2024 Look Ahead   //   January 3, 2024

How companies are rethinking retail theft in 2024

Throughout 2023, the word on nearly every retail executive’s lips was “theft.”

In May, Foot Locker’s interim CFO pointed to “a significant pickup” in theft activity. In August, Target’s CEO pointed to an “unacceptable amount” of retail theft, while Nordstrom’s CEO said that losses from theft were “at historical highs.” In September, Walmart moved to build a police station inside a store in Atlanta — nine months after its CEO said that rising thefts could lead to store closures and price jumps.

Over and over, retailers have sounded the alarm about retail theft and retail shrink, the latter of which refers to the discrepancy between a company’s actual and reported inventory. Retailers have tried different solutions to the issue, hoping to curb existing shoplifting as well as prevent future shoplifting. Some companies, like Duane Reade and CVS, have resorted to sticking items behind locked cases, hoping that they act as a deterrent for shoplifters. Others, like Home Depot, have hired security guards to watch over shoppers’ behavior and established more lighting in their parking lots. And yet more, like Walgreens, have closed stores, citing “organized retail crime.”

Retail theft will continue to be a talking point next year, especially as lawmakers crack down on stolen goods, dispatch task forces on the issue and increase law enforcement. But tackling the issue, sources told Modern Retail, means confronting the fact that retail theft can be difficult to track and that existing data is fuzzy at best. Thus in the year to come, retailers may be more likely to focus on shrink as an overall concept and less on the headline of rising crime.

Data difficulties

Over the past year, many retailers have pointed to an increase in theft, citing data from the National Retail Federation that organized retail crime accounted for nearly half of all shrink losses in 2021. However, that finding — mentioned in an April report with private security firm K2 Integrity — conflicted with the NRF’s own survey that external theft accounted for 37% of losses in 2021. After an investigation by Retail Dive called out discrepancies in the April report (it used, for instance, outdated data or data not about theft specifically), the NRF amended the findings.

In fact, it is difficult to quantify just how persistent retail theft is, as several media reports have explained. Most law enforcement does not track retail theft specifically. In addition, without photographic or other hard evidence, reports of theft rely on the “honor system,” which can make verifying them difficult. The effect of retail theft on companies’ bottom lines remains largely unchanged over the past few years, according to newer NRF data released in September. And, the level of shrink has held fairly steady since at least 2015, according to Retail Dive.

Retail theft does remain a real and pressing concern for many retailers, especially smaller businesses that rely on every sale to make their rent. Anecdotal incidents of theft continue to pop up — many of which have been captured on TikTok — and theft in certain cities does seem to be on the rise.

For instance, over the past five years, shoplifting complaints nearly doubled in New York City, according to police data The New York Times reviewed in April. Target said its stores saw a 120% increase in theft incidents involving violence or threats of violence in the first five months of 2023. Axonify, which makes training software for frontline workers, found that more than two-thirds (70%) of managers said they or their staff had witnessed an increase in theft within the last year.

Neil Saunders, managing editor of GlobalData Retail, agrees that retail crime “has been increasing for retailers.” At the same time, he said, “it is hard to get a handle on the extent of crime because a lot of the information is qualitative and many of the statistics used are partial or unreliable. That makes understanding the exact extent of the problem challenging.”

The issue of shrink

Shrink is indeed a challenge for many retailers, as it affects the number of goods that can be sold. Yet, at a time in which retailers are battling multiple headwinds — including high inflation and shifting consumer interests — retailers have commonly mentioned theft as the culprit for poor performance.

Target, for instance, pointed to “organized retail crime” to justify closing nine of its stores this year. An investigation by CNBC found that theft was actually greater at other Target locations that remain open, raising questions over what role, if any, theft played in the closures.

Melissa Minkow, director of retail strategy at CI&T, told Modern Retail that shrink and theft remain actual concerns, but that she thinks the magnitude of the problem “is not as large as I think the story has become.” When a company mentions “shrink” or “theft” in earnings calls, she said, that can “soften the blow” if that company is not hitting financial forecasts.

“If you attribute that issue to an external force, the market can react a little bit better,” she said. “They can say, ‘Oh, well, it’s nothing this retailer’s necessarily doing wrong. It’s whatever is going on at a social level.’ I think that is why it’s become such a big story — because the last few months [and] the last year have been really tough in the face of inflationary pressures.”

In addition, while theft is a part of shrink, shrink can occur for any number of reasons, including shoplifting, operational loss, vendor fraud and administrative errors. Retailers have not always differentiated between these in earnings calls.

Locking and unlocking

One way that retailers have tried to curb shoplifting is by locking everything from toothpaste to laundry detergent behind glass cases. Many cases contain a button that a shopper can push to signal a store employee to come unlock the box. This invokes a waiting game that may frustrate customers and discourage them from making the purchase at all.

In fact, Advantage Solutions found that when encountering locked-up merchandise, nearly 20% of shoppers will decide not to buy the product. Less than one-third said they would buy the product online instead of in-store.

While businesses may lock up items to disincentivize shoplifters, such a move can actually hurt the businesses themselves. In June, the chief financial officer of Walgreens acknowledged that the business may have overblown concerns about theft, saying that it “cried too much” about the issue in the last year. In addition, private security companies Walgreens hired were “largely ineffective,” he added.

In 2022, Rite Aid said it considered “putting everything” under lock-and-key, but its financial issues continued to mount. In fact, the pharmacy logged $306.7 million in losses for the quarter ending June 3, 2023 and grappled with mounting debt and costs from opioid-related settlements. The company then declared Chapter 11 bankruptcy in October.

CI&T’s Minkow emphasized that locked cases can push away loyal customers and make them “feel like they’re being punished for something they’re not doing.”

“In all of our retail research, we repeatedly see how important convenience is when it comes to shopping,” she said. “And so, the more items that get locked up, the more quickly you are chasing away your consumers.”

Retailers also need to realize the burden that they put on store associates when they ask them to unlock case after case, JD Dillon, chief learning officer at Axonify, told Modern Retail. “How does locking something up in a cage impact a person’s ability to do their job, the fact that now people are being called on to have to respond to customers who aren’t particularly happy about having a barrier between them and the products that they’re looking for?” he explained.

“It’s already been hard to be a retail associate,” Dillon said. “It’s that much harder now dealing with the logistical complications of theft.”

Finding solutions to shoplifting

There are other solutions to shoplifting besides putting items in protective cases, sources emphasized. Going into 2024, crime “will remain an issue,” GlobalData’s Saunders said. “It is unlikely to simply disappear and reduce. Really, what’s needed is a combined approach that makes life more difficult for thieves.”

One possibility involves RFID (radio frequency identification) tags that retailers can use to document when an item is purchased and ready to leave the store. This type of tracking is common in apparel, but “I don’t know that many convenience stores have gotten here just yet,” CI&T’s Minkow said, explaining that CPG brands would have to make sure they were tagging small items properly.

“A lot of that digital tagging technology is coming out more and more,” she said. “And the reality is, it is scalable in the sense that it solves other problems as well that aren’t even related to theft. It helps you make sure that you’re not dealing with out of stock at really high rates. It allows the retailer to really be on top of inventory management.”

GlobalData’s Saunders mentioned RFID as a solution, as well as other routes such as vending machines and improved monitoring. “Making locked cabinets accessible by scanning membership cards, improved staffing levels of the shop floor and checking receipts on exit are all things that retailers can do to reduce theft,” he said.

Axonify’s Dillon mentioned that solutions need to take the human toll of retail theft into account, including the fact that some 40% of retail and grocery associates have said they are scared to go to work. Thorough training (and revisited training) is key to helping these associates, Dillon said. Managers also need to emphasize that safety comes first, even if that means allowing a thief to walk out of the store, he explained.

“It’s critical to constantly have these conversations, to reinforce and to practice these types of events, for managers to talk to their teams and go through in pre shift huddles, ‘This is what’s taking place. What decisions do you make? How do you handle this?’ so that when it happens, it’s… almost automatic,” he said.