Target executives revealed on Wednesday that organized retail theft contributed to a $400 million decrease in gross margins.
The nationwide retailer revealed that profits fell 50% in the third fiscal quarter as sales diminished ahead of the holiday season. Target announced earnings per share of $1.54, missing analyst expectations of $2.13, according to the company’s earnings report, which cited persistent inflation and rising interest rates as contributing factors for the lackluster results.
Target CEO Brian Cornell remarked in an earnings call that organized criminal behavior has negatively impacted earnings and required new levels of security spending. “Along with other retailers, we’ve seen a significant increase in theft and organized retail crime across our business,” he said. “As a result, we’re making significant investments in training and technology that can deter theft and keep our guests and store team members safe.”
As many as 81.2% of retailers said that the “violence and aggression” associated with organized retail crime increased in the past year, according to a survey from the National Retail Federation, while nearly 90% of respondents said that the pandemic worsened the risk for their companies through higher degrees of shoplifting, employee theft, and organized crime.
Thefts executed by packs of robbers have garnered attention during the crime wave of the past two years, with some retailers spending heavily on new security measures or closing locations in particularly dangerous cities. Target Chief Financial Officer Michael Fiddelke added that retail shrink, of which organized retail theft is a component, has contributed to reduced gross margins by more than $400 million in comparison to last year.
“This is an industrywide problem that is often driven by criminal networks, and we are collaborating with multiple stakeholders to find industrywide solutions,” he commented. “For example, because stolen goods are often sold online, Target strongly supports the passage of legislation to increase accountability and prevent criminals from selling stolen goods through online marketplaces.”
Interest groups such as the National Retail Federation and the U.S. Chamber of Commerce have rallied industry leaders to back multiple laws that would increase federal resources devoted to opposing the phenomenon. While the Combatting Organized Retail Crime Act would facilitate coordination among law enforcement agencies and businesses, the INFORM Consumers Act would prevent the resale of stolen goods by requiring verification for high-volume third-party sellers on platforms such as Facebook Marketplace.
Supporters of the legislation assert that federal assets have a role in preventing organized retail theft because Congress is mandated to regulate interstate commerce. The increased criminal activity, however, corresponds with moves from some local officials to deemphasize the prosecution of minor offenses. California is among several states that have opted to loosen consequences for small-scale shoplifting, as residents approved a ballot measure eight years ago that prescribes misdemeanor penalties to nonviolent property crimes in which the value of stolen goods does not exceed $950.
Crime, homelessness, and other public safety issues have induced several companies to amend operations in urban areas over the past several months. Among other examples, convenience store Wawa shuttered multiple locations in Philadelphia, while coffee chain Starbucks announced plans to close profitable restaurants in a number of major cities.
