As Target combats thefts, shrink remains a 'headwind'

Michael J. Fiddelke, Target's chief financial officer, said this week that inventory shrink remains a major "headwind" for the company, two months after Target cited the closing of nine stores on theft. 

"Inventory shrink" is the term retailers use for when they lose inventory not through sales, such as by theft, administrative errors or damaged products. 

Target said in September it was closing nine locations citing thefts and organized retail crime. 

Fiddelke told investors this week that the rising cost of inventory shrink represented a 40 basis point headwind. The rate of shrink significantly grew in the first two quarters of the year, Target said. While shrink is still higher on a year-to-year basis, Fiddelke said, the growing impact of shrink moderated in the third quarter. 

"While we're encouraged that this impact was smaller than expected and better than we faced earlier in the year, growth in shrink remains a significant financial headwind, and we're determined to continue making progress in the years ahead," Fiddelke said.

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Fiddelke said the company is focused on a "really important" fourth quarter.

"Shrink's a lagging metric," Fiddelke said. "We think progress there probably doesn't happen quickly. But we're focused on progress over time, and you'll see us continue to take the actions to get a better outcome there over time, but it's not one that we'd expect overnight."

In September, Target released a statement saying it was implementing tools to combat theft at its stores. 

"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," the retailer said in a statement as it announced the closure of nine stores. 

Target CEO Brian Cornell said instances of violent theft in stores had climbed 120% over the first five months of 2023.

"Unfortunately, safety incidents associated with theft are moving in the wrong direction," Cornell told investors in August. "As a result, we're continuing to work tirelessly with retail industry groups and community partners to find solutions to promote safety for our store teams and our guests."

Target has been among a group of retailers speaking out on the impact of theft and shrink on the industry recently.