Target’s Doing Something About Its Shrinkage

Target’s Doing Something About Its Shrinkage
Paul Allison, CFA

2 months ago2 mins

What’s going on here?

Target announced plans to shut down nine stores on Tuesday, blaming scaled-up crime for rendering them completely unsustainable.

What does this mean?

Target’s shelves have been wobbling under the weight of unsold higher-priced stock, which the retailer can’t seem to shift despite the help of a few discount stickers. But it’s not that nobody wants Target’s products, it’s just the issue of paying for them. The company first admitted over a year ago that stealing – known as “shrinkage” in retail circles – has been eating into profit. Then in May, it slapped a $500 million price tag on the annual cost of crime on its bottom line. Target’s head honchos aren’t willing to swallow that every year, so they’re shutting down their most crime-ridden locations across the country.

Why should I care?

Zooming in: The plot thickens.

Now, Target isn’t calling out regular folk pinched by the cost of living, because this amount of missing stock is at the level of organized crime. And sure, a missing pallet or two has never been worth kicking up a fuss about, but this is a lot of missing stuff. And since Target will have already paid for all of it, every stolen sale will eat away at the firm’s profit. Without proper intervention, then, the retailer’s stock could end up swimming with the fishes.

Risks and threats in retail
Source: National Retail Security Survey 2023

The bigger picture: Handle with care.

Target’s sticking to its line that missing stock is an industry-wide problem, which could well be true. But so far, other major retailers seem to be coping without bolting down store doors in so-called “dangerous” areas. Maybe, then, Target’s especially fragile right now and can’t take on any more risks than absolutely necessary. And if that’s the case, investors needn’t tar the whole industry with Target’s brush.

Target stock
Source: Google Finance


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