Shoplifting crimes are becoming a prominent feature in the earnings call of major UK retailers, with Primark parent Associated British Foods PLC (LSE:ABF) downgrading its full-year margin guidance to account for theft-related shrinkage costs.
Barclays analysts weighed in on the issue following AB Foods’ Wednesday interim earnings call, stating that Primark's shrinkage costs are unlikely to be a one-time issue and “will likely be an ongoing feature of 2024”.
In order to curb these inventory losses, Primark is planning to invest in more remote surveillance, CCTV technology, more security hours and body cams.
Responding to a shareholder question, AB Foods’ management denied that self-service checkouts have contributed to the surge in thefts, but regardless of the reason, shrinkage was cited as the main reason behind Primark’s thinning margins.
Full-year operating profit margins are expected to be around 8%, down from the previously stated guidance of 8.3%.
However, Barclays analysts commended AB Foods for its strict cost base, which will help to offset theft-related write-downs and lead to a rebound in margins to 10% in 2024.
“There is no question that Primark's costs are coming down. Key cost lines such as energy, freight, fabrics and polyester are well down, whilst cotton costs have halved,” noted Barclays.
“We estimate that about half (of the 200 basis point margin improvement) will stem from lower material costs, around one-third from currency with the remainder from lower freight costs. These tailwinds should more than offset higher wage and digital costs and shrink costs into next year,” said Barclays.
Primark is not alone in feeling the impact of the surge in shoplifting.
The John Lewis Partnership said it’s facing a £12 million bill on shoplifting costs, with the chairwoman Dame Sharon White stating that “like other retailers, we have seen more activity linked to organised crime”.
John Lewis’ supermarket arm Waitrose has resorted to offering free refreshments to police officers to boost their in-store presence, while Co-op has begun planting undercover security guards in its stores.
A collective of retailers including Co-op, Tesco, Sainsbury’s and Waitrose have joined forces on ‘Project Pegasus’, a £600,000 initiative to fund police efforts to crack down on shoplifting using facial recognition.