Food retailers: 'We need to talk about theft'

Just how bad is the ongoing retail theft situation at Dollar Tree right now?

It’s so bad that the discounter is considering altering its product assortment at stores with the highest shrink to (possibly) mitigate the problem. It’s looking at defensive merchandising options even though it knows barriers to purchase will impact sales. It has introduced new technology, stepped up law enforcement cooperation and, in the most extreme case, thought about store closures.

During the first quarter, Dollar Tree’s gross margin rate fell about 530 basis points and 60 points of that was due to theft, the discounter said Thursday.

Dollar Tree (which became Dollar-and-a-Quarter Tree not long ago) is even thinking about raising prices if the situation doesn’t improve.

“Shrink tends to be cyclical,” CEO Rick Dreiling told analysts. “And what happens with shrink is we all work to mitigate it. If you can’t … [it gets] passed on to the consumer eventually. So, we’re keeping an eye on it.”

Dreiling had plenty of company this quarter, as his fellow retail executives wrung their hands over the theft issue.

Target last week said shrink would likely cost it $500 million more this year than it did last year, noting that theft reduced the retailer’s gross margin rate by a full percentage point during the quarter.

“Theft and organized retail crime are increasingly urgent issues,” Target CEO Brian Cornell said.

Like Dollar Tree, Target is tinkering with its merchandising, assortment and store security to try to out-shrink shrink. Months ago, Walmart warned it might have to raise prices or close due to mounting theft—an issue that persists for the retailer, its CEO said last week.

The National Retail Federation, in a blog post on Wednesday, said retail theft is a $100 billion problem, and that organized retail crime groups are getting more sophisticated, “growing in both their scope and complexity,” which ups the difficulty level of deterring them.

The industry group is holding a retail security conference next month.

The shrink problem is evident. What’s less crystal-clear, however, are solutions.

Raising prices, hiding merchandise in locked cases and dotting a store with security guards are sure-fire ways to alienate shoppers. The current shrink epidemic is a problem that may take more than Band-Aids and will likely require boots-on-the-ground community interaction on the part of retailers.