city."

He noted Rite Aid has been progressing on "improving our product protection, improving our organized retail client program" and stated the goal was for the company to "stay in the communities."

In addition to considering pharmacy-only and pharmacy prescription-only formats and putting off-duty law enforcement officers at certain stores, Rite Aid has been "looking at literally putting everything behind showcases" in some areas, Persaud said in September.

Retailers have previously raised concerns about organized retail crime. The heads of numerous retailers, including Best Buy, Dollar General and Kroger, sent House and Senate leaders a letter in December of last year expressing concern about the "growing impact organized retail crime is having on the communities we proudly serve" and support for the Integrity, Notification and Fairness in Online Retail Marketplaces for Consumers Act. 

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"Retail establishments of all kinds have seen a significant uptick in organized crime in communities across the nation," the executives wrote. "While we constantly invest in people, policies, and innovative technology to deter theft, criminals are capitalizing on the anonymity of the Internet and the failure of certain marketplaces to verify their sellers."

Ticker	Security	Last	Change	Change %
TGT	TARGET CORP.	132.31	+2.22	+1.71%
RAD	NO DATA AVAILABLE	-	-	-
BBY	BEST BUY CO. INC.	90.00	+1.83	+2.08%
DG	DOLLAR GENERAL CORP.	77.27	+1.01	+1.32%
KR	THE KROGER CO.	61.08	+0.58	+0.96%

"This trend has made retail businesses a target for increasing theft, hurt legitimate businesses who are forced to compete against unscrupulous sellers, and has greatly increased consumer exposure to unsafe and dangerous counterfeit products."

Ken Martin contributed to this report.