Target said it's lost $400 million this year due to 'inventory shrink' — and organized retail crime is mostly to blame
- Target said organized retail crime has led to more than $400 million in profit losses in 2022.
- Organized theft has become a major problem for retailers due to the rise of e-commerce.
Organized retail theft could become a $600 million problem for Target by the end of the year.
Executives from the Minneapolis-based retailer said Wednesday that they're seeing hundreds of millions of dollars in profit losses due to inventory shrink, which is when stores have less product on their shelves than is recorded in their inventory. There are a number of causes for shrink — items breaking in store, employee theft, or even administrative errors — but Target blamed the losses on a primary cause: organized crime.
"Along with other retailers, we've seen a significant increase in theft and organized retail crime across our business," Brian Cornell, Target's CEO, said during the company's third-quarter earnings call.
Missing inventory has reduced Target's gross margin by more than $400 million in 2022 compared with last year, and Target expects those profit losses to grow to $600 million by the end of the fiscal year, Target CFO Michael Fiddelke said.
Target isn't the only retailer dealing with a surge in organized shoplifting — it's become a nationwide problem. Retailers have begun sounding the alarm that theft is costing them millions every year, driven by the ease of buying and selling things online.
Inventory shrink on the whole cost US retailers nearly $100 billion in 2021, and it was driven by theft: retailers surveyed by the National Retail Federation reported a 26.5% increase on average of organized retail crime.
The uptick in crime has led to both retailers and the government cracking down. In March, California authorities arrested and charged nine people over allegations that they'd stolen $135,000 worth of merchandise from a range of retailers, including Macy's, Columbia Sportswear, Abercrombie & Fitch, J.C. Penney, and Lululemon.
And retailers across the country have started putting new anti-theft measures in place. At Home Depot, certain power tools won't work if they're stolen from store shelves; at drugstores, "hot products" are getting locked up to deter theft. In some cases, stores are implementing controversial facial-recognition technology to scan and store shoppers' faces.
Target chief operating officer John Mulligan said during the call Wednesday that Target is putting measures in place at its stores to remedy the situation.
"It's obviously not something we like to do," he said. "It's far less convenient for guests as they shop our stores, but we think we can manage that from a service perspective."
Mulligan said while organized theft likely began in only some geographies, "we see those circles expanding and expanding and the impact continuing to grow."
A Target spokesperson didn't share specifics on what measures Target is putting in place at its stores to prevent theft, but said that the company is partnering with "law enforcement, legislators, community partners and retail trade associations to address this growing national problem."
The industry has long been urging federal legislators to help crack down on the trafficking of stolen goods. Dozens of retailers and industry groups — including Amazon, Home Depot, Lowe's, Target, Walmart, and Walgreens — recently wrote a letter to congressional leaders urging them to pass legislation that would require online marketplaces to verify the identity of a third-party seller that sells a high volume of goods.
Fiddelke, Target's CFO, said Wednesday that "Target strongly supports the passage of legislation to increase accountability and prevent criminals from selling stolen goods through online marketplaces."
"This is an industrywide problem that is often driven by criminal networks, and we are collaborating with multiple stakeholders to find industrywide solutions," he said.
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