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Dick's Sporting Goods blames "increasingly serious" theft problem for profit plunge

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Dick's Sporting Goods warned Tuesday that retail theft is damaging its business and would lead to lower annual profits.

The sporting goods and athletic clothing seller reported second-quarter results Tuesday morning that included a 23% drop in profit, despite sales that rose 3.6% in the period. Shares of Dick's (DKS) plunged nearly 24% Tuesday.

The company blamed shrink, the industry term for theft and damaged inventory, for its surprisingly poor earnings. Although other national retailers have also warned investors about growing theft, Dick's is among the first to blame its lackluster quarterly financial report primarily on theft.

"Our [second-quarter] profitability was short of our expectations due in large part to the impact of elevated inventory shrink, an increasingly serious issue impacting many retailers," CEO Lauren Hobart said in a statement. Retail "shrink" is a term that refers to merchandise that goes missing due to theft, fraud, damage, accounting errors or other reasons.

Looking ahead, the retailer said it now expects its earning per share for the year to come in 12% below its initial forecast. The Pittsburgh-based retailer stuck to its full-year forecast for sales at stores open at least a year: flat to up 2%.

Retailers large and small say they are struggling to contain an escalation in store crimes — from petty shoplifting to organized sprees of large-scale theft that clear entire shelves of products. Target warned earlier this year that it was bracing to lose half a billion dollars because of rising theft. The retailer reported a large number of incidents of shoplifting and organized retail crime in its stores nationwide.

It's not clear that crime is growing significantly more serious. Within the industry, at least one major player has argued that the problem is being overhyped: Walgreens (WBA) earlier this year changed its tune on store theft hurting its business, saying, "Maybe we cried too much last year."

Increased shoplifting incidents

But industry watchers say that mixed signals on the health of the economy, plus persistent inflation and rising borrowing costs can make shoplifting more prevalent.

Need and opportunity become forceful catalysts for driving up incidents of retail crime, experts said.

"A community might be struggling with heavy job losses and people can't easily find another job. Now they can't afford basic necessities," said Read Hayes, criminologist at the University of Florida and director of the Loss Prevention Research Council, which has members including retailers such as Walmart, Target, Home Depot and Gap.

According to the National Retail Federation, the industry's biggest trade group, large-scale store theft is becoming a bigger part of retail shrink.

The NRF estimates total annual shrink reached $94.5 billion in 2021, up from $90.8 billion from 2020. Nearly half was attributed to large-scale theft of products. The group said retailers on average saw a 26.5% increase in this type of theft over the previous year.

Merchandise "shrink" is the value of merchandise lost to theft, fraud, damage and other reasons. That theft can be internal as well as external.

The latest survey from the NRF shows that "shrink" overall has held steady over the last five years, fluctuating between 1.3% and 1.6%, but some retailers are seeing much higher shrink rates that have soared from 9% in 2016 to 18% in 2019, and back down to nearly 11% in 2021.

The single largest factor cited in these figures was external theft at 37% of all shrink. The report assesses that violence against store employees in also rising.

Organized crime

Organized retail crime, the more insidious type of store theft involving groups of people targeting stores that carry higher-value items like electronics, sporting goods, designer handbags and designer clothing, in particular has retailers rattled. Retail crime experts say the groups then resell the merchandise in secondary marketplaces, such as eBay, OfferUp and Facebook Marketplace or even back into the legitimate supply chain.

Shopping malls and high-end stores in large cities, including Los Angeles, Chicago and New York have suffered a spate of dangerous smash-and-grab attacks the last year in which perpetrators have used sledgehammers and other equipment to break into stores and make off with several thousand dollars in merchandise.

Just last week, a "mob of criminals" stole more than $300,000 worth of merchandise from the Westfield Topanga Shopping Center in Los Angeles on a Saturday afternoon, police said.

More than 30 people entered a Nordstrom store at once and grabbed merchandise from displays near the entrance shortly after 4 p.m. before fleeing, police said.

Cities are trying to fight back.

In Los Angeles, Burbank, Glendale, Beverly Hills and Santa Monica, police have formed a task force, in conjunction with the FBI, to target incidents where groups of three to 40 people arrive in a caravan of cars, jump out at the valet stop with getaway drivers waiting. These groups strike at a high-end stores, such as Gucci or Balenciaga, and can often leave with hundreds of thousands of dollars worth of merchandise.

One factor that police believe is a driver of organized retail crime more recently is the fact that under new criminal justice reform laws and local district attorney's policies to reduce mass incarceration, grand theft – the law that covers shoplifting – is a crime where judges can no longer jail a a person or even require bail, no matter how many times the same individual is caught.

In New York City, the New York Police Department has turned to federal prosecutors to target retail crime leaders who organized the storming of high-end stores to clean them out.

There are 300 people who have been arrested a collective 4,000 times that are solely responsible for 30% of all grand larceny in New York City and 70% of them are out on the street, according to an NYPD review of New York State court records.

Police say they remain frustrated that changes to criminal laws meant to reduce jail population in the city along with local DA's policies that lean toward not seeking jail even for repeat offenders offer little disincentive to perpetrators to stop the crime.

Sinking sales at big retailers

Also on Tuesday, home improvement chain Lowe's and department store chain Macy's reported second-quarter results.

Lowe's (LOW) posted quarterly sales that dropped 9.2% from a year ago and comparable sales that slipped 1.6% over the previous year.

At the same time, the retailer stuck with its full-year sale guidance for total sales of between $87 billion to $89 billion, citing improving sales in its home professionals business and the recent launch of initiatives such as same-day delivery nationwide.

That helped offset still-high lumber prices and softness in do-it-yourself home projects.

Macy's (M) also reiterated its full-year forecast Tuesday for sales of between $22.8 billion and $23.2 billion. The retailer said it expected comparable sales to fall by between 6% and 7.5% from a year ago. For the quarter, Macy's logged sales of $5 billion, down 8% from a year ago. Comparable sales fell 8.2% from the same period a year earlier.

The retailer said tighter inventory and greater markdowns and sales helped clear spring merchandise at its stores in the quarter, but warned that uncertainty about the economy remains an overhang on its business as budget-conscious households cut back on discretionary purchases.

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