Home Depot: Shrink pressures 'most significant' impact to margin outlook
It’s easier than ever to shop 24 hours a day, seven days a week. It’s also easier to steal 24 hours a day, seven days a week.
That’s one of the reasons why the dark topics of theft and organized crime – even the opioid crisis — intruded on The Home Depot’s Investor and Analyst Conference this week in Atlanta. Continued pressure from shrink, primarily driven by product theft, was described as “the most significant impact to our margin outlook,” by Home Depot Executive VP and CFO Richard McPhail.
“We have tested approaches to mitigate this loss while minimizing the impact on our customers shopping experience, and are now rolling out new solutions more broadly,” McPHail said. “While we are implementing these changes, we think it’s prudent to anticipate continued pressure in 2020.”
The company says it is taking a bite out of crime in a number of ways. Not only by securing high-value items, but by putting technology to work in new ways.
Anne-Marie Campbell, Executive VP of U.S. Stores, said several pilots have been initiated, including some that involve POS activation. She explained: “you buy a power tool, and the only [way] that the power tool can work is if it goes through the POS.”
“We expect to see shrink abate not only in 2020, but beyond,” she said.
CEO Craig Menear added that shrink continued to be problematic as 2019 played out, despite the steps taken by the company.
Organized retail crime has expanded rapidly, he said, and it has more ways to convert stolen goods into cash than ever. “We have a hypothesis that this ties to the opioid crisis – but we’re not positive about that.”
He said that Home Depot is working “hand-in-hand” with law enforcement, and is seeing “significant busts” involving “millions and millions of dollars of multiple retailers’ goods.”
That should come as no surprise to the National Retail Federation, which published results of its annual National Retail Security Survey in June.
“We are seeing dramatic changes in the risks faced by retailers, and loss prevention practices and priorities are evolving to meet those challenges,” NRF Vice President for Loss Prevention Bob Moraca said. “As criminals find new ways to steal, loss prevention teams are finding new ways to stop them. Increasingly, this is a battle focused on technology.”
Theft, fraud and losses from other retail shrink totaled $50.6 billion in 2018, up from $46.8 billion in the prior year.
The survey of 63 loss prevention and asset protection executives from a variety of retail sectors revealed that shrink averaged 1.38% of sales during 2018, up slightly from 1.33% in 2017. That figure has held steady around 1.4% over the past few years. With the percentage largely unchanged, the increase in the dollar amount is due primarily to growth in retail sales, the NRF said.