Shoplifting Is Increasing. How Home Depot, Dollar Tree and Others Fight Back.

“Shrink was the thing that surprised us in the quarter, and that’s really the driver when we think about the operating margin adjustment for the year,” said Scott Settersten, Ulta’s chief financial officer, on a May call with investors. Ulta lowered its operating margin forecast for the fiscal year.

Shoplifting is nothing new, but in recent months theft has become more “brazen and common,” said Greg Portell, lead partner at consulting firm Kearney, who focuses on retail.

The National Retail Federation estimates that shrink accounted for nearly $95 billion in losses in 2021, up from $90.8 billion in 2020. While shrink encompasses a variety of inventory loss—including customer and employee theft, administrative errors, and damage—theft by organized retail crime drove 2021’s increase, the NRF said. The groups behind this type of crime consist of professional shoplifters who resell stolen merchandise at cheaper prices, often on third-party marketplaces, which became more prevalent following the pandemic-era e-commerce boom.

With theft eating into margins and affecting employees and customers, retailers are now on the offense, looking for ways to tackle the problem.

“The biggest challenge I think, that retail is facing right now is the ability to keep their stores profitable, but even more importantly, keep their employees and our customers safe. And I think that’s actually been the real inflection point,” said Deborah Weinswig, CEO of retail research firm Coresight Research.

Some companies are attempting to avoid the issue by closing stores in places with higher shrink levels. Those that stay are investing in new loss prevention strategies. Close to half of retailers said their loss prevention budgets expanded in 2022 compared with the previous year, according to a recent survey conducted by the NRF.

One approach is what

Dollar Tree

CEO Richard Dreiling called “defensive merchandising” on a May call with investors. This strategy is what shoppers are most familiar with—encasing perfumes or razorblades in plastic boxes, tethering electronics to display shelves with metal cords, or locking items into clear drawers that only employees can open.

Retailers have also been bulking up their security teams and hiring private security companies or off-duty police officers. Nearly 40% of retailers said they hired more people to their loss prevention teams in 2022, the NRF found. Some companies are also doubling down on policies that prevent store employees from engaging with shoplifters to reduce instances of potentially violent encounters. (

Others are investing in theft detection technology.

Home Depot
,
for instance, is spending more on machine learning and data analytics tools to identify which regions or product categories are most at risk, said CEO Edward Decker at the company’s annual shareholder meeting in May.

One of the most popular loss prevention technologies is RFID, which uses radio waves to identify objects that have been tagged with special readers. This is especially useful to track high-value items, said Matthew Guiste, Global Retail Technology strategist at Zebra Technologies. AI-based video analytics software is another popular tool, as it help retailers recognize repeat offenders or potential threats at checkout counters or in parking lots.

Companies are also lobbying lawmakers at both the local and national level to pass rules that make prosecuting organized retail crime easier. Many retailers, including Home Depot, are backing the Combating Organized Retail Crime Act, a bipartisan bill snaking its way through Congress that would enable federal law enforcement to get involved in prosecuting organized retail crime groups. Last year, the Biden administration asked Congress to pass legislation encouraging online marketplaces to curb sales of stolen goods on their platforms.

It will take time for any of these new theft reduction strategies to show up in companies’ the bottom lines. In fact, the costs to implement them may weight on profit in the short term.

Walgreens Boots Alliance

(WBA) chief financial officer James Kehoe said in January that the company “spent a fair amount” on theft prevention in 2022, which could have led to the “disconnects” in higher spending in selling, general, and administrative costs that quarter.

“Maybe we cried too much last year,” Kehoe said, adding that the company was stepping back from spending as much on security.

But the investment helped. In January, the company’s inventory shrink was roughly 2.5% of sales, down from 3.5% a year prior, he added. Barron’s has previously reported that having a strong inventory shrink strategy has given companies such as

Costco Wholesale

(COST) a competitive advantage.

“If employees and consumers don’t feel comfortable going to a store, that will have dramatic impact on the bottom line,” Kearney’s Portell said. “So retailers are going to have to address it—or shut down the store.”

Write to Sabrina Escobar at [email protected]