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‘It’s not people shoplifting’: Why retail is focused on organized crime
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The Bottom Line


‘IT’S NOT PEOPLE SHOPLIFTING’: WHY RETAIL IS FOCUSED ON ORGANIZED CRIME

Published Thu, May 18 20232:20 PM EDTUpdated Fri, May 19 20239:19 AM EDT
Eric Rosenbaum@erprose
WATCH LIVE
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Key Points
 * Big retailers have sent mixed messages on the threat they face from retail
   theft.
 * In January, Walgreens said it may have overstated concerns about theft and
   impact on retail “shrinkage,” with its CFO James Kehoe telling analysts,
   “Maybe we cried too much last year.”
 * But in the more recent Home Depot and Target earnings for the just-finished
   quarter, both big-box companies cited a rising trend of retail theft and the
   industry is supporting the Combatting Organized Retail Crime Act to give the
   Department of Homeland Security more power to help.

watch now
VIDEO4:5104:51
National Retail Federation CEO on rise in retail theft: This is much more than
just a retail problem
Squawk Box


It’s been hard to get an exact read on the rise in retail theft. Best Buy
sounded alarm bells back in November 2021 when it said thieves were traumatizing
employees. Walgreens was vocal on the issue too, but then its chief financial
officer James Kehohe did an about-face, telling analysts in January that the
company may have overstated the issue and its impact on sales. “Maybe we cried
too much last year,” he said on the January earnings calls.

But this quarter’s batch of retail earnings have brought the theft issue to the
forefront again. Both Home Depot and Target cited rising retail theft.



“The country has a retail theft problem,” Home Depot CFO Richard McPhail said on
a call with CNBC on Tuesday after its earnings. “We’re confident in our ability
to mitigate and blunt that pressure, but that pressure certainly exists out
there.”

Home Depot’s vice president of asset protection had told CNBC in March crime is
increasing at double-digit rates.

Target said organized retail crime will reach $500 million more in stolen and
lost merchandise this year compared with a year ago. On its earnings call,
Target CEO Brian Cornell said retail theft is “a worsening trend that emerged
last year.”

If the threat is moving in severity from one retailer to another, the industry
remains convinced it has the numbers to say the crime trend is rising, and that
this is not a shoplifting issue reflecting tougher economic times for Americans
but increasingly the work of organized retail crime networks.

The National Retail Federation says organized retail crime is the main reason
for retail “shrink” — a mismatch between actual inventory and what is on the
books — which reached $94.5 billion in 2021, an increase of almost $4 billion
year over year.


watch now
VIDEO18:0318:03
Why U.S. retailers are spending billions on anti-theft technology
Bottom Line Video


Its president Matt Shay told CNBC on Thursday that the issue isn’t going away.
“Conversations we’ve had with members over the last several years indicate it is
getting to be a really acute and serious problem,” and as far as the annual
numbers, remains “growing.”

While theft is “manifesting itself in stores with acts of violence,” Shay
stressed that in-store, individual crime is not the biggest scope of the
problem. “It’s not people shoplifting an individual item for personal use,” he
said.

But shoplifting is a big part of organized crime. Target chief financial officer
Michael Fiddelke had said after its earnings in November 2022 that shoplifting
jumped about 50% year over and year, resulting in over $400 million in losses in
the fiscal year, and Walmart’s CEO Doug McMillon issued another warning about
the rising threat on CNBC in December. 


MORE FROM CNBC ON THE ISSUE OF RETAIL THEFT

Target expects organized retail crime to reach $500 million

The debate over rising retail theft

Walmart CEO says rising crime will raise prices, close stores

’Maybe we cried too much,” Walgreens CFO says

Organized shoplifting is way up at Target

“This is very sophisticated local, state, national and transnational
organizations, organized not just to steal at the store level, but throughout
the entire supply chain ... on the docks, on trucks, off ships, through
containers, on the railways. This is a really persistent problem and it’s across
the supply chain,” Shay told CNBC on Thursday.

That matches CargoNet data recently provided to CNBC by insurance company
Travelers, which has a special investigations group and works with law
enforcement to recover stolen goods. It found food and beverage coming into port
or in a warehouse is No. 1 on the list of products being targeted by freight
thieves who are increasing their criminal activity across the national supply
chain, with household goods and electronics still high on the list of cargo
thieves. 

Physical theft is still the No. 1 method used by thieves in the supply chain,
but they are getting more sophisticated, creating fictitious pickups through use
of identity theft — pretending to be trucking companies, including infiltrating
online freight management systems and freight brokerage phone lines.

“A lot of times, they will get away with it,” Scott Cornell, transportation lead
and crime and theft specialist at insurance provider Travelers, recently told
CNBC. It has tracked a 600% increase in this form of cargo crime.

watch now
VIDEO8:2108:21
Freight thieves are a growing problem inside the US supply chain
State of Freight


Cargo theft is occurring at multiple points in an item’s journey, with the NRF
finding that theft “en route from distribution centers to stores” was the top
target, at 47.4%; followed by cargo theft at stores, at 42.1%, and cargo “en
route from manufacturers to distribution centers,” at 35.1%.

While the losses have gone up in total dollar amounts, years 2020 and 2021 were
also a boom time for retail sales fueled by the pandemic stimulus and other
Covid-related factors. In fact, the NRF data shows that the median and average
amount of retail shrinkage hasn’t changed much in recent years. The average
inventory shrink of 1.4% in 2021 was the same in 2016; the median inventory
shrink of 1.2% in 2022 was the same in 2016. And it’s been at a similar level in
all of the years in between.

Retailers surveyed by the NRF do attribute the greatest portion of shrink (37%)
to external theft, including organized retail crime. And even though organized
retail crime is the biggest component in theft, retailers surveyed do say
violence against workers has risen even more. Over thee-quarters (77.6%) say
guest-on-associate violence has increased in the past five years, compared to
70.7% saying organized retail crime has increased. Notably, no retailers
surveyed by the NRF said organized retail crime has decreased.

The Walgreens CFO said in January that after spending a “fair amount” on private
security companies, the results were “largely ineffective.”

“We’ve put in incremental security in the stores in the first quarter. Actually,
probably we put in too much. We might step back a little bit from that,” Kehoe
said. 

But the majority of retailers (just under 70%), as of the 2022 NRF data, said
they do not have an organized retail crime team in place. This staffing issue
contributes to the issue of accurately tracking the theft. Retailers with a
dedicated organized retail crime response team were almost twice as likely to
report an increase as those without an in-house ORC team, the NRF found.

The National Retail Federation is lobbying for the Combatting Organized Retail
Crime Act, which would create a function within the Department of Homeland
Security to elevate the theft issue to “a national issue,” Shay said.

It would allow the Department of Homeland Security to coordinate with law
enforcement across the country, provide resources, and report to Congress.

“If this were a retail problem exclusively, retail would have solved it by now,”
Shay said. 





Related

 1. Musk, Buffett and Apple show the clock is ticking for companies on China’s
    Taiwan policy
    
 2. The coming commercial real estate crash that may never happen
    
 3. National Retail Federation CEO on rise in retail theft: This is much more
    than just a retail problem
    
 4. Job unhappiness is at a staggering all-time high, according to Gallup
    


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