Dive Brief:
- Dollar Tree appointed a Senior Vice President of Loss Prevention in the third quarter in order to focus efforts on reducing inventory loss at Dollar Tree and Family Dollar stores, CEO Gary Philbin said on the company's third-quarter earnings call Tuesday. Robert Oberosler, who joined the company as an SVP after nearly a decade in a similar function at Rite Aid, will oversee shrink issues at Family Dollar and Dollar Tree stores.
- Inventory shrink increased 15 percentage points for the discount retailer in the third quarter after jumping 45 points in the second. Shrink is the result of shoplifting, employee theft and operational or administrative insufficiencies that lead to inventory errors.
- "With shrink, our plans are focused on enhancing allocations and right-size inventories to all of our stores, especially those with a high shrink history," said CEO Gary Philbin on the same call.
Dive Insight:
A 2019 study by the National Retail Federation valued inventory shrink in 2018 at $50.6 billion.
Philbin's comments echo a common issue for retailers. According to a survey of corporate retail professionals conducted by Wakefield Research and Bossa Nova Robotics, 65% of respondents reported an inability to track inventory at their organizations. Without a thorough, real-time view of inventory, combating shrink by decreasing store inventory of problem products, or in problem stores, won't be as effective.
With the U.S.-China trade war simmering through the holidays, and likely to pinch margins harder in 2020, Dollar Tree, like many retailers, is looking to protect profitability by examining addressable cost. In the third quarter, shrink was among Dollar Tree's gross margin detractors.
"The decrease in gross profit margin was driven by higher freight and distribution costs, higher sales of lower margin consumable merchandise primarily in the Family Dollar segment, and shrink," reads the retailer's Q3 earnings release. Gross profit for the company increased year-over-year in the third quarter, but profit margins dropped to 29.7% from 30.2% the year prior — the seventh consecutive quarter of YoY decline.
"Shrink is something I have an expectation we're going to do better on next year. We're coming off of a second year of not great performance and we can do better," said Philbin.
