Retail giants always find a scapegoat for their losses, and this time, in the eyes of Target, “organized retail crime” is the perpetrator behind a $400 million loss in profits from last quarter.
During a third-quarter earnings call, Target blamed industry shrinkage for the $400 million drop in gross profit for 2022 when compared to last year. Target CFO Michael Fiddelke is forecasting that number will grow to $600 million by the year’s end. Specifying theft as the “key driver” for such a significant decline in profits. Like many other retailers, Target has seen losses that have gotten “increasingly worse over the last 12 to 18 months.”
The 53% plunge in the third quarter came with a warning as the retailer, like many others, is forecasting an incredibly sluggish shopping season. Passing the blame along to theft is another tool in passing the buck along to consumers when they raise prices, something Target claims they are trying to avoid by setting up new loss deterrent systems.
CEO of Target Brian Cornell took a different approach in looking at the losses. Instead of blaming industry shrinkage or customers directly, he implicated inflation and economic difficulties for the steep drop-off. This roundabout angle places consumers squarely in the crosshairs but not so directly that many will recognize it.
With Target shares down 20% for the year to date, and then suffering another 15% drop following the earnings call, the company is in bad shape in the markets, and playing the blame game doesn’t make for secure investors. Meanwhile, a report from the National Retail Federation agrees with the message Target is pushing.
The report outlines different types of retail losses, and what a tremendous role theft plays in losing significant profits. In 2020 $90.8 billion in losses were reported, and in 2021 it jumped to $94.5 billion. Per participating retailers, external theft made up 37% of their losses, 28.5% was blamed on internal theft, and another 27.7% came from process/control failures. Assorted factors made up the other 6.8%.
Reports like these may support Target’s claims about theft, but they leave out the massive changes Target has made in its advertising and what they stock. No longer is Target targeting the conservative household as they did for years. Instead, they are shifting focus towards bringing in the middle-of-the-road people and the liberals. This combined with stiff competition from Amazon has made them into a store many are beginning to avoid.
What made Target so popular in the first place was the inclusion of Starbucks, low prices, friendly faces, clean stores, and helpful always open registers. Since they started making self-checkout a top priority and quit trying to go head-to-head with other retailers on major products and instead focused more on store brands, they lost a lot of clientele. People noticed the changes and weren’t happy to see their beloved Target become just another dirty retail store.
With Amazon offering much better deals and a wider variety of selections, Target started pushing its website as a low-cost incentive to help drive more consumers to shop from home their way. This has been a devastating blow to their bottom line. As the CEO pointed out, people are dealing with rampant inflation, and what they need now more than anything is a break in pricing, which Target is ignoring.
Placing the blame on the heads of consumers directly or indirectly is a horrific move for Target. Their problems with profit as well as losses aren’t just beginning either. Rather, they will continue for the foreseeable future as people continue to shop elsewhere and avoid the mess that Target has become.
While Wal*Mart remains their biggest competitor and inspiration behind the drive towards more self-checkouts, the impersonal attitude of Wal*Mart was the yin to the super friendly yang that was once Target. If they want to get that loss to shrink they need to get back to their roots.
