- Dollar Tree faced higher “shrink” during the company’s first quarter, executives said Thursday.
- “Shrink” is an industry term for products that have to be written off, including for theft.
- Like many retailers, Dollar Tree is considering “defensive merchandising” or restricting product access.
Even dollar stores are dealing with shoplifting and considering locking up some products.
Executives at Dollar Tree cited increased “shrink” as one reason for the chain’s lower-than-expected profit during the company’s first-quarter earnings call on Thursday. In retail, “shrink” is the difference between the number of items a store has according to its records and the number it actually has on hand. It can include theft as well as more benign reasons, such as products expiring on the shelf.
Shrink accounted for a 14-cent hit to company earnings in the quarter, according to the Wall Street Journal.
“This is not unlike what you’re seeing in many other retailers across the industry,” CFO Jeffrey Davis told analysts. “Some of this is societal, some of it is economic, some of it, of course, is particular to us. And we’re taking all the appropriate steps that we can to control and mitigate this where we can.”
One of the steps Dollar Tree is considering is “defensive merchandising,” a retail industry term for locking up merchandise and requiring customers to retrieve it with an employee’s help.
Other solutions could include “store closures” and “government action at the local level,” CEO Richard Dreilling said during the company’s earning call on Thursday.
Later in the call, Dollar Tree’s CFO Jeffery Davis further outlined the company’s “multi-faceted sort of approach” to shrinkage including working with law enforcement, hiring for key roles, and restricting customers’ access to items. But he admitted that such restrictions can negatively impact sales.
Theft and other kinds of shrink weren’t the only challenges to Dollar Tree’s profits during the first quarter. The chain also said its customers bought more groceries and other consumable goods, which generally are less profitable than other things Dollar Tree sells.
Many retailers have pointed to theft from their stores as a growing challenge. Walmart CEO Doug McMillon said last year that theft had risen to historically high levels and that the retailer might close stores if the problem didn’t abate. Target has also blamed theft for high shrink rates.
Thieves rarely target high-value items like jewelry, according to a recent report from the National Retail Federation and K2, a risk advisory firm. Instead, they go after cheaper goods like household products.
But there are signs that the problem might be overstated. The CFO of Walgreens, for example, said that the drugstore chain “cried too much” about theft on an earnings call in January. The company had previously closed several stores in San Francisco, citing shoplifting.
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