Honey, I Shrunk the Merchandise! How Missing Merchandise Hurts Retailers
Having started my retail career at the age of 17, I speak from experience when I say…retail is a hard business! In my 30+ years working in retail I often said, “Retail, you’ve got to love it…especially if you are going to make a career of it.” I’ve held many roles in retail from a stock person behind the scenes, to a frontline employee selling direct to customers to management at several different levels in the field and at the corporate office. In every role inventory availability and protecting the company’s assets was always critical.
Retail theft, including organized retail crime, has been very prevalent in the news lately and “shrink” (a term that refers to merchandise that goes missing due to theft, fraud, damage, and other reasons) has been a significant topic for many retailers reporting their earnings. Ten of my years in retail were in loss prevention roles with two big box retailers, so the topic of shrink is near and dear to me. Retailers small and large are calling out that they are struggling to contain an escalation in theft. From petty shoplifting to organized sprees of large-scale theft that clear entire shelves of products.
According to the National Retail Federation, the industry’s biggest trade group, large-scale store theft is becoming a bigger part of annual retail shrink NRF said total annual shrink reached $94.5 billion in 2021, up from $90.8 billion from 2020. Nearly half was attributed to large-scale theft of products. The group said retailers on average saw a 26.5% increase in this type of theft over the previous year.
The shrink problem is compounded by creating an enormous issue with out-of-stocks. In North America, according to an IHL research report sponsored by Blue Yonder, retail loss due to out-of-stocks increased by a huge 17.7% in 2023. While increasing retail theft in the U.S. is a contributing factor, inaccurate inventory management process and systems remain a big driver of the out-of-stock problem globally. Target, Walmart, Dick’s, Lowe’s, TJX, Dollar General, Foot Locker, and Ulta have all addressed the same concerns in recent earnings calls.
Recent Earnings Announcements Are a Cry for Help
Many retailers are feeling the pinch of shrink. Here are some recent comments:
- For Target, the scope of the challenge is immense, Target’s CEO Brian Cornell, told analysts during the company’s earnings call. “The problem affects all of us, limiting product availability, creating a less convenient shopping experience and putting our team and guests in harm’s way,” said Cornell, who pegged it as an urgent issue “not just for Target, but across the entire retail industry.”
- DICK’S Sporting Goods blames increasingly serious theft problem for profit plunge. “Our [second quarter] profitability was short of our expectations due in large part to the impact of elevated inventory shrink, an increasingly serious issue impacting many retailers,” CEO Lauren Hobart.
- The Home Depot CFO blamed the company’s gross margin decrease – 33.7% in the first quarter – primarily from inventory shrink.
- Ulta Beauty’s CEO Dave Kimbell updated its full-year guidance to reflect pressure from inventory shrink.
- Dollar Tree said it is installing locked cases on more items and even taking some SKUs out of stores in response to elevated theft. “We are now taking a very defensive approach to shrink,” Dollar Tree CEO Rick Dreiling told analysts this week.
Now it is also important to point out the internal employee theft is also a shrink problem. Hayes International reported that the number of dishonest employees was up 18% in 2022. Per Hayes, employee theft is perceived by some to be the most severe problem facing the industry today, after all they have the most opportune access, and they don’t typically steal the inexpensive items.
As I mentioned earlier, shrink leads to empty shelves and out-of-stocks due to theft are much different than out-of-stocks due to a sell-through of what was shipped to the store. This makes real-time inventory and the ability for the store employees to be able to update on-hand inventory critical to the allocation of future shipments, as well as the immediate updating of the store’s inventory for online shopping (BOPIS) visibility. Customer disappoints need to be avoided and safety stock for online orders won’t provide enough cushion in the inventory levels.
How Can Blue Yonder Help?
Built on a foundation of APIs and advanced data-streaming technology, Blue Yonder’s Order Management (OMS) microservices are designed to deliver real-time, enterprise-wide view of inventory across all sources, including warehouses, stores, drop-ship suppliers, and fulfillment centers.
Within the OMS suite, Blue Yonder’s Inventory microservice supports full end-to-end visibility and tracking of both sellable and non-sellable inventory. The Inventory microservice provides real-time availability at the enterprise and location level, factoring in physical proximity to the customer, to provide a realistic net available-to-promise date. Retailers can layer their own eligibility rules, safety-stock policies, selling channel configurations, supply and inventory segmentation strategies, and future supply plans on top of this data. Built using a highly scalable and performant infrastructure, Blue Yonder’s Inventory solution supports the high transaction needs of real-time, multi-location retail inventory management.
Some of the world’s top retailers are already leveraging Blue Yonder’s Order Management microservices to reduce out-of-stocks and overstocks, significantly decreasing inventory distortion in their supply chains. Explore the benefits for your business by contacting us today – to schedule a discovery call and get a demo booked.