It may be a first- the Home Depot CEO Craig Menear is pointing his finger at the national opioid crisis for profit losses the chain is suffering. He has labeled the problem as “organized retail crime”.
Menear isn’t 100% sure of his reasoning and Wall Street analysts point out that it is the first acknowledgment that the opioid crisis is hurting company profits. It looks as though Menear has a perfectly legitimate reason to make the claim. He notes that earlier this year $1.4 million worth of Home Depot merchandise was found in a warehouse. The merchandise was part of $16.5 million worth of merchandise stolen from many retail stores and stored in a warehouse in Rochester, New York.
Menear said that Home Depot is working “hand-in-hand with law enforcement” to get the theft problem under wraps. Security measures have been increased in stores and Home Depot is working with law enforcement during investigations by providing security camera footage. Home Depot spokeswoman Margaret Smith also noted that Home Depot is asking for tougher legislation to prosecute shoplifters. Extra protection of high dollar merchandise and technology-based security is being tested in stores now.
The effects of drug addiction aren’t something new for retailers. From 2015 to 2018, according to the Society of Actuaries, the opioid epidemic cost the U.S. economy $631 billion. If businesses, including Home Depot, can’t get such huge losses under control, they will continue to slash their bottom lines. In 2018, Home Depot had sales of $108 billion and about 400,000 employees.
Financial analysts have been caught by surprise by the financial loss being reported. The results of additional security measures will likely not be seen until well into 2020. Home Depot expects a 0.5% smaller operating profit margin next year. Two-thirds of retailers have seen an increase in theft over the last year. According to the National Retail Federation, retailers lose about $51 billion in sales from “shrink” each year. The increase in organized retail theft is the latest challenge.
The theft, which retailers call shrink, has gotten so bad that it will narrow Home Depot’s operating profit margins next year, executives said during a meeting with analysts and investors.
“This is happening everywhere in retail,” Chief Executive Craig Menear said. “We think this ties to the opioid crisis, but we’re not positive about that.”
The company’s forecast, which includes sales guidance for the next fiscal year that’s lower than a projection provided in late 2017, sent the retailer’s shares down as much as 2.5% Wednesday.
Home Depot experienced a backlash on social media. Here are a couple of examples from Twitter:
“So every opioid user rushes to home depot to steal hammers and toilet seats,” one user tweeted. “Unbelievable! Or maybe their security just sucks.”
“Are we just blaming everything on the opioid crisis now? What a joke,” another user tweeted. “Home Depot you better check yourself.”
I know everything is labeled an “emergency” these days, especially when activists are trying to get the attention of the general public. In the case of opioid abuse, though, the label may fit. A new level of theft is bad for local economies and a strain on law enforcement resources. Small communities in more rural areas have been especially hard hit by the opioid crisis.
The opioids crisis has killed an estimated 400,000 Americans in the last two decades. More than 130 people die from opioid-related drug overdoses every day, according to the Department of Health and Human Services. The agency declared a public health emergency for opioids in 2017.
Drug addiction is a complicated issue and sometimes shoplifting is just shoplifting. But if retail theft is becoming more organized and larger thefts are being discovered, that’s a problem for stockholders. President Trump, a businessman, may also see the economic damage done by the opioid crisis. His administration has focused on it and made its initiative on opioid addiction a priority. First Lady Melania Trump includes the crisis in her Be Best initiative with young people, too. In the meantime, Home Depot’s CEO has taken the conversation into quarterly corporate profits discussions. And, if it encourages businesses to update their security measures, that will benefit consumer safety, too.