SHRINK

[storewanderer]

For any company I have worked for Shrink and Waste have always been separate and reported that way. Shrink is inventory not accounted for. Waste is accounted for and reduced or discarded.

I just checked Walmart and Kroger's reports and they don't do it like that. Which companies are you referring to?

So for instance grocery store has 4 packs of steaks that expire and get thrown away. That is recorded as waste. Immediately when the store disposes them.

Grocery store has 4 packs of steaks that get shoplifted and nobody really knows what happened until an inventory is done. That will be shrink.

Grocery store drops a slab of steak on the floor as they're cutting the meat and throws it away. This could go either way. It should be reported as waste. But it has potential
to go as shrink to prevent someone from getting in trouble for dropping it on the floor (hope there are no cameras).

Grocery store finds week old pack of steaks in a freezer left by a customer. It is frankly disgusting how often this occurs. Can't sell them and has to throw them away. Again this should be waste but could also end up as shrink depending who finds it and what they do with it.

At the end of the day both activities represent loss of product and often roll up as shrink to the upper management. But it is an important distinction.

[veteran+]

For any company I have worked for Shrink and Waste have always been separate and reported that way. Shrink is inventory not accounted for. Waste is accounted for and reduced or discarded.

I just checked Walmart and Kroger's reports and they don't do it like that. Which companies are you referring to?

The Store's and District's and often Regional's reporting separates Shrink numbers from Waste numbers. Not Corporate reporting.

Publix, Food Fair/Pantry Pride, King Soopers, Ralphs, Vons/Pavilions, Fresh & Easy did this when I worked for them. Inventory accounted for and inventory not accounted for (measured separately) were exigent for store operators to strategize solutions.

As Storewanderer mentions, warehouse caused Shrink was a big problem (more so than customer theft). Things may have changed of course since then.

[ClownLoach]

For any company I have worked for Shrink and Waste have always been separate and reported that way. Shrink is inventory not accounted for. Waste is accounted for and reduced or discarded.

I just checked Walmart and Kroger's reports and they don't do it like that. Which companies are you referring to?

What reports are you looking at, because nobody reports shrink separate of COGS.

[ClownLoach]

For any company I have worked for Shrink and Waste have always been separate and reported that way. Shrink is inventory not accounted for. Waste is accounted for and reduced or discarded.

I just checked Walmart and Kroger's reports and they don't do it like that. Which companies are you referring to?

What reports are you looking at, because nobody reports shrink separate of COGS.

I just read the quarterly earnings for Walmart's Q2 and the word shrink is not even in it aside from the fine print without a measurement. They don't even provide COGS, just the overall operating margin. Very curious what report @HCal is referencing that isn't publicly available to shareholders.

[HCal]

For any company I have worked for Shrink and Waste have always been separate and reported that way. Shrink is inventory not accounted for. Waste is accounted for and reduced or discarded.

I just checked Walmart and Kroger's reports and they don't do it like that. Which companies are you referring to?

What reports are you looking at, because nobody reports shrink separate of COGS.

I said they don't report it like that. In other words, they don't report shrink and waste separately. They lump it into COGS, which is standard accounting practice.

Perhaps they report it separately internally, but those numbers aren't available to the public or the media. If the retailers are claiming that shoplifting is an issue, they need to provide some hard data.

[ClownLoach]

I just checked Walmart and Kroger's reports and they don't do it like that. Which companies are you referring to?

What reports are you looking at, because nobody reports shrink separate of COGS.

I said they don't report it like that. In other words, they don't report shrink and waste separately. They lump it into COGS, which is standard accounting practice.

Perhaps they report it separately internally, but those numbers aren't available to the public or the media. If the retailers are claiming that shoplifting is an issue, they need to provide some hard data.

Got it sorry for my misunderstanding. The problem with the shoplifting data is that it will be misused. Wall Street has already demonstrated clearly - say you have shrink and we will pummel your stock price into the ground. Many retailers have also been force fed their own stock with forced buybacks, so this amplifies shrink result reactions into a deadly financial shock they cannot get over. The panic about shrink therefore does become a matter of survival.

How so? Let's say a company was forced to buy back a billion in stock (50 million shares) and it's trading at $20 a share. They announce shrink was so bad that it has impacted earnings 25¢ per share, or a measly $12,500,000 worse than expected. But Wall Street doesn't take kindly to the shrink issue and beats the stock into the ground, down to $15 a share. Because the company had bought back 50 million shares and they just lost $5 a piece that $12,500,000 in shrink just turned into a $250,000,000 loss for the company to record on their next earnings release. If that company records a new loss of $250,000,000 their vendors are going to immediately cut them off and demand cash up front, the factoring lenders will cut them off, and they'll have an immediate cash crisis that forces them within days into a bankruptcy without the ability to make it a "planned restructuring" so even with little to no debt the stock will go to zero, causing an even larger loss, and the company is auctioned. Usually the top bidder since the price will be distressed is Gordon Bros, or Hilco, or Great American and the place is liquidated.

I lived this exact scenario, and what made it worse was that five days into the liquidation every creditor had already been made whole dollar for dollar. But we still closed every store and put tens of thousands of people out of work.

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.

What is interesting to me is that they report losses in the Los Angeles market are now the highest in the country, with San Francisco/Oakland second and Houston TX third. New York and Seattle round out the top 5. In my two decades of reviewing shrink data at my employers, San Francisco/Oakland/Sacramento areas were leaps and bounds worse than LA before the pandemic so something really has gone rotten because we know that SF etc weren't reducing their losses and passed up LA. The NRF also reports that violence and aggression are increasing according to 67% of organizations, so 41% have moved to no-apprehension policies. This is where I see the snowball effect happening, it isn't hard for these professional shoplifting groups to figure out who has no-apprehension policies and then they know what stores to attack with maximum force. Obviously the current situation is not sustainable.

If that doesn't get your attention, this will: although the industry average is 1.6% shrink now, up from 1.4% in just a year, 22.6% of retailers report shrink is now 2%-2.99%, and 13.2% of retailers report shrink is now over 3%. I've seen far too many stores where shrink moving from 1 something percent to 3% or higher would definitely move them into the red financially and warrant the store closing.

I think the collective numbers are bad enough, and it's fair for a retailer to say that they agree with the NRF and are seeing the same problems without sharing specifics that can be used against them with massive harm.

https://nrf.com/media-center/press-rele ... -according

[mbz321]

I have a clearance store in Sparks called FALLING PRICES that is getting what seem like semi truckloads of stuff from Target every week. They reportedly have locations all over NorCal, maybe 15 locations. They say they get returns from Amazon and then unwanted goods from Target. I see some Amazon stuff but really not a whole lot; they had more when they opened but the past month it is 90% Target stuff and this store is overflowing every week. Some of this Target stuff is so poorly styled/lousy that it doesn't sell until the 25 cent day on Saturday and there is still a lot left on Thursday when all items are $2 so clearly there has been a lot of overbuying/bad buying by Target that is causing products to have to go to this place. The amount of product they get from Target is unreal. The amount of summer and back to school they got in this one location in Sparks is enough to fill 5 Targets in April for summer set. I am sure this stuff is all considered "shrink" too when they give it to FALLING PRICES for almost nothing as salvage. Many items have Target tags that say DEF SALVAGE on them, but not all items. Supposedly the DEF SALVAGE items, Target claims on insurance and somehow gets reimbursed for. I have no idea how any of this works. But all of the seasonal stuff doesn't have any such tags and clearly is just being pulled and sent. They also get a ton of clothing, I cannot believe how much clothing, from Target.

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.

[storewanderer]

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.

[ClownLoach]

I have a clearance store in Sparks called FALLING PRICES that is getting what seem like semi truckloads of stuff from Target every week. They reportedly have locations all over NorCal, maybe 15 locations. They say they get returns from Amazon and then unwanted goods from Target. I see some Amazon stuff but really not a whole lot; they had more when they opened but the past month it is 90% Target stuff and this store is overflowing every week. Some of this Target stuff is so poorly styled/lousy that it doesn't sell until the 25 cent day on Saturday and there is still a lot left on Thursday when all items are $2 so clearly there has been a lot of overbuying/bad buying by Target that is causing products to have to go to this place. The amount of product they get from Target is unreal. The amount of summer and back to school they got in this one location in Sparks is enough to fill 5 Targets in April for summer set. I am sure this stuff is all considered "shrink" too when they give it to FALLING PRICES for almost nothing as salvage. Many items have Target tags that say DEF SALVAGE on them, but not all items. Supposedly the DEF SALVAGE items, Target claims on insurance and somehow gets reimbursed for. I have no idea how any of this works. But all of the seasonal stuff doesn't have any such tags and clearly is just being pulled and sent. They also get a ton of clothing, I cannot believe how much clothing, from Target.

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.

That product is not being accounted for as shrink, but rather marked out after not selling on clearance. Near my house we have a Habitat for Humanity "Design Center" that is probably about 40,000 Sq ft. They get dozens of pallets of marked down merchandise that didn't sell at Lowe's, incredible amounts of product. All the patio furniture from spring, including massive gazebos and such. Other furniture stores also bring their scratch and dent items there. I don't see any Home Depot items but I'll bet for every pallet Target sends to that salvage store, Habitat gets a semi from Lowe's.

[ClownLoach]

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.