Dollar Tree CEO Says 'Elevated' Theft Is Affecting Profit Margins Executives at Dollar Tree partially attributed the decline in the company's gross profit margin to instances of increased theft across its stores.
Key Takeaways
- Dollar Tree's inventory losses have worsened, prompting strict actions to address the escalating issue.
- Across the country, other retail giants have also been grappling with increased levels of theft.
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Discount retail chain Dollar Tree is taking a "very defensive approach" to combat widespread theft in its stores, which the company said in an earnings call on Thursday partially contributed to a difficult quarter.
The retailer's last earnings report, which was released on Thursday, showed an overall increase in sales, but acknowledged that it is "not immune" to the ongoing "impact of elevated shrink."
Since 2022, Dollar Tree has been facing the issue of "shrink" (inventory losses from theft, damage, and other factors) in its stores. Dollar Tree robbery arrests have occurred in states such as Florida, New York, and Pennsylvania.
The company, which owns and operates Dollar Tree, Enterprise, and Family Dollar stores, saw an increase in same-store sales across its brands, but a 0.5% decline in its gross profit margin for the second quarter of 2023. On the call, CEO Richard Dreiling and CFO Jeffrey Davis partially linked the drop to increased levels of shrink. Despite efforts to address the ongoing issue, the shrink problem has worsened far beyond what it "had anticipated," Davis said.
Now, the retail giant is taking a more aggressive approach with measures ranging from increased items being locked behind shelves to discontinuing repeatedly sold products at certain stores altogether.
"We are now taking a very defensive approach to shrink," Dreiling said on the call. "We have several new shrink formats that we'll introduce in the back half of the year, and it goes everything from moving certain SKUs to behind the check stand. It has to do with some cases being locked up. And even to the point where we have some stores that can't keep a certain SKU on the shelf just discontinuing the item. So we have a lot of things in the works."
Dollar Tree isn't the only retail giant combatting elevated levels of theft. According to the National Retail Federation's 2022 report on organization retail crime (ORT), of 63 retailers — which operate thousands of stores across the U.S. — 70% stated that the prevalence of shrink has increased over the past five years. Furthermore, 89.7% of respondents said that their loss prevention departments are taking actionable measures to combat the phenomenon, making it part of their "goals, objectives or performance measures."
When accounting for the financial setbacks, the report found that the 1.4% increase in shrink accounted for $94.5 billion in losses in 2021.
Related: Walmart CEO Doug McMillon Says Organized Retail Theft Could Lead to Stores Closing
