As retailers close stores due to shoplifting, are the concerns real or overblown?

Geoff Bennett:

Target announced this week that it's planning to close several stores, citing retail theft and organized retail crime as major problems.

It's raising growing concerns and questions about whether retail theft is getting worse and what can be done about it.

The retail giant said it will close nine stores in four states next month, including in New York City, the San Francisco Bay Area, Portland, and Seattle. Target said it was doing so out of concern about the safety of workers and customers. Target's decision comes as multiple other retailers, including CVS, Macy's and Walmart, say theft has become a significant problem for their bottom lines.

Retailers are locking up more merchandise, saying there's a notable rise in organized theft, where two or more people grab merchandise and then resell it. Others point to a disturbing number of smash-and-grab robberies, including looting in Philadelphia earlier this week.

The National Retail Federation said its latest survey of members found that inventory loss cost retailers about $112 billion. But some industry observers say those numbers are not clear and may be masking other problems, including internal theft by employees.

Last winter, a former Walgreens executive acknowledged during an earnings call that "Maybe we cried too much last year" when it came to characterizing theft at its stores.

But incidents like two nights of looting in Philadelphia are angering business owners and alarming residents.

BETSY AGRE, Philadelphia Resident:

It's just happening too often and it's just terribly, terribly upsetting. And my children are like, you have to move out of the city. And this is where I live, though.

Geoff Bennett:

Those robberies started Tuesday after an earlier protest when charges were dropped against an officer who shot and killed a man during a traffic stop.

Philadelphia police insist the lootings were not connected to the protests. But some residents took issue, saying anger over the police could not be discounted.

Let's dig deeper into this.

We're joined by Gabrielle Fonrouge, who covers the retail industry for CNBC.

Thanks for being with us.

Gabrielle Fonrouge, Retail Reporter, CNBC:

Yes, thanks for having me.

Geoff Bennett:

So, you have got these major retailers. They're blaming a spike in theft for their decision to close some stores. Is retail theft actually getting worse, according to the data?

Gabrielle Fonrouge:

The problem is, is that there's really no good data out there. It's a difficult thing to measure.

You can look at crime rates for certain jurisdictions, but they're not going to break it down by specifically retail crime. You're just going to see overall larceny arrests. And the National Retail Federation, it's one of the largest trade associations in the world. It's the trade association for the retail industry.

They conduct an annual survey on shrink, which is lost inventory, which includes things like retail crime. They just came out with their survey. And it's once again not really conclusive. What you will see is that retail crime increased or shrink overall increased to $112 billion in 2022. That's up from $93.9 billion in the prior year.

But what they do is they apply the rates of lost inventory to total U.S. retail sales. So, as total retail sales grow, so does that number. That doesn't actually really tell us that much.

Geoff Bennett:

So then are there instances where companies are using theft as the reason for a store closure to cover up underperformance or to cover up mismanagement?

Gabrielle Fonrouge:

Yes, so what we have learned in our reporting is that the retailers who are talking about shrink, lost inventory and specifically retail crime on their earnings calls when they're talking to their investors and things like that, they like to blame retail crime specifically and organize retail crime.

But what my reporting has found is that it can often be internal issues that can lead to these high shrink numbers, these lost inventory. Things like employee theft is part of it. That's hiring people who end up stealing from you, also having poor inventory management, not knowing where all of your stuff is along the supply chain.

When you think about where an item is manufactured all the way down to the store level, things get lost. And, at the same time, retailers are under a lot of pressure from a host of places. Right now, consumers aren't really spending as much on discretionary goods. They're really keeping it solely on necessities.

So they're facing pressure from all of these places. And they're more likely to talk about the impact of shrink.

Geoff Bennett:

Still, though, there's no denying the uptick in what are these brazen mob style smash-and-grab robberies that are plaguing big box stores. They're plaguing upscale retailers.

How are companies responding to that?

Gabrielle Fonrouge:

Yes, so I mean, you're completely right. We have all seen the videos. These are viral videos showing people running in, grabbing stuff.

But these are also isolated incidents, right? When you see these things on the news every single day, when you read them in the paper, you must feel like, wow, every retail store is under attack. But when you look at the numbers, that shrink percentage that the NRF came out with, that shows how much inventory retailers are losing as a percentage of sales.

And it came out to 1.57. And so a healthy shrink number, every retailer, every company has to plan for lost inventory. It is a cost of doing business. And the amount that they plan for is anywhere between 1 percent to 2, 2.5 percent.

So, in the latest survey, it showed 1.57 percent. That is considered a healthy lost inventory rate. Now, if it was at 3 percent, we'd be having a different conversation. And what retailers are doing about this, they are using their economic muscle, they're using their influence to pass legislation to influence lawmakers to get that legislation past the finish line that imposes stricter penalties for organized retail crime offenses.

Geoff Bennett:

Well, I was going to raise that as a question to you, because adding to this problem, you have got the decriminalization of low-level offenses in some states that has created an opportunity for people, for criminals, really, to exploit the system.

And once an item is stolen, there are many ways now for someone to resell that item without any sort of monitoring or interference from law enforcement. How are retailers responding to that and talking about it?

Gabrielle Fonrouge:

Yes, absolutely.

It is easier than ever to resell stolen goods. And that is absolutely an issue. Last year, Congress passed the INFORM Act, which requires digital marketplaces such as Amazon, eBay, but even smaller places, to disclose the identity of high-volume sellers, so to make it easier for law enforcement to track down those people who are stealing large amounts of goods and then reselling them online.

That's one part of it. That's already gotten past the finish line. And the next one that they're looking towards is the Combating Organized Retail Crime Act. And that kind of touches on this idea of the number that you have to reach in order for it to be a felony offense.

Part of the problem is, you have repeat offenders who will steal small amounts of goods over time, so $100 here, $200 there, $300 here. That's all going to be misdemeanor offenses. And prosecutors aren't going to really — they're going to get programs. It's going to get pled down to violations, things like that. There's not going to be any really strict penalties.

So what they're working to do at the federal level and at the state level is to take these offenses as aggregate offenses. So, for example, I believe, in Florida, their felony theft threshold is $700. And they're changing it to be on an aggregate basis.

So, if you steal 100 here, 300 here, within a 12-month period, if it reaches that number, then you're going to get charged with a felony. And that's what they hope to — will stop these repeat offenders.

Geoff Bennett:

Gabrielle Fonrouge of CNBC, thanks for helping us make sense of all this. We appreciate it.

Gabrielle Fonrouge:

Thanks for having me.