SHRINK

[storewanderer]

I would argue there is even more shrink in online companies than in regular physical retailers. I could tell you some stories of Jet.com before Wal Mart bought it but I'll make it concise and just say the amount out outdates and overstocks of consumables from their facility outside Reno were unreal. Disorganized warehouse and non-existent forecasting. When Wal Mart took that facility over, that situation changed real fast (yes there are still plenty of outdates/overstocks but nowhere near the frequency or magnitude).

[HCal]

Therefore, they can't release the shrink facts because Wall Street will use them inappropriately and wield them as a weapon. Until Wall Street has reasonable expectations of shrink they cannot have the actual data because they blow it way out of proportion in everything from their credit ratings to stock price. Clearly these fat cat executives have never worked a day in a retail store in their lives and have no clue how things work in the industry. How else could they actually believe that 0.00% shrink is a realistic and achievable target?

As far as hard data goes for public consumption, to support their requests for legislative changes and other support, the industry does provide totals through the NRF and if I recall correctly shrink moved from $93B to $112B from 2021 to 2022, a $19B leap and the highest amount ever recorded. That clearly demonstrates the magnitude of the problem and they do provide comparable data as a collective which indicates the trend.

The US retail industry is about $6 trillion, so shrink of $112B is less than 2%, and theft by customers is probably only about half of that. That is completely inconsequential overall. If all stores were required to report their shrink, I don't think Wall Street would overreact. Of course it's not evenly distributed, so if one store reported significantly higher numbers compared to their industry, it might be an issue.

I think a bigger issue might be that if retailers report actual shrink numbers, they will no longer be able to hide behind theft as an excuse to close stores in underserved areas.

[veteran+]

I've mentioned this before but I have several closeout/pallet/bin-type stores in my area and I'd say the vast majority of their merchandise is from Target. Even the local Habitat for Humanity store seems to sell all kinds of Target overstock (a lot of it I noticed is decorative junk like fake plastic plants that are still there every time I visit). It's really asinine how poor Target is with ordering and managing inventory.

How can the situation be this bad at Target? It seems like they don't want to have a bunch of clearance sitting around in their store which I can respect, yet when I go into their stores, they seem to have a fair amount of clearance merchandise in clothing and various home categories.

I don't get it.

I am also in a bit of shock over Target's clothing prices. Their clothing prices are approaching department store levels yet a lot of the stuff is fast fashion/Forever 21 type quality, at best. I can see why they are having trouble moving these things. Some are a great deal for $1 or $2 at Falling Prices though.

The Target items running through Falling Prices are from literally every category in the store. It is quite an assortment.

I really wonder if that is all counting as "shrink" too.

All of it hits margin, not shrink line. They have a specific bucket they scan the unsold markdowns into called Salvage. Some returns also go there. Home Depot and Target have an identical front end process on the returns with either green, yellow or red stickers designating where it goes RTV, Salvage, or dumpster.

Many items are considered unsafe to even give to salvage such as certain foods, glass/ceramic items likely to break and injure someone, so they go right into the dumpster.

I've heard there is some kind of secondary process at Target reverse logistics where certain items are rejected for RTV because they are incomplete etc. And they get sold on pallets as well to the salvage vendors. So if you are near one of those facilities, which apparently are separate from the distribution centers, you may see a ton of Target items at those salvage stores.

The point I've been trying to make here is that none of this is shrink, and furthermore I'm really irritated at the push to make a whole new batch of winners and losers on Wall Street that causes hundreds of thousands of job losses because they don't understand the inherent waste and shrink within retail but pretend that somehow things are better with online companies (hint, they aren't). The implication that the retailers are lying about the shrink is what pisses me off because I have experienced every aspect of how the books are audited, how the auditors from firms like Ernst and Young or others literally have the power to tear a store down to the foundation if they feel like it and show up wherever the heck they want to with no warning, etc. Basically for the retailers to be lying to Wall Street would be a conspiracy so massive you would be talking about the audit firms who are pretty much classified as Gods riding along and signing off false figures, and for what? So they can be caught and put themselves out of business? Why would a $100 billion dollar firm conspire to help a $10 billion firm conduct a scam of a few million dollars? It's illogical, and furthermore if the retailer executives were going to pull a scam it's a heck of a lot easier, and even legal, to just rubber stamp contracts to pay themselves far more than they're worth. Obviously the investment bankers are calling these junior reporters and asking them to please keep making noise and conduct fishing operations in hopes they can hook some shrink data from somewhere so that they can make new Wall Street stock bets and make themselves a fortune. There is no other value to this reporting.

Perhaps you may be forgeting about corporate hubris and the tendency not to admit to bad mistakes?

Just sayin..........................

[storewanderer]

I think a bigger issue might be that if retailers report actual shrink numbers, they will no longer be able to hide behind theft as an excuse to close stores in underserved areas.

If one retailer closes a store in an underserved area that leaves the space open and ready for another retailer to come in and take the space. If these are such great spaces, another retailer (hopefully not named Dollar xxx or xxx Dollar or Save a Lot and hopefully not with government incentives) will come in and take the space.

Ironically one of the best major retailers for operating in underserved areas is Kroger. FoodsCo is a chain that operates in many underserved areas; they are getting government incentives in San Francisco-Williams Street and Oakland; not sure about Richmond but I'm pretty sure it had incentives when it was developed (pre Kroger). Ruler Foods also has some underserved area stores in its portfolio. Also the Kroger banner itself runs in some underserved areas throughout its territory.

One of the worst retailers for operating in underserved areas- Safeway. They've been closing stores in underserved areas for decades, running stores in such areas in a completely inept manner when it comes to mix/price, and do no favors when they leave an underserved neighborhood and promptly lease their space to an auto parts store or something else non-grocery. I used to joke in the 90's the chain in CA called Grand Auto must have a deal with Safeway because it seemed almost every Grand Auto was a former Safeway.

[ClownLoach]

I think a bigger issue might be that if retailers report actual shrink numbers, they will no longer be able to hide behind theft as an excuse to close stores in underserved areas.

If one retailer closes a store in an underserved area that leaves the space open and ready for another retailer to come in and take the space. If these are such great spaces, another retailer (hopefully not named Dollar xxx or xxx Dollar or Save a Lot and hopefully not with government incentives) will come in and take the space.

Ironically one of the best major retailers for operating in underserved areas is Kroger. FoodsCo is a chain that operates in many underserved areas; they are getting government incentives in San Francisco-Williams Street and Oakland; not sure about Richmond but I'm pretty sure it had incentives when it was developed (pre Kroger). Ruler Foods also has some underserved area stores in its portfolio. Also the Kroger banner itself runs in some underserved areas throughout its territory.

One of the worst retailers for operating in underserved areas- Safeway. They've been closing stores in underserved areas for decades, running stores in such areas in a completely inept manner when it comes to mix/price, and do no favors when they leave an underserved neighborhood and promptly lease their space to an auto parts store or something else non-grocery. I used to joke in the 90's the chain in CA called Grand Auto must have a deal with Safeway because it seemed almost every Grand Auto was a former Safeway.

Remember that if they're forced to publicly admit the problem then they're more obligated to resolve it. That means more store closures for shrink, not less.

[ClownLoach]

How can the situation be this bad at Target? It seems like they don't want to have a bunch of clearance sitting around in their store which I can respect, yet when I go into their stores, they seem to have a fair amount of clearance merchandise in clothing and various home categories.

I don't get it.

I am also in a bit of shock over Target's clothing prices. Their clothing prices are approaching department store levels yet a lot of the stuff is fast fashion/Forever 21 type quality, at best. I can see why they are having trouble moving these things. Some are a great deal for $1 or $2 at Falling Prices though.

The Target items running through Falling Prices are from literally every category in the store. It is quite an assortment.

I really wonder if that is all counting as "shrink" too.

All of it hits margin, not shrink line. They have a specific bucket they scan the unsold markdowns into called Salvage. Some returns also go there. Home Depot and Target have an identical front end process on the returns with either green, yellow or red stickers designating where it goes RTV, Salvage, or dumpster.

Many items are considered unsafe to even give to salvage such as certain foods, glass/ceramic items likely to break and injure someone, so they go right into the dumpster.

I've heard there is some kind of secondary process at Target reverse logistics where certain items are rejected for RTV because they are incomplete etc. And they get sold on pallets as well to the salvage vendors. So if you are near one of those facilities, which apparently are separate from the distribution centers, you may see a ton of Target items at those salvage stores.

The point I've been trying to make here is that none of this is shrink, and furthermore I'm really irritated at the push to make a whole new batch of winners and losers on Wall Street that causes hundreds of thousands of job losses because they don't understand the inherent waste and shrink within retail but pretend that somehow things are better with online companies (hint, they aren't). The implication that the retailers are lying about the shrink is what pisses me off because I have experienced every aspect of how the books are audited, how the auditors from firms like Ernst and Young or others literally have the power to tear a store down to the foundation if they feel like it and show up wherever the heck they want to with no warning, etc. Basically for the retailers to be lying to Wall Street would be a conspiracy so massive you would be talking about the audit firms who are pretty much classified as Gods riding along and signing off false figures, and for what? So they can be caught and put themselves out of business? Why would a $100 billion dollar firm conspire to help a $10 billion firm conduct a scam of a few million dollars? It's illogical, and furthermore if the retailer executives were going to pull a scam it's a heck of a lot easier, and even legal, to just rubber stamp contracts to pay themselves far more than they're worth. Obviously the investment bankers are calling these junior reporters and asking them to please keep making noise and conduct fishing operations in hopes they can hook some shrink data from somewhere so that they can make new Wall Street stock bets and make themselves a fortune. There is no other value to this reporting.

Perhaps you may be forgeting about corporate hubris and the tendency not to admit to bad mistakes?

Just sayin..........................

Rather let them hide that vs. let the Wall Street folks weaponize it.

[veteran+]

Point taken

I just dislike the unaccountable and recycled luxury they enjoy

[HCal]

Remember that if they're forced to publicly admit the problem then they're more obligated to resolve it. That means more store closures for shrink, not less.

It would probably mean less store closures, because if they publicly announced the numbers, the public would be able to see that the problem is significantly exaggerated. Even without numbers, some executives have admitted to overstating the issue.

[storewanderer]

Remember that if they're forced to publicly admit the problem then they're more obligated to resolve it. That means more store closures for shrink, not less.

It would probably mean less store closures, because if they publicly announced the numbers, the public would be able to see that the problem is significantly exaggerated. Even without numbers, some executives have admitted to overstating the issue.

If they want to close a store, they will close a store. The public doesn't seem to be able to "pressure" retailers into keeping stores open anymore like they may have been able to back in the 90's. I think it is because of these large national chains being less receptive to public outcry than the smaller regional chains who were more common in the 90's were.

The other issue at play here is in some cases the landlord drives the closure. For instance this store in Reno that Raleys just closed the Sak N Save - this is an underserved area. You see how the store looked. Huge store. I suspect it may have been doing $500,000 a week in sales (not good for its size). Raleys was operating it on a "short term" lease and basically got the store taken out from under it by the landlord. Many customers walked or used a scooter/wheel chair to access the store. There is no other grocer in reasonable distance (there is a Dollar Tree and a Grocery Outlet, and a couple small asian/hispanic stores). Now this store the landlord found El Super to take over and sign a long term lease for part of the space and El Super will spend $3 million+ to remodel the space.

[ClownLoach]

Therefore, they can't release the shrink facts because Wall Street will use them inappropriately and wield them as a weapon. Until Wall Street has reasonable expectations of shrink they cannot have the actual data because they blow it way out of proportion in everything from their credit ratings to stock price. Clearly these fat cat executives have never worked a day in a retail store in their lives and have no clue how things work in the industry. How else could they actually believe that 0.00% shrink is a realistic and achievable target?

As far as hard data goes for public consumption, to support their requests for legislative changes and other support, the industry does provide totals through the NRF and if I recall correctly shrink moved from $93B to $112B from 2021 to 2022, a $19B leap and the highest amount ever recorded. That clearly demonstrates the magnitude of the problem and they do provide comparable data as a collective which indicates the trend.

The US retail industry is about $6 trillion, so shrink of $112B is less than 2%, and theft by customers is probably only about half of that. That is completely inconsequential overall. If all stores were required to report their shrink, I don't think Wall Street would overreact. Of course it's not evenly distributed, so if one store reported significantly higher numbers compared to their industry, it might be an issue.

I think a bigger issue might be that if retailers report actual shrink numbers, they will no longer be able to hide behind theft as an excuse to close stores in underserved areas.

So let's be very clear: Walmart, the king of sales and profit, makes a whopping 2.78% profit on their revenue, after shrink. Or for every dollar they bring in, they spend 97 cents of it elsewhere. Stores aren't oil companies or other obscene profit generators, the margins are razor thin and furthermore running to read your store P&L isn't accurate because you're not seeing the overhead like the corporate office and distribution centers plus other parts of the organization.

If say Shrink last decade was 1%, this decade is 3%, and it's trending towards 5% by the end of the decade then it could easily wipe out the entire profit of a company the size of Walmart. There are other retailers who make a far lower percentage profit, if any. When all you make for a profit is 2% or less, and suddenly shrink goes from 1% to 3% or higher then yes indeed it can kill the entire company. Consider that the shrink loss in that scenario is based on cost, but the lost sales from the product being missing add up too. With such low operating margins, revealing the shrink will absolutely accelerate the closure of stores in underserved areas and furthermore justify it as you'll see Wall Street demand reductions far greater than they've ever demanded in wage and benefits reductions. Once again if the entire chain is at 2% or so profit, 2% shrink and those stores suddenly pop to 8%-10% shrink (which are the figures I'm hearing from the Bay Area to Seattle) then it is a no brainer, those stores have to be closed as they put the rest of the organization at risk and it is not right to just raise prices nationwide to make up for the losses at these units.