Costco CFO: Retail theft 'not a big issue for us'
Costco (COST) isn't seeing an uptick in theft like retailers Target (TGT) and Walmart (WMT).
On a call following Costco's fourth quarter earnings results, CFO Richard Galanti told investors that inventory shrink is "thankfully, not a big issue for us."
While some retailers are reporting that theft is hitting profits and causing them to close stores and lock up merchandise, Galanti noted that Costco's inventory shrinkage hasn't dramatically increased, even after the company brought back self-checkout in 2019 after ditching it six years prior.
"In the past several years, our inventory shrink has increased by a couple of basis points, in part, we believe, due to the rollout of self-checkout," he said. "Over the past year, it has increased by less than 1 basis point."
One factor that may help to prevent theft — people are paying to go there. Costco's Gold Star membership costs $60 per year while an Executive Membership goes for $120.
And in its annual report, the wholesale retailer said it keeps inventory losses to a minimum by "strictly controlling" entrances and exits.
"We think the company is well-positioned to gain share in the current environment," Jefferies analyst Corey Tarlowe said following Costco's quarterly results.
Increased theft robs retailers' profits
Costco is an outlier from the larger issue hitting the industry.
Retail shrink — the loss of items to retail theft, organized crime, damage, vendor fraud, and other factors — was a $112 billion problem for the industry in 2022, according to the National Retail Federation's (NRF) National Retail Security Survey. That cost was up nearly 20% from 2021 when retail shrink accounted for $93.9 billion in losses.
It's worth noting that as a percentage of sales, the average shrink rate increased only slightly to 1.6% in 2022 from 1.4% in 2021. It is yet to be seen what the rate will be for the full 2023 fiscal year.
Some retailers, such as Target, aren't waiting to find out. On Tuesday, Target announced plans to close nine stores, effective Oct. 21, due to "theft and organized retail crime."
The stores set to close include one in Harlem, N.Y.; two in Seattle, Wash.; three near San Francisco and Oakland, Calif.; and three in Portland, Ore.
Inventory shrinkage — mostly the theft of merchandise — is expected to cut Target's profits by $500 million this year. In 2022, Target's profits took a $700 million hit from inventory shrinkage.
"The one positive is that Target will soon be lapping higher shrink levels from a year ago," CFRA analyst Arun Sundaram said in a note to clients. "While underlying loss rates are not likely to change this year, the dollar magnitude of the headwind should lessen, especially in the fourth quarter."
Walmart (WMT) US CEO John Furner also weighed in on the issue.
"Shrink has increased a bit this year," Furner said. "It increased last year. It's uneven across the country."
Walmart closed four stores in Chicago earlier this year but did not blame theft. Rather, the company said it was due to the fact that the "annual losses nearly doubled in just the last five years" at these locations.
A Walmart location in Atlanta recently got buzz for having a police station inside the store, but Walmart says it was not intended to combat this larger issue.
"Providing local police with a workspace inside stores isn’t a new feature, and we see efforts like what’s being considered for our future Vine City store as a way to better collaborate with law enforcement and support the community," the company said in a statement to Yahoo Finance.
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Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
