Retail theft has long been a persistent problem, undermining profitability and creating operational challenges for stores nationwide. However, Target (TGT) may have cracked the code to one of retail’s toughest issues. The company’s latest strategies indicate a significant breakthrough in managing inventory shrink, a term encompassing losses due to theft, damage, and administrative errors.
A Notable Decline in Inventory Shrink
Target’s recent financial disclosures reveal a promising development. According to Michael Fiddelke, the company’s CFO and COO, Target has achieved a plateau in inventory shrink, marking a notable turnaround from the deteriorations seen in previous years. Fiddelke emphasized that Target’s efforts to curb shrink have been successful, stating, “Shrink was one of the tailwinds to profit in the quarter, and as we stepped into the year, our aim was to have shrink plateau. Two quarters in, we’re achieving that and then some.”
This accomplishment is reflected in Target’s second-quarter report, where the company reported a 28.9% gross profit margin, surpassing analyst expectations and up from 27% a year earlier. This positive performance follows a challenging period where shrink cost Target $700 million in 2022 alone, impacting its operating margins significantly over the past few years.
Innovative Strategies and Community Collaboration
Target’s approach to addressing theft has involved several key strategies, including enhanced security measures and increased collaboration with local authorities. The company has placed a strong emphasis on partnerships at federal, state, and local levels, which Fiddelke believes have been instrumental in making progress against retail crime.
As part of its strategy, Target closed nine underperforming stores at the end of October 2023 due to persistent theft and safety concerns. The closures included locations in Harlem, Seattle, the San Francisco Bay Area, and Portland. These measures were taken to ensure the safety of employees and customers while addressing the unsustainable performance of these stores.
Enhanced Security Measures
Target has also invested in physical security improvements. The retailer has introduced locking cases for merchandise particularly susceptible to theft and ramped up its security staffing, including third-party guard services. Training programs for store leaders and employees have been developed to help them handle potential safety issues and de-escalate incidents related to organized retail crime.
Additionally, Target is exploring advanced technological solutions by partnering with the U.S. Department of Homeland Security’s investigations division. This collaboration aims to develop custom cyber defense tools designed to analyze and prevent fraud and other crimes.
Industry-Wide Progress
Target’s efforts come at a time when other major retailers are also making strides in tackling inventory shrink. Walmart (WMT) recently reported slight improvements in shrink within its core merchandise mix, a trend that began in the first quarter of 2024. Dollar General (DG) has taken a drastic step by converting 12,000 of its stores away from self-checkout systems, a move aimed at reducing theft and enhancing customer engagement.
Meanwhile, TJX Companies, Inc. (TJX), known for its TJ Maxx and Marshalls brands, has introduced body cameras for its loss prevention staff. CFO John Klinger noted that these cameras have a de-escalating effect on potential thieves, contributing to a reduction in theft incidents.
Looking Ahead
The battle against retail theft is ongoing, but Target’s recent achievements suggest a new direction for the industry. By combining innovative security measures with strategic store closures and enhanced community partnerships, Target is setting a precedent for how retailers can effectively address and manage inventory shrink. As other retailers observe and adapt to these successful strategies, the landscape of retail theft management is likely to continue evolving, promising better protection for stores and a safer shopping experience for consumers.
