By Anne D'Innocenzio and Marcus Kabel
By Anne D'Innocenzio and Marcus Kabel
NEW YORK — Shoppers at Wal-Mart stores across America are loading carts with merchandise — maybe a flat-screen TV, a few DVDs and a six-pack of beer — and strolling out without paying. Employees also are helping themselves to goods they haven't paid for.
The world's largest retailer is saying little about these kinds of thefts, but its recent public disclosures that it is experiencing an increase in so-called shrinkage at its U.S. stores suggests that inventory losses due to shoplifting, employee theft, paperwork errors and supplier fraud could be worsening.
The hit is likely to rise to more than $3 billion this year for Wal-Mart Stores Inc., which generated sales of $348.6 billion last year, according to retail consultant Burt Flickinger III.
Flickinger and other analysts say the increase in theft may be tied to Wal-Mart's highly publicized decision last year to no longer prosecute minor cases of shoplifting in order to focus on organized shoplifting rings. Former employees also say staffing levels, including security personnel, have been reduced, making it easier for theft to occur. And a union-backed group critical of the retailer's personnel policies contends general worker discontent is playing a role.
Wal-Mart declined to offer any explanations for the rise in losses, but denied it has cut security staff and said employee morale is rising rather than falling.
Although Wal-Mart declined to reveal any details, analysts suspect Wal-Mart — which for years had a theft loss rate that was half that of its peers — is getting closer to the industrywide average.
Theft is a big problem for all retailers, costing them $41.6 billion last year, according to a joint study released Tuesday by the National Retail Federation and the University of Florida. The study found that the theft rate as a percentage of sales ticked upward slightly to 1.61 percent of sales in 2006 from 1.60 percent in 2005.
ONE MORE HEADACHE
Whatever the cause, such theft — which late founder Sam Walton once called one of retailers' top profit killers — adds one more challenge when Wal-Mart is already struggling with sluggish sales at its established stores due to an overall economic slowdown as well as its own stumbles in its home and apparel merchandising strategies.
Eduardo Castro-Wright, president and CEO of Wal-Mart's U.S. store division, briefly acknowledged the theft problem in a mid-May conference call with analysts. He cited shrinkage as well as increased markdowns and higher inventory for dragging down first-quarter profit margins.
"We are concerned about shrinkage and are investigating the cause and are taking steps to correct it," Castro-Wright said. Company officials won't comment on those countermeasures.
The company also said in a June 1 filing with federal securities regulators that the gross profit margin for its Wal-Mart Stores segment fell by 0.1 percentage point in the first quarter due in part to "higher inventory shrinkage."
John Simley, a Wal-Mart spokesman, declined to elaborate. He would say only that the company's theft losses as a percentage of sales is "better than our industry peer groups."
Analysts say it's significant that the company has publicly disclosed that theft is becoming a problem. "It is getting to the point of being material," said Richard Hastings, vice president and senior retail sector analyst at Bernard Sands. Securities regulations require companies to alert shareholders to significant corporate developments that could affect the value of their holdings.
The company's vociferous critic WakeUpWalMart.com, funded by the United Food and Commercial Workers, which has for years tried to organize the retailer's workers, publicized the company's decision last year to relax its zero-tolerance policy on shoplifting. The new policy seeks prosecutions of first-time offenders only if they are between ages 18 to 65 and steal at least $25 worth of merchandise.
The change in policy came at the same time the company began using more part-time workers — in part because of a new scheduling system that matches staffing more closely to peak shopping hours — and shifting security personnel, analysts and critics say. That has left the discount chain without an experienced and loyal staff to monitor what's strolling out its back and front doors, analysts and some former employees supplied by www.WakeUpWalMart.com said.
"The business is being run by bean counters. I am shocked at the Spartan level of staffing," said Flickinger, managing director of Strategic Resources Group. He added, "There are also morale issues. Workers feel that the company is taking care of itself."
While Wal-Mart denies that it has cut anti-theft jobs overall, it said it has adjusted staffing to put more personnel in stores in high-crime areas and fewer in stores with less trouble.