Target Gets Short Changed By $400 Million Due To Significant 'Shrinkage,' Theft

Target Corporation TGT is blaming inventory shrinkage, or organized theft, for the $400 million hit the retail giant took on its 2022 gross profit margin.

"There's a handful of things that can drive shrink in our business and theft is certainly a key driver," Target CFO Michael Fiddelke said. "We know we're not alone across retail in seeing a trend that I think has gotten increasingly worse over the last 12 to 18 months.”

Fiddelke isn’t wrong. According to the National Retail Federation, retail “shrink,” which includes theft, gift card fraud and inventory mismanagement, accounted for nearly $95 billion worth of losses last year. That's an increase of roughly $5 billion over 2021.

See Also: A Look At Target's Debt

The average inventory shrinkage rate for the past year was 1.44%. Although there has been a slight reduction from the previous two years, it is still close to the 1.5% five-year average.

Target's profits decreased by over 50% in the third quarter of its fiscal year as it sold off excess inventory. With sales slowing into the holiday season, the company also lowered its outlook for the fourth quarter.

Walmart Inc WMT suffers from shrinkage, too. When the retailer reported full-year revenues of $559 billion in 2021, it lost roughly $3 billion to inventory shrinkage, or about 0.54%.

Inflationary Pressures: Many of the same price inflation themes Target faces were echoed by Walmart, including:

• Food as the most stolen item from Walmart
• Fewer full-priced things are being purchased in favor of waiting for discounts. Consumers select smaller items, value bundles
• The store's own labels, which are cheaper, are also being stolen.

“As we look ahead, we expect the challenging environment to linger beyond the holiday season and into 2023,” Fiddelke said on Target’s earnings call.

Next: A Bargain-Hunter's Holiday Ahead? Target Shoppers Are Waiting for Sales to Splurge