Target (TGT) is taking action in response to retail theft.
On Tuesday the big box retailer announced plans to close nine stores, effective Oct. 21.
“We cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance,” the company said in a statement.
The stores set to close include one in Harlem, N.Y; two in Seattle, Wash.; three near San Francisco and Oakland, Calif.; and three in Portland, Ore. All “eligible” employees will be offered the opportunity to transfer to other Target locations, the company said.
The decision to close stores came after the company reported that inventory shrinkage — mostly the theft of merchandise — would cut profits by $500 million this year. In 2022, profits took a $700 million hit from inventory shrinkage.
“Shrink in the second quarter remained consistent with our expectations but well above the sustainable level where we expect to operate over time,” Target CEO Brian Cornell said in the company’s second quarter earnings call.
Target added it “invested heavily in strategies to prevent and stop theft and organized retail crime in our stores” prior to closing stores, including by adding more security to stores, using third-party security guard services, and implementing “theft-deterrent” tools across the business.
Ultimately though, the only decision left was to close certain stores.
“Despite our efforts, unfortunately, we continue to face fundamental challenges to operating these stores safely and successfully,” the statement said.
More security, locking cases, cyber defense technology
According to the National Retail Federation’s (NRF) National Retail Security Survey, retail shrink — the loss of items to retail theft, organized crime, damage, vendor fraud, and other factors — was a $112 billion problem for the industry in 2022. That cost was up nearly 20% from 2021 when retail shrink accounted for $93.9 billion in losses.
At some hard-hit stores, Target is finding ways to stem the losses, such as locking cases for merchandise categories that are “prone to theft,” as pictured below.
Shoppers have to ask for assistance from employees to open the cases. At this particular location in New Jersey, sections that were locked up included toiletries and higher-priced detergents.
David Johnston, NRF’s vice president of asset protection and retail operations, said while this changes consumers’ shopping experience, it’s better long term.
For certain items such as over-the-counter medicines and baby formula, “it is more important to have the product there … [than to] to risk it all being stolen and not available for the consumer,” Johnston told Yahoo Finance. “So retailers understand the impact.”
“Anything that has a high resale value or a quick resale opportunity is targeted,” Johnston added. Often these stolen goods are then resold locally at bodegas or even resale markets, he said.
Target is making other efforts as well to deter theft, including payroll investments for additional security members, third-party guard services, and training store leaders and employees “so they can protect themselves and de-escalate potential safety issues associated with organized retail crime incidents,” the release said.
The company is also investing in cyber defense technology. It’s partnering with the investigations division of the US Department of Homeland Security to develop custom tools that detect and prevent criminal activity as well as to expand the scope of data alerts and analysis to “better capture” fraud.
When it comes to organized retail crime, Johnston said retailers and law enforcement are just “starting to see the true extent of how organized these groups are.”
He explained that these groups’ reach can extend to “multiple states, if not the country,” with some groups traveling from the West Coast to the East Coast for “specific merchandise.”
Target is one of many retailers addressing the issue of retail theft.
Nordstrom CEO Erik Nordstrom told Wall Street on a recent earnings call that “losses from theft are at historical highs, … and I’d say we find it unacceptable and needs to be addressed.”
Walmart (WMT) US CEO John Furner also weighed in on the issue, saying, “Shrink has increased a bit this year. It increased last year. It’s uneven across the country.”
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
Source: finance.yahoo.com