Organised crime “shrinks” retailer profits

The cost-of-living crisis has left many of us wrestling with tight budgets. Difficult choices have had to be made and people have had to do without, not just things they want but also things they need.

Amidst that backdrop retail crime has risen considerably, with thefts up by 27 percent across 10 of the UK’s largest cities, and even higher in some, according to figures from the British Retail Consortium.

Just having a police car parked outside “can make people think twice”.

And it’s not just shoplifting. Incidents of violence and abuse have nearly doubled from where they were pre-pandemic, and organised theft, where gangs steal to order, is becoming a huge issue for retailers big and small.

John Lewis made headlines recently when it began offering free hot drinks to police officers, with the company’s head of security Nick Juniper noting that just having a police car parked outside “can make people think twice”.

Protecting staff has become a massive concern and bosses from both the John Lewis Partnership and the Co-op have written to the Home Secretary calling for tougher action on repeat offenders.

And the requirement to spend more on security and the losses being experienced are having a material impact on bottom lines.

Global retail risk

The trend is not limited to the United Kingdom. In the United States retail crime has been labelled an epidemic, with Target warning it expected to lose hundreds of millions to what it calls “shrink” over this financial year.

In the United States retail crime has been labelled an epidemic.

Shrink covers a multitude of sins, from breakages to shop lifting, but basically, it’s the difference between the goods that should be there and what’s actually there.

More and more earnings updates are including commentary about the issue, and shareholders are now having to factor it into their own decision making.

Dick’s Sporting Goods shares shrink on update

Source: Refinitiv

When Dick’s Sporting Goods blamed the issue for an almost 25% slump in profits during it’s Q2 earnings call its share price plummeted and its President and CEO Lauren Hobart said that “the impact of theft on our shrink was meaningful”.

And it wasn’t the only casualty: British rival JD Sports was dragged down when London markets opened the following day.

The read across might have been knee jerk and certainly JD’s tactic of only displaying one shoe is a clever deterrent, but social media was full of pictures showing a sea of police gathered outside the company’s flagship Oxford Street store at the beginning of August as a “mass shoplifting event” singled out the store, an event that had already set nerves on edge.

JD Sports Fashion performance hit by theft worries

Source: Refinitiv

Taking Action

Retailers are taking action, adding security staff, upgrading anti-theft measures and in some cases “love bombing” customers waiting to pay in the hopes that additional attention from staff will put would-be thieves off going through with their crimes.

But organised gangs in particular are determined, and the level of violence being deployed is deeply concerning.

Easing inflation should help consumer confidence, and rising wages and a resilient jobs market should mean more people have the means to purchase what they need, and some of what they want, without having to resort to the black market.

Retailers, especially smaller retailers, are likely seen as a soft target and with a vast online marketplace for goods to be potentially re-sold it’s something that’s becoming an increasingly big deal and one that investors do need to consider.

Past performance is not a guide to future performance and some investments need to be held for the long term.