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Best Buy’s crime problem points to deeper issues in US economy

We love a good excuse for a company suffering a bad quarter on FT Alphaville. Whether it’s a strong dollar, the weather, or because customers prefer to shop where they don’t need to wear lipstick, it’s always fun to watch management try to fob off bad numbers on things allegedly out of their control.

So when we saw US retailer Best Buy’s shares were down almost a fifth in early trading after posting its results this morning we had a quick look to see what management had said were the reasons.

Of course, supply chain issues seem to be the main issue. With the US electronics retailer forecasting lower holiday sales than Wall Street analysts had penned in. But there was something else going on with its results, and it isn’t that funny.

In fact, it’s quite bleak.

Best Buy are suffering from crime. And not just petty shoplifting either — full-on masked mobs armed with crowbars style crime.

Here’s the relevant part from the conference call (transcript from Sentieo):

Anthony Chinonye Chukumba, Loop Capital Markets LLC, Research Division – MD

And congrats on on a great quarter, particularly your ability to comp the comp against that really tough comparison year-over-year. So having said all that, one thing that just struck me a little bit was that you called out shrink as a gross margin headwind. I was just wondering if you can just provide a little bit more color around that?

Corie Sue Barry, Best Buy Co., Inc. – CEO & Director

Yes, absolutely, Anthony. I think you’ve probably seen in the media that across retail, we are definitely seeing more and more, particularly, organized retail crime and incidence of shrink in our locations. And I think you’ve heard other retailers talk about it, and we certainly have seen it as well. I want to start with, our priority has always been and will remain the safety of our people, whether that’s the pandemic, whether that is unruly customers, whether that is outright theft, which is a great deal of what we’re seeing right now. And this is a real issue that hurts and scares real people.

(Shrink is the difference between stated inventories and actual inventories. And not incidental instances with lasers and children.)

Later, Barry went on CNBC and explained further (thanks to retail don Jeff Macke for picking this up):

It may sound odd. Here’s a retailer with $52bn of sales that operates 1,005 stores in one of the richest countries in the world complaining that crime levels are so material that it’s impacting their gross margins. It can’t be that bad can it?

But then, look at the recent headlines. California governor Gavin Newsom just yesterday deplored an increase in aggressive organised retail crime after a string of robberies over the weekend. One involving 80 suspects. It’s not just the Bay Area either. At the turn of the month, the head of CVS Health’s anti-theft team told a Senate Committee it currently experiences losses of $200m at its chain of pharmacies, with an average take of $2,000.

Okay sure, it might just be hysteria. The FBI’s own data on robberies shows cases decline by a third between 2010 and 2020. But, given, the economic outcomes from Covid, who’s to say that this year hasn’t seen an increasing number of robberies from desperate citizens at the bottom of the economic food chain?

What we do know, however, is that this is the first time we’ve seen a blue chip chief executive cite crime as a drag on financial performance. And that, in itself, feels notable for a US economy apparently beginning to fire on all cylinders. To say the very least.

Read original article here

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