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Like many retailers, Walmart Inc. is dealing with inventory “shrink,” although CEO Doug McMillon says the company’s specific challenges are different from those faced by other big retailers.
“From a total enterprise point of view, we’re more than a domestic retailer,” he said during a Thursday conference call to discuss Walmart’s
WMT,
second-quarter results, noting that the company operates in 19 countries and also has its Sam’s Club subsidiary. “We’ve got a variety of businesses, so it’s not necessarily the same answer as maybe some of the others that are in the news about shrink.”
Related: Walmart’s stock boosted by better-than-expected earnings as food sales remain strong
While there are a number of potential reasons behind inventory shrink — such as damaged items — theft and organized retail crime are increasingly important drivers, according to major retailers such as Target Corp
TGT,
This week, Target CEO Brian Cornell said that the company is facing an “unacceptable amount” of retail theft and organized retail crime.
Home Depot Inc.
HD,
also described the retail industry’s battle with shrink this week and highlighted a new U.S. law designed to aid efforts to tackle a problem that costs the sector billions of dollars a year.
Related: Walmart customers’ household budgets still under pressure, CEO says
The Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act, which went into effect June 27, is designed to add more transparency to online transactions and deter criminals from acquiring stolen, counterfeit or unsafe items and selling them through online marketplaces. The INFORM Consumers Act requires e-commerce sites to verify and disclose information about their high-volume third-party sellers.
Last year, the National Retail Federation reported that retail-industry shrink amounted to $94.5 billion in 2021, up from $90.8 billion in 2020, and was primarily driven by external theft, including organized retail crime. The NRF’s National Retail Security Survey, which was conducted with the Loss Prevention Research Council, found that retailers, on average, saw a 26.5% increase in organized retail crime incidents in 2021. Eight in 10 retailers surveyed also reported that violence and aggression associated with organized retail crime incidents had increased.
Related: Target facing ‘unacceptable amount’ of retail theft and organized retail crime, CEO says
Walmart’s McMillon touched on the issue of retail theft during the call Thursday. “We do think that in some jurisdictions here in the U.S., there needs to be action taken to help protect people from crime, including theft,” he said. However, he also noted that shrink “is comprised of more than one thing.”
Walmart’s chief financial officer, John David Rainey, said shrink had increased “a bit” this year, and it also increased last year. “It’s uneven across the country — it’s not in every market,” he added. “Some markets are higher than others.”
Related: Home Depot looks to new law as retailers ramp up battle against organized crime
The CFO also pointed to things such as supply-chain costs and markdowns from last year that impact inventory shrink. “A lot of components go into this,” he said. “We’ll keep watching it. We don’t want it to go up, obviously, because it could cause prices to rise, and we’ve heard that across the market, but it is a part of what we’re managing.”
Walmart’s stock fell 1.9% Thursday, outpacing the S&P 500’s
SPX
decline of 0.1%.
