Brick-and-mortar retail’s indisputable edge over e-commerce is that consumers can get what they want immediately, and can touch and feel the product before buying it. Rising theft and stores' measures to prevent it could place e-commerce over physical retail when it comes to consumers, reports the Wall Street Journal. The National Retail Federation (NRF) estimates that shrink in 2021—an industry term for loss in inventory—amounted to roughly $94.5 billion, most of which was caused by theft. Walmart Chief Executive Doug McMillon told CNBC that if the retail theft issue is not addressed over time, “prices will be higher and/or stores will have to close.” Although shrink is a perennial problem in retail, it took off when the pandemic hit. In the five years leading up to 2019, retail shrink grew at a compound annual growth rate of roughly seven percent. In 2020, it jumped significantly to 47 percent and rose another four percent in 2021. Some retailers, including Ulta Beauty and Target, have said that shrink has gotten worse again this year. “When times get tough, shrink goes up,” Ulta Beauty Chief Financial Officer Scott Settersten said Retailers surveyed by the NRF said COID-19 has worsened the risk of crime, partly because labor shortages have made it difficult to staff stores. Moreover, supply-chain shortages made certain products more susceptible to theft because they fetched high value in secondary markets, said NRF's Mark Mathew.
Drugstores are especially susceptible because they are designed for convenience, said Read Hayes, a research scientist for the Loss Prevention Research Council. “It’s a quick in, quick out [layout] with valuable electronics, over-the-counter drugs, cosmetics, and beauty care, which are desirable and mobile items,” he said. Drugstores tend to have fewer employees. Mitigation measures can range from the most basic physical ones, such as locking up items, to more technologically sophisticated ones, such as video surveillance with facial recognition. Some measures are designed to make the product less valuable for theft. These include ink tags, which stain clothes when removed, and products that must be activated by the cashier to be used. More subtle measures include placing high-value items further away from the entrance or having employees stand close to those products. Scott Mushkin, an equity analyst at R5 Capital, said Walmart’s store layout stands out. “They have a good funnel in, funnel out system without deteriorating the store experience so much that it’s a problem,” he said. E-commerce may be an unwitting beneficiary of physical retail’s woes. Nothing dampens a physical shopping experience like having to summon staff to unlock each item.
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