Target closed crime-prone stores and it appears to have paid off. Why that may result in future 'retail deserts.'

By Charles Passy

Target has seen its financial standing improve after shuttering nine troubled locations last year.

As theft continues to be an issue that plagues America's retailers, those who track the shopping landscape say it's inevitable more stores in crime-prone areas may be forced to close.

The cumulative effect? A potentially dramatic change in the landscape, with some locales turning into retail deserts - meaning they'll have no convenient options for consumers to purchase such necessities as food, clothes and prescription medications.

Such could be a takeaway from Target's (TGT) recent earnings report: The company saw its financials, including store traffic and revenue, improve considerably. Target COO Michael J. Fiddelke cited lower "inventory shrink" - an industry term that refers to goods that can't be accounted for due to a number of reasons, including shoplifting - as a key factor in the turnaround. In years past, Target said shrinkage resulted in as much as $700 million in annual losses, according to reports. (Target didn't respond to MarketWatch's request for comment.)

But Target didn't just get lucky this past quarter: The company said it was making "progress" addressing the issue. And it's no secret that one of the ways it tackled the problem was by closing nine crime-prone stores throughout the country last year, in locations ranging from New York City to Seattle.

"[We] cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance," the company said at the time. "We know that our stores serve an important role in their communities, but we can only be successful if the working and shopping environment is safe for all."

Now, retail experts warn that Target's move may be replicated by others.

"It could be a big harbinger," said Burt Flickinger III, managing director of Strategic Resource Group, a retail-consulting firm.

Certainly, the problem is too significant for retailers to ignore, experts say. A report by the National Retail Federation found that inventory shrink grew to $112.1 billion industrywide in 2022, an increase of nearly $20 billion over the prior year.

"Retailers are seeing unprecedented levels of theft coupled with rampant crime in their stores, and the situation is only becoming more dire," said David Johnston, the NRF's vice president for asset protection and retail operations, at the time.

Johnston told MarketWatch this week that in such an environment, store closings may be inevitable, even if it's the last step any retailer wants to take.

And what about the potential for retail deserts? "It is possible," Johnston said, adding that the loss of stores doesn't just mean that people will have to travel farther to get their daily necessities. It also means there will be fewer jobs in an area, since retailers have always been a reliable source of employment.

"When a retailer closes, it's a great impact," he said.

Beyond Target, other prominent retailers have closed locations in recent years or announced plans to do so. For example, CVS (CVS), the drugstore chain, closed 300 stores in 2022 and an additional 30 in 2023 and said it is on track to shutter 300 more in 2024.

'We seem on the verge of a new era of retail deserts.'Steven Malanga, senior fellow with the Manhattan Institute

CVS said, however, that theft is not necessarily the reason for the closures.

The "decisions are based on several factors, including population shifts, consumer buying patterns, a community's store density, maintaining access to pharmacy services, and future health needs to ensure we have the right kinds of stores in the right locations for consumers. No one factor alone determines whether we close any location," a spokesperson told MarketWatch.

Whatever the reason for such closures, the effect is still the same for consumers, who end up having fewer places to shop.

Steven Malanga, a senior fellow with the Manhattan Institute, a conservative think tank, said in a commentary that what's happening today on the retail landscape mirrors what took place in New York City during the '70s and '80s when crime and social disorder "drove out not only hundreds of thousands of residents...but also many businesses. Within a few years, entire communities lacked basic amenities like supermarkets and drugstores; empty storefronts littered shopping districts."

Malanga pointed to the closures today and added, "We seem on the verge of a new era of retail deserts."

Not that retailers have closing stores as their only option to address the crime issue. Experts point to other solutions that can help merchants curb theft, including working hand in hand with local law enforcement to improve safety and security.

The problem can also be addressed at the legislative level: In California, Gov. Gavin Newsom, a Democrat, just signed bills aimed at addressing retail theft. The state also has a proposition on the ballot this fall that addresses penalties for some types of theft.

Other solutions can be effective in limiting theft, but experts note they could negatively impact consumers in other ways. For example, stores may opt not to stock certain types of merchandise or they may put items under lock and key, which requires an employee to assist with the purchase.

The end result? "Some of these measures may make it more difficult for consumers to get the products they need," said Jill Blanchard, an executive with Advantage Solutions (ADV), a company that advises retailers.

-Charles Passy

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

08-23-24 0950ET

Copyright (c) 2024 Dow Jones & Company, Inc.