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Loss Prevention Research Council Weekly Series – Episode 150

Dollar Tree is considering locking up product due to theft

Let me start this week with more retail theft news from major retailers in the United States. This past week Dollar Tree Executives Tree cited increased “shrink” as one reason for the chain’s lower-than-expected profit in their earnings call.

Shrink accounted for a 14-cent hit to company earnings in the quarter, according to the Wall Street Journal.

As reported by Business Insider, 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.

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.

Ulta Beauty Sales Grow 12.3%, Although Theft is a Serious Concern

Unfortunately, Dollar Tree is not alone in reporting last week a great concern with retail theft.

According to Forbes, “The rise in violence and aggressive behavior during organized retail crime thefts is concerning,” said Dave Kimbell, CEO of Ulta Beauty.

He went on to say that “Protecting our associates and keeping our employees safe is our main concern.” The company plans to work with law enforcement, government agencies, and retail communities to help reduce the number of incidents and drive down theft across the company.

The CEO added that “Large-scale theft impacts our associates and our guests, and despite our investment, it is getting worse, not better.”

The CFO of Ulta Beauty said “ORC is a macro problem and needs a macro answer. I am personally involved in this issue.”

These two retailers follow a pattern of increased theft and violence expressed by other companies in recent earnings announcements. We all need to work together, especially here at LPRC, to help drive solutions to these major problems.

Retail AI Revolution

Let me switch topics this week and provide you with some great new research from the IHL group on the retail Artificial Intelligence revolution that is underway.

Worldwide, IHL is forecasting that the overall economic impact worldwide in retail from AI through 2029 will be $9.2 trillion dollars.

The Asia/Pacific market will have by far the biggest economic impact from AI over the next 7 years, with an overall economic impact of $3.8 trillion, or 42% of the total. This is due to overall population, size of the retail market, and long-term growth rates. Also, we expect less regulation to slow down the business use of AI than we will see in other regions.

The next largest perceived impact will be in the North American market at $2.7 trillion or 29% of the total. North America’s higher concentration of larger retailers will enjoy benefits of scale. Many of these retailers also have a substantial head start in traditional AI/ML deployment as they have already been enjoying benefits from forecasting, computer aided ordering, and other areas.

The third largest region is Europe/Middle East/Africa at 24% of the total benefit or $2.2 trillion. IHL’s view is that this could be higher, but we project more government regulations than any other region. This will limit the full potential for the region by 2029 but might preserve more jobs in the retail industry in the period that might otherwise be lost.

Finally, IHL expects the lowest impact on retail in the region of Latin/South America. This is because the overall retail market is considerably smaller than the other regions. While there are some very sophisticated retailers operating in the region, a much higher proportion of retail in the region is not as organized. In total, we expect to still see $520 billion in economic benefit or about 6% of the total worldwide amount of economic benefit from this region.

The impact of AI in the coming seven years will be even a more significant advantage to larger retailers. The reason IHL project this is that larger retailers, particularly those that enjoyed “essential” status during the pandemic, are presumably farther down the path of deploying and utilizing traditional AI/ML solutions. These large retailers had the means available to hire data scientists where smaller retailers could not.

Four retail segments will benefit the most from AI investments. The first segment is Pure Play ecommerce companies which will see up to $2.6 trillion or 28% of all the economic benefit. The rationale behind this is that pure play ecommerce companies tend to possess superior customer data, which is inherently cleaner compared to that of many multi-channel retailers.

The second segment seeing the biggest impacts from AI will be the Food/Grocery segment, with potential economic benefits of up to $1.9 trillion over the next several years or roughly 21% of the total. In this case, the primary factor at play is the sheer magnitude of the segment, coupled with its rapid expansion due to being classified as “essential” during the pandemic, resulting in substantial growth and increased funds for investment.

Next, IHL project Supercenters, Warehouse Clubs, Hypermarkets and Mass Merchants will enjoy up to $1.5 trillion in potential economic benefit from AI in the next 7 years, or a little over 16% of total benefit.

The final segment is Home Improvement, which constitutes a sizable portion of the overall Specialty Hard Goods sector, accounting for slightly over 10% of the total economic benefits.

The four set of solutions that will get the most attention in retail are store performance, merchandising and category management, promotion and pricing and the good news for much of this audience loss prevention.

You can find the full report at the IHL white papers site. You can also access a link on my website in the research section.

We need AI faster in multiple application, especially in loss prevention based on the data that keeps coming in on the challenges that retailers are facing with shrink.

Our hosts discuss new AI development and industry related strategy to help enhance safety for people and places in our communities. Stay tuned to hear from special guests in the next few weeks and more updates on the LPRC.