The landscape of retail markets in the United States is undergoing a significant shift with the closing of Target stores in multiple locations. While the rise of organized retail crime contributed to this decision, business analysts wonder whether the move will drop big sales for the retail giant. Let’s take a look at the reasons behind Target closing stores and how it will affect the company’s sales.
Why did Target close retail stores?
Target Corporation’s CEO, Brian Cornell, addressed the issue of growing organized retail crime and how it had affected the company. Since 2022, inventory shrinkage (mainly due to theft and violent crime) has cost Target a staggering $1.1 billion in profits.
Here's the list of Target stores which are being shut down pic.twitter.com/CUDHgNEbvA
— BNO News Live (@BNODesk) September 26, 2023
While many retailers often cite sales and overall performance issues for closing their stores, Target has openly tied crime to their decision. Target has reported a $500 million loss in profits for the current year and a $600 million loss in 2022 due to these issues.
The CEO emphasized the company’s commitment to the safety of its customers and employees. Notable Target stores closed in Seattle, New York City, Portland, and San Francisco. The closures will take effect from October 21, 2023.
Target’s inventory shrinkage and sales strategy
Inventory shrinkage is a term that retailers use to talk about losses that happened due to theft, both big and small. An inventory shrinkage of $1.1 billion is no laughing matter for any corporation. As a result, Target will have to rethink its sales strategy.
The retail industry lost $112.1 billion last year due to "inventory shrinkage," with theft accounting for two-thirds
U.S. retailers lost a record $112.1 billion in 2022 due to inventory shrink, according to the Retail Federation's annual survey released Tuesday. External theft is…— Lily flower (@JennyCurran1028) September 27, 2023
The company’s physical stores have been an essential part of sales, even as distribution hubs for filling online orders. Therefore, the sales numbers are most likely to take a hit due to the closing of Target stores, at least in the upcoming financial quarter.
Target’s innovative approaches, like drive-up and curbside services, allow customers to pick up online orders the same day and allow hassle-free returns. Such services would drive customer loyalty and improve sales.
Store would need 2 guards in front, 2 in back, 2 roaming, 2 surveillance
Average wage $25/h
3 shifts, 24 guards per day
Insurance and employment tax so about
$6000 per day$6,570,000 per year
Targets profit margin is around 3%
Didn't include training, equipment etc. https://t.co/LdNVo7XwI4
— Tim Pool (@Timcast) September 28, 2023
However, rising prices due to inflation and higher interest rates have led to decreased spending, especially on apparel and home accessories. This is why Target relies on its physical stores rather than its digital operations to sustain sales.
Link between crime and closing stores
Other retailers like Walmart and Nordstrom are also going through the same issue of organized retail crime. If the problem is not addressed, we can see more store closures in the future, just like Target closing stores and losing big sales.
52 people arrested after looters target stores across Philadelphiahttps://t.co/ayTeQ3FplN pic.twitter.com/FZcrnrCZJN
— Action News on 6abc (@6abc) September 28, 2023
Employees of the closed Target stores will get job offers at their nearby locations. However, these new locations will also need improved security measures. Law enforcement has to support them to combat retail theft.
How will the closing of Target stores affect sales?
The answer remains complex since the company has been direct in its fight against crime. The closing of Target stores is a clear result of the financial drain coming from retail theft. If shoplifters are not prosecuted, store closures are inevitable.
In fact, security officers have to be more well-prepared, unlike in the Century City Gucci store robbery case. Furthermore, rapid digitization and the post-COVID era have led to a decline in physical stores like Bed, Bath and Beyond’s example.
Sales will inevitably go down unless retail giants like Target revamp their ongoing investments in security to protect their physical stores. Their strategy will also have to evolve to fit customers’ growing needs.
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