- Costco has the edge over competitors when it comes to dealing with inventory shrink.
- In retail, shrinkage refers to merchandise lost through shoplifting, employee theft, or errors.
- Costco’s advantage comes about due to its layout, wages, and warehouse practices.
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Costco is not the ideal place to shoplift.
Between the chain’s members-only policy, the Costco employees assigned to scrutinize your receipt at the door, and the bottlenecking that can occur at the warehouse’s exit, thieves have a few factors working against them.
That’s not to say that theft doesn’t occur at Costco; stealing is a reality throughout the retail world. All retailers experience inventory shrinkage, the term for merchandise gone missing due to shoplifting, errors, or employee theft.
But Costco seems to have a distinct advantage over its rivals when it comes to shrink. CFO Richard Galanti told Barron’s Andrew Bary that the warehouse chain’s shrinkage amounted to 0.11% to 0.12% of sales. That’s significantly lower than the 1.33% of sales that retailers lost to shrinkage in 2017, as estimated by the National Retail Federation.
So what sets Costco apart? Well, the very nature of this members-only retailer makes it less of a soft target than some of its competitors. The company’s 2018 annual report boasts that its warehouses are purposely “not elaborate” and designed with “the control of inventory” in mind.
“By strictly controlling the entrances and exits and using a membership format, we believe our inventory losses – shrinkage – are well below those of typical retail operations,” the report reads. Costco is also known to pay higher wages than Walmart and Target, thereby increasing worker satisfaction and reducing the amount of theft on the part of employees.
Target and BJ’s both discuss shrinkage in their reports for 2018 and 2019,respectively. BJ’s, in particular, said that its shrinkage rates are not “material” but neither company makes any claims about incurring especially low losses. In its 2018 report, Walmart reported a decline in gross profit rate, in part due to “higher inventory shrink.”
Retailers don’t print their official shrink stats every year, unsurprisingly. But in 2018 the National Retail Federation released study indicating that 20% of retailers reported shrinkage greater than 2% of sales, compared with 17.1% of retailers in 2015.
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