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Investors should be more worried about America's shoplifting problem, retail expert says

shoplifter shoplifting stealing clothing
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  • Top retailers in recent quarters have complained of the costs of "shrinkage."

  • It's a phenomenon that includes theft ranging from small-time shoplifting to bigger retail crime schemes.

  • An expert says it's problem for investors and consumers, and it could get worse during the holidays.

Retailers in recent quarters say they're losing big money as inventory gets snatched from shelves. The phenomenon of "retail shrinkage" has caught the attention of Wall Street investors, who have probed the issue, but are likely not nearly as concerned about it as they should be, an expert told Business Insider.

Shareholders have likely heard of retail shrinkage – a term that encompasses all types of inventory loss, including loss stemming from small-time shoplifting and multimillion retail crime schemes – but are probably still more focused on more standardly reported figures.

But shrinkage is a big deal, and growing. It accounted for $112 billion lost by retailers in 2022, the National Retail Federation said in recent report, and around $41 billion of that loss was from shoplifting.

A handful of retailers, including Target, have warned they expect inventory loss to have gotten even worse this year. In May, the company estimated it was on track to lose around half a billion more this year from shrinkage, implying around $1.3 billion lost in 2023.

"I think it is a problem, and it's starting to have a tangible impact on performance, especially in terms of profitability," Neil Saunders, the managing director of GlobalData's retail consulting unit, told Business Insider. "I think investors should be concerned about it."

Even for concerned investors though, hard data on the phenomenon and its costs are hard to come by. Companies are tight-lipped over how much they're losing, and rarely ever issue concrete guidance over how much they expect shrink to impact earnings, especially when it comes to theft.

"They might say, [theft] is actually getting better or improving," Saunders said. "But you never really know the extent of it because it's not quantified."

Some data like profit margins and costs can offer clues to just how much shrinkage has impacted businesses. When picking retailers less susceptible to theft, investors can look at stores that have a large shop floor presence, such as Best Buy and the fortress-like Costco, which tends to deter shrink from theft.

Theft is likely to increase into the holiday season. As stores load up on inventory and draw huge crowds of customers, it'll be easier for shoplifters to go by unnoticed, Saunders said.

It could add to the barrage of other pressures retailers are facing into the end of the year, especially as questions arise over how much gas US consumers have left in the tank amid higher borrowing costs and depleted pandemic savings.

"I don't think there are any signs [shrink] is coming down," Saunders warned. "It's part of a cocktail of issues that retail is currently facing."

Read the original article on Business Insider