Target expects to take a $500 million hit this year due to missing inventory, and says shoplifting and organized crime is largely to blame

• Target says it expects to take a $500 million hit in profits this year because of missing inventory.
• "It's an urgent issue,"said CEO Brian Cornell. "Not just for Target, but across the entire retail industry."

Target is expecting to take a $500 million hit in profits this year due to missing inventory, and it's largely because of theft and organized retail crime, the company said.

"It's an urgent issue," CEO Brian Cornell told investors on Target's first-quarter earnings call Wednesday. "Not just for Target, but across the entire retail industry."

In a statement, Cornell said that while it is "making significant investments in strategies to prevent this from happening," it expects "inventory shrink" to make a big dent in profits this year.

On the earnings call, Chief Operating Officer John Mulligan described how "mitigation efforts," like stepped-up security staffing, adjustments to product selection, and anti-theft displays, are helping to reduce shrink in stores.

But, Mulligan added, that layer of security does come at a cost to sales, as it adds friction to the customer experience. Getting that balance right is a key priority for his team.

Inventory shrink refers to when the company has fewer products on its shelves than what is reported in its inventory. These items could have been damaged, lost, or stolen.

Last November, the company said that missing inventory had cost it $400 million in profits so far that year and that this number could reach $600 million by year-end.

Theft and organized crime have been major talking points in the retail industry in recent years, as stores say they are becoming a bigger issue for them. They're beefing up security and introducing new theft-prevention measures in response.

According to research from the National Retail Federation, retail shrink cost retailers $94.5 billion in 2021, up from $90.8 billion in 2020.

Still, there is some debate as to whether the severity of the situation has been overinflated. Critics say retailers are often blaming theft for losses when they don't necessarily have a clear idea of what the cause of these losses is.

So far, Target has given no indication that theft has forced any of its roughly 2,000 US stores to close, but Cornell did not rule out the possibility if the problem becomes unmanageable.

"Our stores create jobs, serve local shoppers, and act as critical hubs in communities across the country, and we'll continue to do everything in our power to keep our doors open," he said. "At the same time, we'll be closely monitoring the safety of our team and guests as well as the financial impact to our business as we determine the right path forward at Target."

Beyond the lost profits, shoplifting and organized retail crime have the potential to turn dangerous for employees and customers alike. Target has a policy against engaging directly with suspected criminals, but violent encounters still sometimes happen, several workers previously told Insider.

"What I'm most concerned with is it puts our team and our guests in harm's way," Cornell said.