Target exec says retail theft has hurt company's gross profit margin

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The chief financial officer of Target Corp. said Wednesday that theft has hurt the retail giant’s gross profit margin.

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TGTTARGET CORP.155.50-24.07-13.40%

CFO Michael Fiddelke, speaking during the company’s third-quarter earnings call, said a factor affecting Target’s gross margin is "inventory shortage, or shrink, which is a growing problem facing all retailers."

Retailers use the term "shrink" to describe theft.

"At Target, year to date, incremental shortage has already reduced our gross margin by more than $400 million versus last year, and we expect to reduce our gross margin by more than $600 million for the full year," he said. 

Third quarter gross margin rate was 24.7%, compared with 28% in 2021.

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Shopping carts from a Target store are lined up in Encinitas, Calif., May 22, 2013.  (Reuters/Mike Blake/file photo / Reuters Photos)

"This is an industry-wide problem that is often driven by criminal networks, and we are collaborating with multiple stakeholders to find industry-wide solutions."

Target "strongly supports" legislation to "increase accountability and prevent criminals from selling stolen goods through online marketplaces," Fiddelke added.

Brian Cornell, the CEO of the retail giant, also weighed in on theft during the earnings call, calling it an industry-wide "growing financial headwind."

A cashier places a bag of items into a customer’s shopping cart at a Target store in Chicago Nov. 16, 2019.  ( Daniel Acker/Bloomberg via Getty Images / Getty Images)

"Along with other retailers, we’ve seen a significant increase in theft and organized retail crime across our business," he said. "As a result, we’re making significant investments in training and technology that can deter theft and keep our guests and store team members safe."

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The comments from the Target executives come after other companies have reported problems with theft. Rite Aid CEO Heyward Donigan and Chief Retail Officer Andre Persaud in September cited "shrink" as an issue the pharmacy chain was dealing with, particularly in its New York City locations.

Target said it generated $26.52 billion in total third-quarter revenue, a 3.4% increase from the same period in 2021 when the retail giant reported $25.65 billion. Its net earnings narrowed 52% from $1.49 billion to $712 million.

Target Shopping Cart (iStock / iStock)

The company issued a dismal forecast for holiday sales, warning a major shift in consumer behavior was being caused by high inflation.

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"With high rates of inflation continuing to erode their purchasing power, many consumers this year have relied on borrowing or dipping into their savings to manage their weekly budgets," Cornell said. "But, for many consumers, those options are starting to run out. As a result, our guests are exhibiting increasing price sensitivity, becoming more focused on and responsive to promotions and more hesitant to purchase at full price."

Breck Dumas contributed to this report.

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