Rising organized retail crime has a few sad side effects, warns one expert

The looting of retail stores — better known in industry circles as inventory shrinkage — is causing chains to completely rethink their businesses.

And that may mean simply closing at-risk stores or curtailing future openings, retail experts say.

"Lots of retailers in recent weeks have announced they are either going to increase prices or they are going to have close stores [because of retail crime]," Natalie Kotlyar, national retail practice leader at BDO, explained on Yahoo Finance Live (video above). "That comes on the heels of considering the cost of additional security they would need to have, the cost of lost merchandise, and replacing all of that. It's certainly something retailers are going to have to think about going into 2023; Do they have to keep those stores in questionable areas with lots of crime open?"

Retail losses from stolen goods increased to $94.5 billion in 2021, up from $90.8 billion in 2020, according to a new report from the National Retail Federation (NRF).

The report found that the average inventory shrinkage rate last year was 1.44%. While that's a modest decline from the prior two years, it remains comparable to the five-year average of 1.5%.

"We are seeing an uptick in retail crime," Kotlyar said. "It's not the usual petty theft we have seen over the years. What we are seeing now is more thoughtful crime. People are stealing in order to resell, and it is certainly hurting the bottom line."

That's been the case at Target (TGT), Best Buy (BBY), Walmart (WMT), and other big box stores this year.

"At Target, year-to-date, incremental shortage has already reduced our gross margin by more than $400 million vs. last year," Target CFO Michael Fiddelke told investors on an earnings call last month. "And we expect it will reduce our gross margin by more than $600 million for the full year."

Fiddelke detailed how there are "a handful of things that can drive shrink in our business, and theft is certainly a key driver."

"We know we're not alone across retail in seeing a trend that I think has gotten increasingly worse over the last 12 to 18 months," he added. "So we're taking the right actions in our stores to help curb that trend where we can, but that becomes an increasing headwind on our business and we know the business of others."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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