How Costco is winning the war against rising retail theft

·3-min read
A shopper pushes a cart into a Costco store next to sign displaying hours
Costco says "strictly controlling the entrances and exits and using a membership format" help it curb retail theft.Anthony Bolante/Reuters
  • Walmart, Target, and other major retailers are sounding alarms about rising losses due to theft.

  • Costco's CFO says the wholesale club has been fortunate to avoid the wider industry trend.

  • Here's how Costco's model helps it win against shoplifting.

Walmart, Target, Dollar Tree, and other major retailers have warned of rising theft rates plaguing stores across the US.

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But one company appears to be immune to the problem: Costco.

The warehouse chain's chief financial officer, Richard Galanti, said Thursday that shrinkage — or inventory losses due to theft, fraud, or other causes — was largely unchanged.

"We haven't seen any major change in shrinkage," Galanti said in an earnings call. "We've been fortunate in that regard."

Galanti said the company saw a slight increase after the rollout of self-checkout three years ago, but those rates have since reverted to the longer-term trend.

Target, meanwhile, has said its losses from shrinkage will balloon to more than $1 billion in 2023, up $500 million over last year. Walmart's CEO said in December that stores would close if theft didn't slow. Dollar Tree said this week that it was considering locking up more goods in stores as it faces rising shrink.

Overall, theft helps drive about $95 billion in losses every year for US retailers, according to estimates by the National Retail Federation, an industry group.

So what is Costco doing right? Here's four strategies that likely deter theft in its stores.

Costco collects personal data on its shoppers

Costco requires a membership to shop there. To sign up, shoppers must pay an annual fee and provide their photo, home address, and other identifying data.

Shoppers are likely less inclined to steal when a store has this level of personal details about them.

Stores block shoppers from entering without a membership

Costco is strict about its membership rules. Shoppers must scan their membership cards to complete purchases, and also display them to enter stores.

Employees stationed at the entrance of every store check the cards to ensure a paid member is with any group of shoppers entering.

"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," Costco says in its annual report each year.

Costco requires shoppers to show their receipts at checkout

Employees are also stationed at store exits to check that receipts match up to the items in shoppers' carts. Every receipt and cart is checked.

A Costco receipt has a lot more information than meets the untrained eye, employees previously told Insider. There's a code to tell that the receipt was printed that day; a total count of items sold; supervisors initials on big-ticket purchases; and codes to check for large products like paper towels or cases of water.

Bigger items are harder to steal

A common strategy for organized retail crime rings is the "push-out," in which a thief rolls a cart full of stolen merchandise to a vehicle waiting outside. But Costco's store layout and receipt checks (and lines to leave the store) make that approach a lot harder to pull off.

And although bulky items like laundry detergent and personal care supplies are popular targets of organized retail crime rings, stealing one or two at a time isn't as profitable if the goal is to resell the merchandise online.

Even small, expensive items could typically fit in a pocket or be hidden in a cart is generally displayed and sold in weirdly oversized packaging that is too big to be easily concealed.

In short, Costco is better able than most retailers to control its losses to retail theft thanks to some key strategies that are core to its business.

Read the original article on Business Insider