The rise in raw materials prices, freight and shipping rates, labor costs all are well documented effects of the disruptions caused by the pandemic. However, another less commented factor is also weighing on companies’ margins: a higher shrink.
What retailers generally refer to as “shrink” includes multiple events, ranging from product damages to sell-by date expiration to cashier errors, that will prevent good from being monetized as expected. With the help of technology and other improvements, most of these issues have been receding in recent years, but one hasn’t: theft.
Stores have always been facing employee and customer theft, but things appear to be on a whole new level now. A few months ago, the Wall Street Journal reported that shoplifting had increased by 30% at CVS drugstores since the beginning of the pandemic. A few days later, a dramatic attack saw 80 individuals ransack a Nordstrom department store in San Francisco’s Bay Area. When reporting their quarterly results in November, a growing number of US retailers admitted that shrink costs were up due to organized crime. After Kroger in September, Target and Best Buy suggested that the effect on gross margins was no longer negligible. Walgreen closed a number of stores in California because of shoplifting, while other retailers are forced to take measures against it.
After distancing measures already reshaped consumers’ shopping habits, it seems that a more unexpected effect of the pandemic might also contribute to a major change in customer experience. Let’s see if retailers keep talking about that when their turn comes to report 4Q results.
ALF – January 25, 2022