Target announced on Tuesday that it will close nine stores in major U.S. cities, citing violence, larceny, and organized retail crime. The company will shutter one location in the Harlem neighborhood of New York City, two in Seattle, three in the San Francisco-Oakland metropolitan area, and three more in Portland, Oregon. The retailer announced that it will permanently close the stores on October 21.
“We cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance,” Target said in a news release.
We recognize that our stores play a vital role in their respective communities, but we can only be successful if the working and purchasing environment is secure for everyone.
Target, a retailer with nearly 2,000 locations in the United States, has been vocal about organized retail crime in its stores. It has stated that theft has contributed to a rise in shrink, a term used in the retail industry to characterize losses from products that were damaged, misplaced, or stolen.
Target’s decision to close stores and explicitly attribute it to retail crime, which it announced on Tuesday, sets it apart from its competitors.
When the company reported earnings for its second fiscal quarter in mid-May, CEO Brian Cornell stated that organized retail crime had increased in its stores. It is anticipated that shrinkage will reduce Target’s full-year profitability by more than $500 million compared to the prior year.
Cornell emphasized Target’s reluctance to terminate locations when asked if the company intends to close stores due to rising shrinkage.
“We have no desire to close locations. We recognize the significance of our establishments. In a call with reporters in May, Cornell stated that small businesses play a vital role in communities across the nation because they produce local employment, generate taxes, are vital to local shoppers, and generate tax revenue.
“We’ll continue to do everything in our power to keep our doors open,” he added. “At the same time, we will closely monitor the safety of our employees and customers, as well as the financial impact on our business, as we determine the best course of action for Target.”
The retail executive’s comments led other companies to voice out on the problem, too, and to advocate for legislative reform. After the passage of the Inform Act, which requires online marketplaces to disclose the identities of certain high-volume sellers in order to deter the sale of stolen and counterfeit goods, retailers and trade associations are now pushing for the passage of the Combating Organized Retail Crime Act.
Target stated its support for the bill in a news release on Tuesday. The bill proposes harsher penalties for theft offenses and calls for a change in the threshold that prosecutors must meet before filing federal theft cases. The proposed Organized Retail Crime Coordination Center would also provide a formal venue for retailers to communicate information with one another and law enforcement.
At least nine states, including six so far this year, have enacted similar legislation since 2022 to implement harsher penalties for organized retail crime offenses. Behind the wave of legislation are retailers and trade associations, who are using their combined influence to get the measures drafted and passed.
Policy experts previously told CNBC that store closures, or the threat of store closures, have been a significant factor in retailers’ ability to convince legislators to join their cause.
Target’s mounting struggles go deeper than theft
Target’s business has endured for more than a year due to company-specific challenges, such as an excess of unsold inventory, negative consumer reaction to its Pride merchandise collection, and a decline in discretionary spending on items such as apparel and household goods.
Prior to August 2022, Target had not mentioned shrink impacting its margins during earnings calls over the previous two decades. During that time, the company and other retailers’ profits were being impacted by higher markdowns on unsold merchandise. According to industry experts cited by CNBC, shrinkage tends to increase when inventory levels rise.
Previously, the company stated that its shrinkage rates varied significantly by location and have no correlation with inventory levels.
Target announced on Tuesday that it has taken numerous measures to prevent crime at its stores. These measures include adding secured cases to certain merchandise, employing third-party security services, training store managers on how to de-escalate potentially dangerous situations, and investing in cyber defense to prevent fraud or organized crime.
Yet, Target said at the afflicted stores, a larger security team and theft-deterrent instruments weren’t enough.
Target stated in a press release: “Despite our efforts, we continue to face fundamental obstacles to operating these stores safely and successfully.”
The company stated that it will work with affected employees to facilitate their transfer to another Target location.
It is unclear what steps the company is taking to enhance inventory management.
Despite store closures, shrink data is murky
Target announced the store closures on the same day that the current National Retail Security Survey was published by the National Retail Federation, the industry’s leading trade association. The survey revealed that the impact of shoplifting on retailers’ bottom lines is comparable to what it has been for years.
According to the survey, retail shrinkage increased to more than $112 billion in 2022, up from $93.9 billion in 2021. The metric is computed using total U.S. retail sales and tends to increase as retail sales rise.
Commonly reported as a percentage of sales, average annual shrinkage increased to 1.57 percent in 2022 from 1.44 percent in 2021. The share is essentially in accordance with past years and is considered a normal and healthy level of decline by industry experts. Typically, retailers plan for 1% to 2% of annual shrinkage.
Target joins a growing list of retailers, including Walmart, Nordstrom, and Walgreens Boots Alliance, that have closed stores in major cities.
Nordstrom closed its flagship store and Nordstrom Rack location in San Francisco this summer after more than 35 years of operation.
However, the business cited market dynamics instead of criminality. In a message to employees at the time, former Chief Stores Officer Jamie Nordstrom stated that changes in downtown San Francisco had negatively affected “customer foot traffic to our stores and our ability to operate successfully.”
In August, a brazen smash-and-grab at one of the other Nordstrom locations, a store in Los Angeles, made national news.
During a late August earnings call, the company was queried about the widely distributed video of the incident. The CEO of Nordstrom, Erik Nordstrom, characterized the incident as “disturbing to all of us” and stated that larceny losses have reached “historical highs.” However, he added, theft is factored into company guidance and is not higher than anticipated.
Doug McMillon, CEO of Walmart, warned in a December interview with CNBC that stores will close if shoplifters are not aggressively prosecuted.
Walmart has also closed stores, including four in Chicago in April, but has not cited larceny as the cause. The retailer stated in a press release at the time that it has struggled to make the locations profitable and that difficulties have intensified. It said the stores “lose tens of millions of dollars a year, and their annual losses nearly doubled in just the last five years.”
Similar to Target, Walgreens specifically cited organized retail crime as the reason for closing some San Francisco stores in 2021.
Source: NBC News