Retail theft, other shrinkage factors drained $112B from stores last year

A flash mob-style ransacking in Philadelphia Tuesday night and other incidents could have retailers on their way to another year of theft losses like the $112.1 billion lost last year, according to the National Retail Federation's most recent Retail Security Survey.

While the dollar figure is up from 2021’s $93.9 billion, the report found the average rate of shrink – the difference between the inventory a store has on its balance sheet and its actual inventory – was 1.6%, slightly up from 2021’s 1.4% and in line with shrink rates from 2019 and 2020.

Meanwhile, the share of shrinkage caused by internal and external theft remained steady between 2021 and 2022, according to the study.

The report comes as a growing number of retailers sound the alarms on retail theft and organized retail crime. Target this week cited theft for the closure of nine stores, and Dick's Sporting Goods last month blamed an uptick in theft for a lackluster quarterly profit. On Tuesday, groups of teenagers in Philadelphia stole from several stores in an apparently coordinated effort, according to authorities. Police arrested more than a dozen people.

Locked up items to prevent shoplifting and assistance button are seen at a Duane Reade drugstore and pharmacy on Aug. 24 in New York City. Major retailers Walmart and Target, drugstore chains CVS and Walgreens, as well as home improvement firm Home Depot and footwear seller Foot Locker are among those to have reported more thefts – including violent incidents – in their latest earnings results.

What’s driving shrinkage?

Both external and internal theft accounted for 65% of shrinkage in 2022 compared to 65.5% in 2021, according to the Retail Federation reports.

The factors behind shrinkage in 2022 include:

◾ External theft, including organized retail crime: 36% (down from 37% in 2021)

◾ Internal theft: 29% (up from 28.5% in 2021)

◾ Process/control failures: 27% (up from 25.7% in 2021)

◾ Unknown loss: 6% (down from 7.7% in 2021)

◾ Other: 1% (down from 1.2% in 2021)

While the annual survey does not show a significant spike in external theft, one researcher noted that the numbers look at figures from 2022.

While retailers voiced concerns about theft and organized retail crime in 2022, reports have ramped up this year. A June report from Bloomberg found shrinkage was talked about more on retailer’s earnings calls in the latest quarter than any other on record with nearly 200 mentions

“There is almost a one-year lag, so that's part of it. We're always looking kind of way behind where we currently are,” said Read Hayes, director of the Loss Prevention Research Council, which helped conduct the study.

But with little data available at this point to back up claims of a spike in retail theft and some companies walking back statements blaming retail theft as the main driver of their losses, some analysts have said companies may be discounting other causes of lower profit margins.

A recent analysis on theft from CNBC found inventory losses tend to be just a fraction of net sales and play a far smaller role in squeezing profit margins than other factors like excessive discounting.

Retailers report growing concerns about violence

The survey also notes that retailers' concerns about violence have been rising.

Eighty-eight percent reported that shoplifters are “somewhat more or much more aggressive and violent” compared to one year ago. Retailers that track the number of violent shoplifting incidents said figures were up 35% on average.

The top cities identified as being most affected by organized retail crime include Los Angeles, San Francisco and Oakland, California; Houston, New York and Seattle.

"Far beyond the financial impact of these crimes, the violence and concerns over safety continue to be the priority for all retailers, regardless of size or category," Retail Federation Vice President for Asset Protection and Retail Operations David Johnston said in a Tuesday press release.

The figures come just one month after Target CEO Brian Cornell said the big-box retailer saw a 120% increase in theft incidents involving violence or threat of violence during the first five months of the year.

The Retail Federation survey was distributed by email to senior loss prevention and security executives and contains insights from 177 retail brands representing more than 97,000 retail locations across the country.

What happened in Philadelphia?

The ransacking Tuesday night stretched from downtown to Northeast and West Philadelphia and included Foot Locker, Lululemon and Apple stores.

“This destructive and illegal behavior cannot and will not be tolerated in our city,” Mayor Jim Kenney, a Democrat, said on social media, calling it a “sickening display of opportunistic criminal activity.”

His administration is working with police to assess “which areas of the city may need increased coverage or additional resources,” he said.

The Associated Press contributed to this report.

This article originally appeared on USA TODAY: Retail theft, other factors drained billions from stores in 2022