Target (TGT) is trying to thread the needle as it combat retail’s long-running problem: store theft.
“I feel so much better today than I did a year ago,” Target CEO Brian Cornell said in an interview with Yahoo Finance for its Lead This Way series. “It comes back to support at the federal level, at the state level, and at the local level.”
The federal INFORM Consumers Act, which took effect in June of 2023, helps deter theft by making it more difficult to resell stolen goods online. Under the legislation, companies with “high-volume third-party marketplaces” like Amazon (AMZN) and eBay (EBAY) must “collect, verify, and disclose certain information about those sellers.” Any violations will result in a penalty of $50,120 per infraction.
The legislation is “starting to crack down on some of the marketplace abuses that were out there,” said Cornell. He also noted he’s “seeing some actions” in state legislation, particularly in California.
California Governor Gavin Newsom recently signed 10 bills to crack down on theft, including stricter penalties for retail theft and anyone involved in organized retail crime. There are also new penalties for “smash-and-grabs,” or “flash robs” like the one seen at a Nordstorm (JWN) last year that resulted in the loss of roughly $300,000 in merchandise.
An ultimate fix won’t happen overnight; “It’s going to take several years. We’re trying to make sure we can control what we can control,” Cornell said.
In its second quarter report, Target’s gross margin rate reflected roughly 90 basis points “of benefit from lower inventory shrink.” That’s compared to a 20-basis-point lift in Q1. Its guidance assumes that benefit will increase year over year.
“We’re expecting shrink costs will be approximately flat to last year. While it’s encouraging to see this progress, we’ll continue our work to move shrink rates down to more sustainable levels in the years ahead, given the steep increase in shrink that our business has absorbed over the last five years,” CFO Michael Fiddelke said on a call with investors.
Part of the strategy to combat the issue included closing nine underperforming stores at the end of last October. At some hard-hit stores, Target introduced locked cases for “prone-to-theft” items, including soap, shampoo, razors, and even socks and underwear.
“To be clear, we do not like locking up product, but we like running stores and we want to keep our stores open. We want to make sure they’re safe,” said Cornell.
While waiting for store associates to unlock merchandise may be inconvenient, it’s a necessary nuisance, David Johnston of the National Retail Federation told Yahoo Finance last year.
“Think of the opposite when the mother of a newborn tries to go get formula and the merchandise isn’t there because it was just shelf-swept,” he said.
Cornell said he “certainly [hopes]” that Target will remove the cases one day, reiterating the company is waiting for the results of federal, state, and local government’s involvement.
Instituting the right self-checkout process will also help the matter; Cornell said it has been a matter of trial and error.
The company expanded its self-checkout during the pandemic to allow big baskets, but has since cut back to 10 items only.
“We’re getting back to the way self-checkout should have been used. More team members running service-belted lanes, self-checkouts there for smaller baskets, 10 items or less. It’s the right balance and we get better interaction” with guests, said Cornell.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.