Dollar Tree Adopts Defensive Measures Against Spiraling Shoplifting Epidemic

Dollar Tree Inc CEO, Rick Dreiling, announced on Thursday a 'very defensive approach' to combat escalating shoplifting issues in their stores. With the Dollar Tree and Family Dollar brands under its mantle, the company intends to introduce 'several new shrink formats' over the coming six months, with 'shrink' denoting theft and inventory loss within the retail sector.

Dreiling explained the new measures during the company's earnings call, stating that their tactics range from moving certain stock-keeping units (SKUs) to behind the cash register, to locking up certain items and even discontinuing products that just can't stay on the shelves due to theft.

It was also revealed that 'shrink' has directly impacted the company's gross margin. The second quarter saw this metric fall by 220 basis points to 29.2% compared to the previous year. Among other factors contributing to this decline were 'lower initial mark-on, unfavorable sales mix, and wage investments in distribution center payroll', according to Dollar Tree.

CFO Jeff Davis mentioned that while shrink is a cause for concern, 'takes time' for corrective measures to come into effect and show results, as the problem has been slowly accumulating over the course of the year.

Dollar Tree isn't alone in this battle: other retail industry giants like Kohl's, Walmart, and Target have also voiced concerns regarding shoplifting and organized retail crimes. Kohl's CFO, Jill Timm, referred to shrink as an 'ongoing retail industry problem', impacting their profit margins, and listed the various measures they've adopted to combat it.

The National Retail Federation’s 2022 annual retail security survey revealed that in 2021, total losses due to shrink increased by approximately 4%, totalling a whopping $94.5 billion. The report suggests that most of these losses are primarily due to external theft, including organized retail crime.

In response to this challenging landscape, Dollar Tree has adjusted its predictions for the fiscal year. Factoring in shrink, sales mix, increased diesel prices, ocean freight savings and more, the company projects consolidated net sales to be within the range of $30.6 billion to $30.9 billion. Their projected diluted earnings per share is expected to be between $5.78 to $6.08.

Despite these troubling times, Davis remains optimistic, stating that there are no 'systemic or structural' issues in the current retail environment that could negatively affect the long-term outlooks shared by Dollar Tree back in June.