Target may have solved one of retail's biggest problems: Theft
Target (TGT) is hitting its goals on inventory shrink.
On a call with reporters, Its CFO and COO Michael Fiddelke told Yahoo Finance the company has hit a plateau when it comes to shrink, including retail theft.
"[Inventory 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, and so to improve from the deterioration we've seen over the last couple of years, two quarters in — we're achieving that and then some," Fiddelke said.
Shrink can be the result of theft, damage, or poor record keeping, among other factors.
In its second quarter report, Target's 28.9% gross profit margin beat estimates, up from 27% a year ago.
Read more: Best credit cards for back-to-school shopping at Target (August 2024)
Target said shrink increased by more than $500 million last year compared to 2022, "representing about 50 basis points of incremental rate pressure," Fiddelke said on the company's Q4 earnings call in March.
Profits took a $700 million hit from the issue in 2022. From 2019 to 2023, the company said shrink costs reduced its operating margin rate by a "cumulative 1.2 percentage points."
Collaboration with local officials, expanding locked cases
"The things that we feel good about are the progress we're seeing in our partnerships at the federal and state and local level," Fiddelke said.
But the work is ongoing, and the company is hoping to keep making progress in the quarters ahead.
Part of the strategy included closing nine stores at the end of last October.
"We cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance," the company said in a statement at the time.
The closed stores included one in Harlem, New York City; two in Seattle; three near San Francisco and Oakland, Calif.; and three in Portland, Ore.
At some hard-hit stores, Target also installed locking cases for "prone to theft" merchandise.
Other tactics include investing in additional security members and third-party guard services and training store leaders and employees to "protect themselves and de-escalate potential safety issues associated with organized retail crime incidents," the company said at the time.
It also planned to partner with the investigations division of the US Department of Homeland Security to develop cyber defense technology. The tech could create custom tools that analyze fraud and other crimes.
Other retailers have also shared progress on solving the issue.
Last week, Walmart (WMT) CFO John David Rainey told investors on its earnings call that in its "core merchandise mix," the company saw "a little bit of benefit from improved shrink in the quarter," a trend that started in Q1.
Dollar General (DG) converted 12,000 of its stores away from self-checkout this year.
"While this represents a significant change in our stores, we believe this is the right course of action to drive increased customer engagement while also better positioning us to begin reducing shrink in the back half of '24 with a more material positive impact expected in 2025," CEO Todd Vasos said during its Q1 earnings call.
TJX Companies, Inc. (TJX), the parent company of TJ Maxx, Marshall's, and Home Goods, said during Q1 that it plans for shrink to be flat year over year.
At the end of 2023, the discount retailer introduced body cameras for its loss prevention associates.
"When somebody comes in, it's sort of — it's almost like a deescalation where people are less likely to do something when they're being videotaped, so we definitely feel that that's playing a role," CFO John Klinger told investors.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
