Tag: shrinkage

OM in the News: Self-Checkout Era May Be Ending As Major Retailers Shut It Down

 

 

For over a decade, self-checkout was the retail future, speed, convenience, and cost savings. However nine of the largest retailers in the world are kicking these systems to the curb in an unbelievable reversal, reports MSM.com (June 30, 2025).

The numbers are brutal. Theft at self-checkout can be up to 65% higher than at regular lanes, with shrinkage hitting 3.5% of sales compared to just 0.21% with human cashiers. One study found 15% of users admit to stealing at kiosks, and 44% say they’d do it again. That adds up to over $10 billion in losses for food retailers each year. It’s not just career criminals. With no one watching, people blur the lines, blaming tech errors or telling themselves it doesn’t hurt anyone. With self-checkout transactions 16 times more likely to involve theft, stores are realizing the convenience comes at a staggering cost

As retailers like Dollar General and Walmart scale back self-checkout, the industry seeks a new approach balancing efficiency with personalized service. Self-checkout may save on payroll, but it comes with theft, tech breakdowns, customer frustration, and weakened brand loyalty.

Dollar General has taken one of the boldest steps away from self-checkout. Last year, the chain yanked self-checkout from 12,000 of its 20,000+ stores, dropping its earlier push toward 100% self-service locations. Its CEO  blamed “shrink,” or inventory loss, calling self-checkout the company’s biggest obstacle. Remaining kiosks now cap purchases at five items.

Five Below quietly pulled self-checkout from its highest-risk stores, revealing a tough truth, automation doesn’t work everywhere. Returning to staffed lanes did more to curb theft than adding extra security. The data showed that some neighborhoods saw massive spikes in shoplifting when kiosks went unmanned. So the company tailored its checkout systems based on local risk.

Walmart is testing a new tactic: limiting self-checkout access to Walmart+ members in select stores. It’s a bold shift that makes automation feel more like a premium perk than a standard option. The move helps reduce theft by tying kiosk use to verified customer accounts.

Amazon’s grand vision for cashierless shopping hit a wall last year when it dropped “Just Walk Out” from its Fresh grocery stores. The tech, which was supposed to track purchases automatically, relied heavily on human reviewers, over 1,000 people in India checking transactions manually. Some 70% of purchases needing intervention.

Classroom discussion questions:

  1.  Do you think self-checkout is going to fade away?
  2. What technology is needed to improve the system of self-checkout?

 

OM in the News: Ditching Self-Checkouts?

“Retailers Scale Back Self-Checkouts to Curb Irritation—and Theft” is The Wall Street Journal  (May 5, 2024) headline.  Self-checkout was introduced to reduce the cost needed to staff registers adequately, with companies such as CVS Health deploying them 20 years ago. With self-checkout, one worker can monitor and help shoppers at several registers.

Shoppers using self-checkout machines at a Kroger store in Louisville, Ky.

It seems that problems with technology are prompting companies including Target and Walmart to change operations or ditch the stations. Dollar General, Five Below, and grocery chain Schnucks, have limited how many items customers can bring to self-checkouts to avoid bottlenecks and alleviate headaches for staff. Walmart pulled self-checkout lanes from a handful of stores in recent months based on feedback from associates and customers.

While the primary intention is to improve customer service and checkout efficiency, companies expect some reduction of theft as well. Self-checkout accelerated during the pandemic, when human-to-human contact lessened. But self-checkouts have contributed to increased “shrink”—a Chapter 12 term used to describe losses from theft, lost inventory or damaged goods—because shoppers make mistakes or steal. Retailers, hesitant to spend more on staffing, are deciding if they prefer to reduce labor costs or combat shrink.

About a fifth of people who used self-checkouts said they accidentally took an item without paying for it, according to a survey of 2,000 shoppers last year. Some 15% of self-checkout users admitted to stealing an item on purpose. On social media, some users have posted videos of shoppers scanning a lower-price item instead of the higher-price item that should have been scanned.

“Shoplifting used to be mostly invisible,” said a trade group exec. “What we are seeing today are methods that are open and brazen.” Some Walmart stores are designating self-checkout lanes for Walmart+ customers, who pay a membership fee of $98 a year. Walmart added more self-checkouts to stores years ago but quickly found that they came with challenges including higher levels of theft and consumers’ fumbling with the technology. In response, it quietly disabled the weight sensors at self-checkout scanners because they triggered too many “wait for assistance” messages that annoyed shoppers and staff.

Classroom discussion questions:

  1. If theft is an issue, what can retailers do to minimize it?
  2. Do students prefer self-checkout? Why?

OM in the News: Retailers, Rising Theft and Shrinkage

As retailers report on the busy holiday shopping season, operations managers will be trying to get more understanding into shrinkage and theft, reports The Wall Street Journal (Jan. 9, 2024). The stores are fighting a growing wave of theft, cutting into profits that were already under pressure. But theft is just one contributor to shrink, the industry term for the difference between inventory on the books and what’s physically on hand. Lost or damaged goods and inaccurate records also play a part.

Shrink is now one of the most frequently discussed topics among management at Home Depot, said the firm’s CFO, having moved onto its list of top priorities two years ago. That focus hasn’t changed even though some mitigation efforts, such as locking up certain items and using live-view parking lot cameras, are in place.

The higher shrink may partly reflect a return to prepandemic norms rather than entirely new trends in theft. Reduced visits to physical stores starting in 2020 simultaneously decreased the opportunities for theft, an effect that dissipated as shoppers stepped out of their houses again.

Dollar General’s gross profit rate, or its profit as a percentage of net sales, fell 5% last quarter, due primarily to increased inventory shrink, more markdowns and lower inventory markups. Shrink is a roughly 100-basis-point headwind for Dollar General. Dick’s Sporting Goods  expects shrink’s impact on its gross margin to be roughly 50 basis points higher in its current fiscal year compared with 2022.

Retailers have said they are responding by adding security personnel and technology, locking up goods and closing hard-hit stores. Target, which last year said that shrink was expected to cut into profitability by more than $500 million, closed nine stores, citing higher theft and safety concerns for shoppers and workers. Nike closed one of its Portland stores in 2022 amid issues with theft. Academy Sports & Outdoors is using locked shelves for certain items and outfitting some departments that have seen higher shrink, such as the baseball bat section, with sensors that indicate when people linger in an area. Some retailers, such as Costco, are less exposed to theft for reasons including that they sell larger, harder-to-steal products, and stores are laid out with one primary entrance and exit.

Classroom discussion questions:

  1. Why is this an OM issue?
  2. What would you do, as a supermarket manager, to cut shrink?

OM in the News: Shrinkage, Pilferage, and Store Closures

Target’s CEO said that theft was trending ‘in the wrong direction.’

Chapter 8 in our text discusses the key success factors that affect location decisions. But what about decisions relating to closing those locations?

The Wall Street Journal (Sep. 27, 2023) notes that Target  plans to close nine locations across four states, citing elevated levels of theft and safety concerns for its shoppers and employees.    The retailer announced that stores in the New York City, Seattle, San Francisco and Portland markets would close next month. The decision is the latest sign of actions executives are taking to protect their businesses.

Retailers have said they have faced a growing wave of theft in recent years that has led to responses such as locking up more merchandise on shelves (see the photo), hiring off-duty police officers, and closing hard-hit stores. The average inventory “shrink rate” (see Chapter 12, page 496) reported by retailers increased to 1.6% of sales.

Walmart recently closed a number of stores in urban areas, including Chicago, Washington, D.C., and Portland. Nike temporarily closed one of its Portland stores last year amid issues with theft, but just announced the location would close permanently. Three of the stores that Target said it would close are in the San Francisco, a place that has had a number of high-profile retail defections of late. Department-store chain  Nordstrom closed two stores near San Francisco’s downtown this year, including one in a shopping mall.
For the closing stores, Target said theft was “threatening the safety of our team and guests, and contributing to unsustainable business performance.” It also said investments made to prevent theft, such as adding security guards and using theft-deterrent tools, have been ineffective in curbing retail crime. Target has seen a 120% increase in theft incidents which involve violence or threats in the first five months of this year, leading to a $500 million loss from shrink.
Target’s announcement follows a string of violent incidents at other retailers. A CVS store manager in Mesa, Ariz. was fatally shot earlier this month after suspecting a man was stealing from the store. This week, mobs hit Apple, Lululemon and Foot Locker stores in Philadelphia. Retail theft in that city increased by 30%, to 13,330 this past year.
Classroom discussion questions:
1. What can store managers do in this situation?
2. How might Figure  8.1’s (page 337) site decision factors change given this dangerous urban  trend?

OM in the News: Inventory “Shrinkage” on the Rise

Retailers regularly conduct a physical count of their inventory and compare it to what is recorded on their books. The difference is known as shrinkage, a broad term that encompasses not just internal and external theft but also process failures that could lead to inventory being lost or recorded inaccurately.

Shoppers now face items locked in glass cabinets in NYC and other cities

Target just announced that it expected the shrinkage problem to reduce gross margins for the year by over $600 million. TJX and Macy’s also reported higher shrink rates. The shift in shoppers returning to stores after a surge in online buying during the pandemic is partly responsible, writes The Wall Street Journal (March 13, 2023). More theft happens in stores, as opposed to warehouses that fulfill online orders. But a never-seen-before jump in organized retail crime in certain U.S. cities is also a factor.

External theft, which includes organized retail crime in addition to regular shoplifting, has become a bigger piece of the pie. Organized retail crime, involving rings that steal from stores in bulk and then peddle the goods online, cost retailers $720,000 for every $1 billion in sales. Seven years ago, theft by employees was the largest category of loss by retailers. Now, it’s external theft.

Retailers are combating the problem by adding security guards and cameras to stores, locking up goods and making use of facial recognition software to help identify repeat offenders. Macy’s is using radio frequency identification (RFID) tags to better track inventory, adding more security personnel to stores and securing high-end brands with locked cables and sensors.

Retailers and shoppers say there is a fine line between deterring criminals and annoying honest customers. “Retailers are locking up everything from shaving cream to soap,” said one customer. “These should be things that are quick and easy to grab and go. But now I’ve got to find an employee to unlock them for me.”  Some retailers agree they may have gone too far in their theft-prevention measures. Macy’s used to keep German shepherds in its Manhattan flagship for security sweeps, but discontinued the practice in 2015.  NYC police now ask shoppers to take off their face masks before entering stores, a measure intended to help them better identify criminals. The plea came after four men stole  $1.1 million of goods from a jewelry store.

Classroom discussion questions:

  1. What tools does Chapter 12 suggest stores use to control shrinkage?
  2. What is causing the theft increase?

OM in the News: The Impact of Inventory “Shrinkage”

A massive rise in theft is chipping away at an advantage brick-and-mortar retailers have over e-commerce companies: the ability to touch the merchandise, reports The Wall Street Journal (Dec. 24-25, 2022). Brick-and-mortar retail’s indisputable edge over e-commerce is that consumers can get what they want immediately, and can touch and feel the product before buying it. Rising theft—and stores’ measures to prevent it—could dull that edge.

Products displayed in locked security cabinets at a Walgreens in San Francisco

Shrink—an industry term for loss in inventory—amounted to 1.4% of retail revenue in 2021, or $94.5 billion. Most of that shrink is caused by theft. Walmart’s CEO said that if the retail theft issue is not addressed over time, “prices will be higher and/or stores will have to close.”

Covid-19 has worsened the risk of crime, partly because labor shortages have made it difficult to fully staff stores. Moreover, supply-chain shortages made certain products more susceptible to theft because they fetched high value in secondary markets. Supply-chain delays during the pandemic also meant more cargo was sitting around, leaving it more vulnerable to theft.

Shrink can have a substantial impact on already thin retail margins. At Dollar Tree, shrink shaved 1.7% off operating margins this quarter–substantial for a firm whose operating margin was 5.5% that same period. Drugstores are especially susceptible because they are located and designed for convenience. It’s a quick in, quick out layout with valuable electronics, over-the-counter drugs, cosmetics and beauty care, which are desirable and mobile items. Walgreens estimates that shrink amounts to 3.25% of the company’s revenue.

Mitigation measures can range from the most basic physical ones—such as locking up items—to more technologically sophisticated ones, such as video surveillance with facial recognition. Some measures are designed to make the product less valuable for theft. These include ink tags, which stain clothes when removed, and products that must be activated by the cashier in order to be used. Some cordless power tools will only start functioning if the firmware is activated at the point of sale. More subtle measures include placing high-value items further away from the entrance or having employees stand close to those products.

Classroom discussion questions:

  1. What do some retailers (like Costco and Sam’s Club) do to reduce shrinkage?
  2. Discuss some techniques to deal with this issue? (Hint: see “Control of Service Inventories” in Chapter 12 of your Heizer/Render/Munson text)