039: Breaking Down the $100 Billion Retail Shrinkage Dilemma 08-24-23

Imagine the impact of an unexpected $100 billion loss! That's the shocking number that retail shrinkage, or unaccounted inventory loss, racks up annually according to a recent National Retail Federation survey. As theft becomes a growing issue, Chief Investment Officer Megan Horneman of Verdence Capital Advisors pulls back the curtain on the daunting situation that retailers, already operating on thin margins, are confronting. Brace yourself as Megan unpacks the strategies these businesses might resort to, from stepping up security measures to the grim prospect of shutting down storefronts.

But this isn't just a retailers' crisis. Megan examines the ripple effects such measures could have on consumers and the labor market. Could we be facing a hike in prices and a surge in job losses? What more complications could be stirred up in an already challenged labor market? 

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming in today with Markets. With Megan, and we are going to talk about some of the common themes we've been hearing, or one particular common theme we've been hearing out of retailers, as they're the ones that wind up the end of our second quarter, 2023 earnings season, and what you're going to see a lot of headlines about is retail shrink, or what they're calling shrinkage, and this is basically an unaccounted for loss of inventory. And, most predominantly, what is being talked about now is theft and how these retailers are dealing with the amount of theft of inventory in their stores. The most recent National Retail Federation survey showed that theft now is accounting for about $100 billion worth of losses for retailers in a calendar year, and the problem with this going forward is obviously there's a human element here in law and order, but from a company perspective, keep in mind that retailers are already operating on a very low margin.

So, in order to tackle this unless there is something from the law side of this that changes in order to tackle this, they're going to have to either put in more security, hire more people from security they're going to have to start locking up their goods or, unfortunately, you're going to see more retailers shutting storefronts. That means less employees, that means problems with the labor market, and then the other issue that could arise from this is that, in order to accommodate or factor in these types of losses on an annual basis is you'll see companies raise prices. None of this is necessarily good news for the retailers. It can have an adverse effect on consumers as well. We'll keep our eye on this and see if there's anything that we get from the administration or any other government officials on how to tackle this, but at this point we're just looking at some really disappointing developments there from the retailers in regards to theft. If you have any questions or comments, please feel free to reach out to a podcast at verdence dot com. Thank you,