Retail shrink could cost Target $500 million in profits in 2023

Yahoo Finance Live discusses the impact that shrink is having upon big box retailers including comments from Target CEO Brian Cornell that shrink will reduce company profitability by more than $500 million.

Video transcript

BRAD SMITH: One big issue from retailers this past quarter-- theft, commonly referred to as shrink. Companies like Walmart, Ulta, and Dollar Tree, they noted an uptick in cutting into their bottom line here. Now, in a recent earnings call, Target's CEO said that the company could lose more than $500 million this year to shrink and organized retail crime is becoming a bigger issue. Over the past few weeks, we've spoken with guests about the rising rates of theft in retail and what that means for the industry. Take a listen.

ANTHONY CHUKUMBA: We've seen a lot of retailers talking about increased shrink. Now, there are some things that retailers can do about shrink. So for example, you can see them put more items, you know, behind fixturing where you simply have to call someone over to open up the item.

That's not great from a customer experience perspective, but that can certainly work. You might see them add security guards into the stores. You know, Dollar Tree was talking about at Family Dollar they might even selectively raise prices in areas with high shrink. But to some extent, there's not-- it's very limited in terms of what you can do.

OLIVER CHEN: Unfortunately, it's been worse than expected. So as we look ahead, the plan is for more labor as well as working on fixture. And this was a big charge at Target. It was $500 million. It also led to impact of Ulta's SG&A margins, so the impact is very real.

What really needs to happen is collaboration across the government, companies, society, products. Collaboration likely needs to happen. I don't think there's an easy solution to this, and it continues to evolve. But unfortunately, it's gotten worse and it's been quite material in terms of the margins and what stores have to do largely in terms of investing in additional labor.

JOHN DAVID RAINEY: To be clear, this is a problem for all retailers. But our main focus at Walmart is protecting our associates, protecting our customers, but also protecting our merchandise. But this is not an issue that one retailer or either the retailers at large can solve by themselves. We need engagement from the local communities to help solve this.

SIMEON SIEGEL: The unfortunate answer is yes. I think figuring out order of magnitude and where it hits worst and who has already told us about it versus not, but shrink is absolutely something that, unfortunately, I think we all have to account for and consider and hopefully can be fixed.

COREY TARLOWE: It's impacting a lot of retailers at present. Target does have mitigation efforts in place. They're working with local law enforcement. They're working with the NRF and RILA, so national retail organizations, and with other retailer-- retailers as well to help to mitigate the effect. They're also adding in more shelf security in stores to help impact the overall shrink issue. Is it going to disappear tomorrow? No, but it's an issue that over time should lessen as these initiatives hopefully tend to bear fruit and mitigate the overall issue that Target's facing from a shrink standpoint.