Dick’s predicts more shrinkage, while Target says losses may soon ‘plateau’

Seemingly no bottom line was safe from shrinkage in the second quarter, per a spate of retail earnings. Still, expectations for the rest of the year are beginning to diverge for some of the country’s biggest retailers.

Dick’s Sporting Goods, for example, was arguably the most downbeat. On top of blaming shrinkage for a third of its declining gross margin, the company lowered its annual profit outlook for 2023 in anticipation of theft continuing to rise in the second half of the year.

Target, on the other hand, hinted that loss rates could soon begin to level off. “So far, we’ve only seen indications that loss rates might soon be reaching a plateau, but have not yet seen evidence that loss rates will begin to come down,” CFO Michael Fiddelke told investors.

While that might not sound like the most optimistic statement, it was one of the only times this earnings season that a major retailer indicated there might be a light at the end of the tunnel when it comes to shrinkage.

Other big box retailers were decidedly more equivocal in their comments:

• Macy’s CFO Adrian Mitchell told investors the company’s shrinkage prediction “remains materially unchanged.”
• When asked about shrinkage, Home Depot CFO Richard McPhail said, “from a financial perspective, shrink has been a consistent pressure over the last several quarters and even the last few years, and it’s something we are tackling every day.”
• Walmart CFO John David Rainey said, “shrink has increased a bit this year. It increased last year. It’s uneven across the country. It’s not in every market. Some markets are higher than others.”

Mark Mathews, executive director of research at the National Retail Federation, told Retail Brew the range of responses speak to the difficulty of forecasting retail crime.

“Nobody has a crystal ball,” but the problem is “getting worse,” Mathews added. “It's a problem not just of lost goods, but of violence. They see increasing violence in their stores, which creates huge issues for their workers but also for customers as well.”

Zoom out: A survey from the National Retail Federation found that firms lost $94.5 billion from shrinkage in 2021, up from $90.8 billion the previous year—though some critics say executives are overstating the impact of theft.