CEOs sound alarm about organized retail crime, but critics say it’s a false alarm

Usually, it’s great news when retailers tell shareholders that products are flying off the shelves, but not in a recent round of earnings calls, when CEOs said it’s increasingly organized crime rings that are making off with the goods.

The word of the day for Target’s Q1 call on May 17 was “shrink,” uttered 22 times by executives and analysts, and referring of course not to a Seinfeld episode but rather to the general term for inventory loss. Shrink encompasses losses including shoplifting by individuals or organized rings, employee theft, administrative errors, and return fraud, but it was organized retail crime (ORC) that stole the thunder.

“We continue to contend with significant headwinds caused by inventory shrink, building on a worsening trend that emerged last year,” Target CEO Brian Cornell said on the call. “While shrink can be driven by multiple factors, theft and organized retail crime are increasingly urgent issues impacting the team and our guests and other retailers.”

Cornell predicted that shrink would increase by more than $500 million for Target this year, up from $763 million last fiscal year.

Other CEOs echoed the concern.

• “The country has a retail theft problem,” Home Depot CFO Richard McPhail told CNBC recently.
• “Organized retail crime is definitely a thing,” BJ’s Wholesale Club CEO Bob Eddy said concerning the company’s Q1 results. “We see it, and it is material.”

Shrink again: But Popular Information noted that while Target allowed that shrink includes “multiple factors,” the retailer did not pinpoint how much of its projected $500 million shrink would be the result of ORC.

And when Popular Information pressed Target for specifics, Target responded that it does “not have estimates specific to ORC.”

Doing the math: As Retail Brew explained earlier this year, in some cases ORC may be overstated. Walgreens, for example, blamed rising ORC for the closure of five stores in San Francisco in 2021. But the San Francisco Chronicle reported in the wake of the announcement that, on average, the five stores had fewer than two reports of shoplifting per month since 2018.

And in a January earnings call, Walgreens CFO James Kehoe said, “Maybe we cried too much”  about merchandise losses in 2022.

Jonathan Simon, a criminal justice professor at UC Berkeley School of Law, told Popular Information that some retailers use ORC as a scapegoat.

It’s “easier for companies and the public to blame theft for store closures and retail struggles than admit stores’ over-expansion, strategy mistakes, and customers abandoning stores for online shopping,” Simon said.