The Crumbing Retail Theft Narrative

In which the media and our politicians blindly parrot self-serving and struggling retailers.

Stories of retail theft have been inescapable over the last few years. Viral videos of audacious shoplifters, emptied-out stores, and mobs committing organized retail theft have been relentlessly played in the media and repeatedly gone viral on social media sites. Given the inconsistencies in crime data across the country —particularly the fact that not all crimes are reported— it can be difficult to ascertain whether the extensive media coverage of this issue reflects a genuine increase in shoplifting or merely a rise in its visibility due to the greater prevalence of cell-phone-recorded videos and the ability of this content to generate outraged clicks.

Thankfully, data from the National Retail Federation (NRF) can help us understand the extent of corporate losses from theft. The primary measure of losses used by NRF is called shrink, which they define as a “measurement of losses calculated by a retailer during a specific period of time, categorized across various means of retail loss.” Only about two-thirds of shrink can be attributed to theft as of 2022; the rest comes from administrative failings, mistakes, and other unknown causes. Given the limited availability of crime data, shrink is probably the best proxy for the size of the theft problem.

Source: Daphne Howland, Retail Dive

So how has shrink changed over time? Well, not very much. The most recent data on shrink is from 2022 and reports that retailers experienced $112 billion in shrink, up $18 billion from the previous year. That marks a 19 percent increase YoY, which sounds substantial but is nearly entirely attributable to rising retail prices (i.e. inflation) and firms’ growing retail presence. (2022 was the best year for net retail store openings in a decade.) Once one measures shrink as a percentage of all retail sales, shrink is up slightly from 2021, but flat relative to 2019 and 2020. In other words, the one-year jump in shrink from 2021 to 2022 could look significant in isolation, but the big-picture trend is flat. 

Source: Daphne Howland, Retail Dive

A relatively small (but highly sensationalized) portion of shrink is attributable to organized retail crime (ORC), which NRF defines as: 

the large-scale theft of retail merchandise with the intent to resell the items for financial gain….[exemplified by] dramatic video footage of major smash-and-grab and large-scale theft incidents at both large national retailers and smaller businesses across the country

As of 2020, ORC accounted for losses of 0.07% of all sales revenues. NRF claims ORC is on the rise, but there is no clear statistical evidence to support this claim. Since 2015, the portion of shrink attributable to “external theft”, the category that includes all shoplifting and organized retail crime, has remained roughly constant. NRF stopped tracking the prevalence of ORC specifically in 2020 because, according to a senior director of media relations at NRF, “retailers are reporting ORC losses that are lower than what the NRF expects them to be.” This admission was published in Retail Dive just a week before NRF had to retract its audacious claim that almost half of shrink was caused by organized retail crime— a mistake the organization made by conflating its own past shrink numbers with organized retail crime.

The National Retail Federation and its allies have selectively used the numbers reported above to justify its high-dollar dollar lobbying campaign in favor of tough-on-crime legislation, most notably the Combating Organized Retail Crime Act. A press release for that act by one of the bill’s sponsors mistakenly attributes the entirety of NRF’s retail shrink estimate ($112 billion) to organized retail theft. (If NRF is correct in its assessment that “ORC costs retailers an average of $700,000 per $1 billion in sales,” then the total annual cost of ORC is likely around $5 billion, as total annual retail sales in the US are around $7.1 trillion.) 

Despite their poor empirical basis, several retailers have used narratives around crime to justify their less-than-stellar profits. In October 2021, Walgreens captured a lot of media attention when it blamed organized shoplifting for its decision to close five San Francisco stores. Most of the media uncritically repeated this rationale, though some new organizations uncovered that multiple of the closing stores had relatively few instances of reported shoplifting, even compared to nearby stores. The San Francisco Chronicle also reported that for years Walgreens had been telling shareholders of its plans to downsize its physical presence, particularly in markets like San Francisco, where the firm already had a very large presence (53 stores) and several competitors. Over a year later, with far less fanfare, Walgreen’s CFO James Kehoe admitted that “Maybe we cried too much [about theft] last year,” tacitly admitting that theft was not responsible for the closures. In the last year, Walgreens’s shrink rate has shrunk from 3.5% to 2.5%. Kehoe thanks law enforcement, and concedes that private security measures were “largely ineffective.” Some of this reduction in shrink may be due to Walgreens’s shift toward online sales.

A second example comes from Dick’s Sporting Goods which attributed a sudden 23% drop in its profits during Q2 2023 to “organized retail crime and our ability to effectively manage inventory shrink.” The timing of this claim alone is bizarre. It came in mid-2023, years into the scare about organized retail theft and crime more generally. Before its poor Q2 report, Dick’s had not flagged shrink as a meaningful problem for the company. When Dick’s earnings report for the next quarter rebounded significantly, Dick’s softened its language about the threat of shrink. Where had all the criminals gone, one might ask. Why did they come and go so suddenly? 

A more recent example comes from Target. After announcing its decision to close nine stores, Target announced that:

We cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance.

This announcement came hours after the NRF released its annual retail security survey; perhaps it is mere coincidence that Target CEO Brian Cornell sits on the NRF’s board of directors. Regardless, an extensive analysis of crime incidents at the locations of closing and nearby Target stores, conducted by CNBC, found Target’s statement to be incredibly misleading. According to CNBC, “The locations it [Target] shuttered generally saw fewer reported crimes than others it chose to keep open nearby.” This trend held true in New York City, Seattle, Portland, and San Francisco. CNBC went on to explain that: 

In some cases, Target chose to keep operating stores in busier areas that had better foot traffic or higher median incomes, even though the locations saw more theft and violence, the probe revealed. Many of the locations Target closed were “small-format” stores the company opened over the last five years as part of an experiment to expand its footprint in dense, urban areas. The moves followed Target’s decision to shutter four similar stores in the spring that it said were underperforming, Retail Dive previously reported.

These examples might lead one to wonder if big retailers' complaints about organized retail theft are backed by genuine concerns or purely cynical. The evidence is mixed. NRF polls find that retailers believe there is “more violence and aggression from shoplifters compared with the previous year,” but NRF seemingly never polls whether retailers think there is more shoplifting generally. That seems like a big omission for an organization that spends so much time lobbying on the issue. Still, there are other ways to gauge retailers’ level of concern. For example, one would think that firms concerned about losses from theft and threats to employees would spend more on loss prevention and store security. However, spending on loss prevention has not significantly changed over the last year. Over half of retailers surveyed by NRF reported spending the same or less on loss prevention and security compared to the previous year. After accounting for inflation, a strong majority of firms have cut back their spending in real terms. Despite never asking retailers for their opinions on theft, the NRF does poll consumers. NRF reports that “Nearly two-thirds (64%) of consumers are concerned about gang-led shoplifting in their community”; “Three-quarters (75%) of consumers have personally shopped in stores where products were kept in locked cabinets to avoid theft.”; and that “Seventy-nine percent of consumers believe retail theft impacts the price of goods that they buy.” But isn’t this all getting a bit circular? The NRF, along with its political allies, generates baseless fears based on shaky numbers, and then uses those very manufactured fears to promote their own case!

Source: 2022 Retail Security Survey, National Retail Federation

If the data is really so unconvincing, why is all the attention on theft? For politicians and the media, crime is sexy, of course. Covering inner-city criminals and violent shoplifters is a lot more compelling than poring over a profit-and-loss statement, and since Biden’s taken office, it’s provided great fodder to attack “Democrat-run” cities, sell the “crime wave” narrative, and promote racialized attacks on some criminals who happen to be minorities. But for retailers, the theft story has its own benefit. Blaming theft for disappointing quarterly profits and store closures is much easier than blaming the mistakes of management in managing inventory and choosing store locations. It’s also easier than frankly admitting the threat to brick-and-mortar retail locations posed by the rise of online retailing (where average profit margins are three times greater), increased labor costs, and lower foot traffic in metro areas following the coronavirus. 

A recent UBS analysis outlined the possible results of these threats to retail. It predicted that 50,000 retail stores could close by 2028 and that the share of retail commerce completed online will rise from 16 to 25 percent. In an article on this report, published by Kim Souza in Talk Business & Politics, she provides a great summary of the bleak reality that retailers are facing: 

Foot Locker announced plans to close 545 stores by 2026 as it shifts away from shopping malls.…One of the more successful specialty stores, Bath & Body Works, also closed 50 stores in underperforming malls this year but at the same time added 90 new stand-alone locations. The retailer cited high rents and low traffic for the closures.…Walmart has roughly 4,700 U.S. stores and has not opened any new stores in recent years… [Best Buy] closed 20 of its largest format stores in 2023… [Dollar General] planned to open 1,050 new stores in 2023 but pared back to 990 stores with its “Popshelf” format, getting 90 new locations instead of 150. The retailer said the decision to pull back on new stores was based on slowing consumer demand…The pharmacy segment has had its share of closures this year with Rite Aid shuttering 154 stores amid its ongoing bankruptcy…CVS is in the second year of a three-year plan to close 900 stores by the end of 2024 citing changing populations and buying patterns in certain areas. Walgreens also is set to close 150 U.S. stores this year due to underperformance.

These thousands of stores are not closing because of shoplifting, organized retail theft, or runaway crime. They are closing because competitive dynamics in the retail market have changed and many firms are now consolidating and shifting to online sales in order to cut costs. No doubt, we will continue to see firms use the bogeyman of crime as an excuse for their failures; that’s a lot easier for a company’s board than admitting that they’re failing. Certainly, some otherwise profitable stores have fallen victim to a sudden upsurge of theft —Nike’s Portland store seems like a pretty clear-cut case— but the available national data makes clear that these cases are extreme outliers. 

I guess it turns out you can’t just believe whatever corporations and their trade associations choose to tell you. That stinks.