According to a recent report from the National Retail Federation (NRF), major U.S. retailers collectively lost a staggering $112 billion due to crime in 2017.
But Costco (NYSE:COST) is losing less than its competitors. During last month’s earnings call, chief financial officer Richard Galanti reportedly told investors, “Thank goodness, it’s not a major issue for us.”
Here is how one of the nation’s largest retailers circumvents one of the greatest dangers to the industry’s bottom line.
Retail crime Crisis
In recent months, reports of theft have increased across the nation. larceny-related merchandise losses, or “shrink,” including organized retail crime and employee larceny, have increased recently, according to retail corporations.
The problem has caused some retailers to close their doors. Target (NYSE:TRGT) recently announced that it will close nine stores across the United States due to escalating theft and crime. CVS (NYSE:CVS) announced it would close 10% of its stores and transition to online retail in part due to increasing shoplifting incidents.
Walmart purportedly closed half of its Chicago locations in April, and Walmart CEO Doug McMillon has previously stated that additional stores will close and prices will rise if the problem persists.
According to NRF research, 70% of the merchandise shrinkage experienced by prominent retailers is attributable to theft.
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Costco’s formidable defences
Costco has been able to contain the deteriorating national theft problem.
According to the CFO, the most recent quarter’s decline was between 0.1% and 0.2%. This is considerably less than the national average of 1.44 percent, as reported by the NRF.
Among the factors cited by Galanti for Costco’s relatively low shrinkage is its store layout. Due to their warehouse-like design with a single point of entry and departure, Costco stores are less susceptible to theft.
Galanti argues that Costco’s membership-based business model is perhaps its strongest defense. “You must present a photo ID to enter our warehouse, so the fact that it is members-only is a plus,” he said.
Additionally, Costco merchandise is comparatively more difficult to steal. The chain sells quantity items that make shoplifting difficult. It may be difficult, for instance, to remove 96 rolls of lavatory paper without attracting attention. Even small products are packed in large boxes by Costco.
However, the chain is not theft-proof. Costco executives acknowledged that theft has increased since the introduction of self-service checkouts three years ago. However, the issue has not become severe enough for the company to cease offering the feature.
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