TARGET : The Growing Challenge of Organized Retail Crime: Why Retailers Are Closing Stores
In a recent move that has sent shockwaves through the retail industry, Target announced the closure of nine of its stores in major cities. The reason? Rampant and persistent large-scale theft. This decision is a glaring indicator that retailers are grappling with a dangerous problem that seems to be spiraling out of control.
Retail experts emphasize that even a modest increase in crime can set off a chain reaction leading to store closures. Burt Flickinger, a renowned retail expert and managing director of retail consultancy Strategic Resource Group, points out, “It’s proof that store crimes are reaching a new level.”
However, store crime is just one piece of the puzzle. Retailers are also facing other significant challenges, including a reduction in consumer spending and excess inventory, as they struggle to boost in-store sales and decide which locations to shutter.
The impact of stolen items on store profitability is particularly pronounced, considering the razor-thin profit margins that many large retailers typically operate within. As Zak Stambor, a senior retail and e-commerce analyst with Insider Intelligence, notes, “Increasing store crime is another variable in play right now for retailers.”
At the heart of the issue is “organized retail crime” (ORC), a particularly insidious form of theft that experts classify as a major threat. ORC involves groups of individuals targeting stores that stock high-value merchandise such as electronics, sporting goods, cosmetics, clothing, handbags, and shoes. These groups steal large quantities of products and then resell them on secondary marketplaces like eBay, OfferUp, Facebook Marketplace, or even reintroduce them into the legitimate supply chain.
Large cities, including Los Angeles, Chicago, and New York, have witnessed a surge in dangerous smash-and-grab attacks, where criminals use sledgehammers and other tools to break into stores and steal thousands of dollars’ worth of merchandise. Small businesses are equally vulnerable, as evidenced by the recent closure of 49 retail wine and liquor stores in Philadelphia due to looting.
Numerous large retail chains have issued warnings about the severity of the problem, citing safety concerns for customers and employees and potential profit erosion. Dick’s Sporting Goods, Five Below, Dollar General, and TJX Companies are among those who have sounded the alarm on rising theft in their stores.
Target, with nearly 2,000 stores in the US, projected a staggering $500 million loss for the year due to theft. “Retailers are fighting an uphill battle to contain crime. Overwhelmingly, they’re also very concerned about safety in their stores and retaining good employees,” says Read Hayes, a criminologist at the University of Florida and director of the Loss Prevention Research Council.
The rise in store crime can be attributed to a combination of opportunity and need, experts say. However, quantifying the scale of the problem remains challenging. The National Retail Federation estimates that total annual shrink, encompassing merchandise losses due to external and internal theft, fraud, damage, and other factors, cost retailers $112.1 billion in 2022, up from $93.9 billion in 2021.
Burt Flickinger provides a stark example of the financial impact of large-scale theft on retailers. He explains that when $300 to $330 worth of merchandise is stolen, typically only $0.00 to $3 is recovered. Consequently, a retailer, with an after-tax retail profit of one cent on every one dollar of sales, must sell $30,000 worth of additional merchandise to offset the $300 stolen.
Retailers are now exploring various strategies to enhance store safety, such as locking up products or altering store layouts. However, these measures may deter legitimate shoppers, potentially diverting them to online or alternative shopping destinations.
The broader consequences of store closures due to crime cannot be underestimated. As Dr. Hayes points out, it can set off a ripple effect, leading to reduced foot traffic, the exodus of other businesses, and ultimately, urban blight.
In a challenging landscape where retailers are grappling with not only declining sales but also mounting security concerns, finding a balance between loss prevention and providing an appealing shopping experience has become a complex and pressing issue. As the battle against organized retail crime intensifies, the future of physical retail remains uncertain, and retailers must adapt to navigate these uncharted waters.
