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Last week, major news outlets reported that Target expects to suffer an additional $500 million in losses due to a surge in "organized retail crime."
There is one major problem with these headlines: they are objectively false.
The reports were based on Target's earnings call for the first quarter, which took place on May 17. During the call, Target did not say that losses from "organized retail crime" would increase by $500 million in 2023. Rather, Target estimated that its total inventory "shrink" in 2023 would increase by $500 million this year. Here is a direct quote from Target Chief Financial Officer Michael Fiddelke:
[S]hrink reduced our gross margin rate by a full percentage point compared with a year ago. As [Target CEO] Brian [Cornell] highlighted, pressure from shrink has continued to increase, and we now expect that, if current trends continue, shrink will reduce our full-year profitability by more than $500 million compared with last year.
"Shrink" is an industry term that refers to missing inventory, and it has multiple causes, including inventory mismanagement, employee theft, and external theft. According to the National Retail Federation (NRF), an industry lobbying group that represents Target and other major retailers, about two-thirds of shrink is attributable to causes other than "external theft," the category that includes shoplifting.
Organized retail crime (ORC) is a subcategory of external theft. It is ambiguously defined by the NRF as "the large-scale theft of retail merchandise with the intent to resell the items for financial gain." The NRF does not define how much merchandise needs to be stolen to qualify as "large-scale theft."
Target did not estimate what percentage of its shrink was attributable to external theft or the narrower category of ORC. Instead, Cornell opined that "theft and organized retail crime are increasingly urgent issues." Target presented no data supporting the contention that ORC is increasing. But even if ORC is contributing to Target's increased shrink, it is a fraction of the $500 million figure widely reported in the media.
What percentage of external theft shrink is attributable to ORC across the industry? A spokesperson for the NRF told Popular Information that it does "not have estimates specific to ORC." Notably, the NRF previously estimated the cost of ORC. In a 2020 study, the NRF estimated that ORC "costs retailers an average of $719,548 per $1 billion dollars in sales." This was the figure self-reported by a lobbying group promoting ORC as a crisis.
If the NRF's 2020 estimate has held, it means about 0.07% of sales, or 5% of total retail shrink, is attributable to ORC. If ORC at Target is in line with the industry, it means Target is projecting ORC will drive $25 million in additional shrink this year, not the $500 million figure featured in headlines. That's little more than a rounding error for Target, which recorded $106 billion in sales in 2022.
In response to an inquiry from Popular Information, Target declined to comment on the erroneous coverage of its earnings call or specify how much of the $500 million in shrink was attributable to ORC. Instead, a Target spokesperson sent the following statement:
Theft and organized retail crime are urgent issues that are increasingly impacting the team and guests at Target and other retailers. The problem affects all of us, limiting product availability, creating a less convenient shopping experience and putting our team and guests in harm’s way.
If a surge in ORC is driving an increase in shrink, it is not showing up in the industry's own data. In 2021, the latest data available, an NRF survey, found that retailers lost an average of 1.4% of inventory to shrink. That's down from 1.6% in 2020. And for nearly a decade, shrink in the retail industry has hovered around 1.4%.
Why does any of this matter? Target, other major retailers and the NRF are using anxiety created by headlines promoting an alleged surge in "organized retail crime" to push for new — and more punitive — criminal laws. Cornell said Target is "actively collaborating with legislators, law enforcement, and retail industry partners to advocate for public policy solutions to combat organized retail crime."
Retailers are incentivized to pin the blame on ORC and other kinds of theft for poor performance. Jonathan Simon, a criminal justice professor at UC Berkeley School of Law, explained that it is "easier for companies and the public to blame theft for store closures and retail struggles than admit stores’ over-expansion, strategy mistakes and customers abandoning stores for online shopping."
The consequences of overhyping "organized retail crime"
Retailers have successfully translated angst about a purported surge in ORC into harsher criminal laws for non-violent theft. In Louisiana, for example, stealing something of any value in a group of three can now result in "imprisonment with or without hard labor" for up to seven years. The Marshall Project reported that in 2022 legislators in California, Florida, and North Carolina also stiffened penalties for "organized" theft. This year, "lawmakers in at least 11 states are considering legislation that would more harshly punish people caught stealing from stores with the intent to resell merchandise."
New laws targeting ORC are being deployed in a racially discriminatory manner. In Texas, for example, "[a]nyone caught stealing up to $1,500 of merchandise could either face a typical property theft charge or an organized theft charge, which carries a steeper penalty." An analysis of seven years of arrest data by Southern Methodist University statistician Michael Braun found "Black people were arrested and charged with organized retail theft more than twice as often as their White peers."
The industry has also used the specter of a shoplifting epidemic to oppose lowering the value of goods stolen for shoplifting to be considered a felony. According to a Pew report, since 2000, "at least 39 states have increased the value of stolen goods required to trigger a felony charge." The study found that "[s]tates that increased their thresholds experienced the same overall decline in property crimes over the last two decades as states that did not."
Walgreens admits it "cried too much"
At least one retailer has already admitted that the shoplifting "epidemic" is overblown. In January 2023, Walgreens Chief Financial Officer James Kehoe admitted the company "cried too much last year" about shoplifting. Kehoe added that theft at Walgreens had “stabilized,” and the company was "quite happy with where we are."
Kehoe's comments came one year after he blamed Walgreens' poor performance on organized retail crime. In 2022, Kehoe said that part of the reason Walgreens reported lackluster earnings was because of “gangs that actually go in and empty our stores of beauty products.”
Like Target, Walgreens did not specify how much of its "shrink" was attributable to external theft or organized retail crime.
But shrink turned out to be less of a problem than Walgreens made it out to be and in 2023, the company announced it would begin spending less on private security. "Although we are pleased to see retail shrink levels stabilize, this is still a serious national problem affecting us all and all retailers," Walgreens told Popular Information.