Organized retail crime led to an astonishing $400 million in lost profits this year

Target stores are being looted and it’s taking a huge bite out of profits.

The discounter told reporters on a call to discuss third-quarter results that inventory shrinkage — or the disappearance of merchandise — has cut its gross profit margin by $400 million so far through 2022.

“There are a handful of things that can cause shrink in our business and theft is certainly a major driver,” said Target CFO Michael Fiddelke. “We know that in retail, we’re not alone in seeing a trend that I think has gotten worse over the past 12 to 18 months. So we’re taking appropriate actions in our stores to curb that trend where possible, but that’s going to be an increasing headwind for our business and we know the business from others.”

A spokesperson for Target told Yahoo Finance via email after the call that the downsizing was mostly “organized retail crime.”

NEW YORK, NY - DECEMBER 23: American retail chain Target is seen on December 23, 2013 in New York, NY.  Target is facing lawsuits from customers after announcing that the credit card information of 40 million customers who shopped at the retailer between Dec. 15 and Dec. 27 was stolen.  The files allege that Target failed to maintain reasonable security procedures for customer safety.  The company sued in US courts by many customers.  If the number of court cases increases, a joint case must be formed by expanding the case file.  (Photo by Mucahit Oktay/Anadolu Agency/Getty Images)

US retail chain market Target is seen on December 23, 2013 in New York, NY. (Photo by Mucahit Oktay/Anadolu Agency/Getty Images)

Organized retail crime isn’t just a Target problem, it also affects other major retailers, such as Best Buy and Rite-Aid. From Yahoo Finance editor-in-chief Andy Serwer earlier this year:

“Why do people steal these days? That’s a tough one. To some extent, it’s a reflection of our times. Simply put, America’s social contract is under strain. Until recently, we could stock up on goods—often in giant, big box stores with only a handful of employees. If our social contract is strong – that is, people are shuffled fairly – it’s a model that works. Now it seems more people are stealing instead. (By the way, our stressed social contract can (the we can push this people-light, tech-heavy model. Last month, Wegman’s discontinued its scan-and-go shopping app. Why? Shrink, of course.)

I think wealth inequality has everything to do with this. Think back to the so-called Public Enemies era in the 1930s, when bank robbers ran rampant across the country. That also coincided with the Great Depression. Less money in the hands of poor people and more theft. Seems like cause and effect to me.”

A member of the National Guard walks outside a Target store, initially boarded up over unrest following the police killing of black man Walter Wallace Jr., in Philadelphia, Pennsylvania, U.S. on Nov. 4, 2020. REUTERS/Mark Makela TPX PHOTOS OF DAY

A member of the National Guard walks outside a Target store, initially boarded up over unrest following the police killing of black man Walter Wallace Jr., in Philadelphia, Pennsylvania, U.S. on Nov. 4, 2020. REUTERS/Mark Makela TPX PHOTOS OF DAY

According to a new report from the National Retail Federation (NRF), the number of goods stolen from stores rose to $94.5 billion in losses in 2021, up from $90.8 billion in 2020. The report found that the average inventory loss last year was 1 amounted to .44%. Although that is a modest decrease from the previous two years, it remains comparable to the five-year average of 1.5%.

“Retailers are facing security-related challenges on many fronts,” the NRF said. “Most retailers surveyed report that in-store, e-commerce, and omni-channel fraud are all on the rise. The majority of respondents also reported that guest-on-staff violence, remote theft, ORC, and cybercrime have become a higher priority for their organizations. Challenges involving labor shortages, employee retention and hiring – as well as issues related to masking and enforcing COVID precautions – have contributed to the risks of violence and hostility.”

Brian Sozzi is editor-in-chief and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and further LinkedIn.

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