Drugstore chain says related expenditures contributed to high costs overall
THE WALL STREET JOURNAL // JAN. 6, 2023
The nation’s second-largest U.S. pharmacy chain by locations poured money last year into additional security, some of which executives said was ineffective, and it is now considering cutting back as losses from theft have dropped significantly, finance chief James Kehoe said Thursday.
“Maybe we cried too much last year,” over theft losses, Mr. Kehoe said on a call with analysts to discuss Walgreens’s quarterly results. “We probably put in too much, and we might step back,” he said, regarding security.
So-called shrink, which reflects inventory losses related to such factors as theft, fraud or damage, is now around 2.5% of retail sales, down from 3.5% at times last year, Mr. Kehoe said.
Executives said lower theft levels were a factor in the company’s move to increase its revenue forecast for the current fiscal year. The company forecasts generating between $133.5 billion and $137.5 billion in full-year revenue, much of which would be derived from its U.S. retail pharmacies.
Mr. Kehoe said Walgreens has spent a significant amount on theft prevention, which contributed to high costs overall during the latest quarter, and that the company is tweaking its strategy. The company didn’t disclose its antitheft expenses.
Among the changes: relying more on law enforcement rather than private security. “Security companies have proven to be largely ineffective,” Mr. Kehoe said.
CVS Health Corp., the largest U.S. pharmacy chain, declined to comment for this article.
Walgreens has shifted from locking down specific high-price items to securing entire product categories, a change the company said is designed to thwart organized-crime ringsin which thieves steal items in bulk and then resell them online.
The chain in 2021 closed five locations in San Francisco, citing organized retail crime. Walgreens Chief Executive Officer Roz Brewer recently called for legislation that would make it harder to sell stolen products online and lower the threshold for how much a person must steal before charges become more serious.
Many retailers say that theft has risen in recent years, but that it is lower now than during the early years of the pandemic. At that time, crime surged in part because online sales soared and created higher demand for stolen goods through e-commerce vendors. Retailers selling everything from deodorant to power tools have increased efforts to reduce theft, including bulking up security and locking up more items as a quick fix while researching alternatives.
Retail shrink grew to $94.5 billion in 2021, up from $90.8 billion in 2020, according to a survey of 63 retailers conducted by the National Retail Federation last year. Around 37% of shrink came from external sources such as organized theft groups, while 26% was related to retailers’ own employees, according to the survey.
“It’s a triage-type scenario,” Scott Glenn, vice president of asset protection for Home Depot, said at the time. “It’s stop the bleeding and give yourself some time.”
The company said that sales can rise after an item is locked up because it is more frequently in stock, but that customers generally dislike the practice, so Home Depot tries to avoid it.
In November, Target Corp. said it was dealing with more theft in its stores, blaming criminal networks for thefts and inventory shortages that ate into profits. The company said it expected the shortages to reduce the retailer’s gross margin by more than $600 million in the current fiscal year compared with the year before.
“Along with other retailers, we’ve seen a significant increase in theft and organized retail crime across our business,” Target CEO Brian Cornell said on a conference call last year.
At Best Buy Co., shrink as a percentage of revenue is elevated compared with 2019, but is better than in the early years of the pandemic, CEO Corie Barry told reporters on a call to discuss earnings in November. The slowdown in theft is partly related to the retailer’s efforts, such as more visible security, said Ms. Barry.
The electronics retailer is more often using what it believes are more customer-friendly theft deterrents such as allowing shoppers to scan a code on a shelf for immediate pickup of theft-prone items at a register, she said.
“We’ve had a pretty full-court press on this for the better part of two years,” said Ms. Barry.
Appeared in the January 7, 2023, print edition as ‘Walgreens Tweaks Strategy For Combating Shoplifting’.