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3 Retail Stocks Taking a Surpringly Big Hit From Self-Checkout Theft

Self-checkout theft is a thorn in the side of almost all major retailers, resulting in over $100 billion in losses. Unless something drastic occurs, the amount will increase to over $140 billion by 2025 from $112.1 billion in 2022. However, some names are getting the brunt of it more than others.

The three companies are established legacy players in the retail space. The first one is on its way to becoming a Dividend King. And the second one is a Dividend Aristocrat. The last pick is the biggest name in home improvement in the United States. All three are developing novel approaches to tackle self-checkout theft. However, the misuse of self-checkout stations continues to impact these three names.

The first pick is seeing a staggering escalation in losses—from $3 billion in 2021 to $6.5 billion in 2023—up to half of these are because of self-checkout. The second one saw $500 million more in inventory shrink in 2023 than in 2022. The last one faces challenges, particularly in Florida, to curb theft but is looking to fight it through technological advancements.

Let us further explore how these companies deal with this broader industry-wide predicament.

Walmart (WMT)

Walmart (NYSE:WMT) suffered losses from retail theft of an estimated $3 billion in 2021, $6.1 billion in 2022 and $6.5 billion in 2023. A significant portion of these numbers—up to 50% of the overall stolen losses—come from self-checkout theft.

Doug McMillon, the CEO of Walmart, has threatened to close stores if theft rates don’t decline.

To solve this issue, Walmart locked up lower-priced products and slashed prices. The company has also implemented weight sensors, AI video cameras, handheld register monitors and receipt audits to track transactions and catch repeat offenders. The collection of data is also vital to solve this issue. Each station is outfitted with a Zebra Technologies (NASDAQ:ZBRA) device that gathers data and item counts from Walmart employees. Next, to stop theft from self-service kiosks, it detects irregularities and takes preventative action.

Additionally, Walmart is considering changing its self-checkout guidelines to restrict access for Spark delivery drivers and Walmart+ members in some regions. WMT will not implement this strategy uniformly at every site; store managers will decide when to implement it.

This action is part of Walmart’s continuous assessment of ways to minimize theft while maintaining customer convenience. For now, Walmart is still quite susceptible to theft by self-checkout.

Target (TGT)

Source: jejim / Shutterstock.com

Another big retailer, Target (NYSE:TGT), is also experiencing self-checkout theft problems, with losses predicted to exceed $500 million by 2023.

Target is responding by enacting a new policy that will affect most of its roughly 2,000 locations nationally and limit self-checkout to 10 items or less. This change allows Target to provide more traditional checkout lines staffed by team members for larger shopping carts and a quicker self-checkout alternative for smaller goods. The regulation aims to improve the checkout experience in response to consumer feedback from a pilot program.

Furthermore, the Target-funded Loss Prevention Research Centre, housed at the University of Florida, is experimenting with and assessing anti-theft technology across various retail environments.

More importantly, Target and other major retailers are relying on artificial intelligence to address self-checkout theft; among the tools used in this regard are face-recognition cameras, RFID tags, autonomous security robots and predictive analytics.

However, certain numbers do not inspire confidence. In May, Target warned that in addition to the $650 million in losses it sustained in 2022, theft and organized retail crime negatively impacted profitability and might cause it to drop by more than $500 million. Thanks to organized retail crime, Target shuttered nine locations last year. All of these factors point to a tough operating environment for Target with respect to self-checkout theft.

Home Depot (HD)

Source: Cassiohabib / Shutterstock.com

Home Depot (NYSE:HD) completes our analysis of stocks affected by self-checkout theft, and much like Target and Walmart, it continues to bleed cash despite its best efforts.

HD stock is a mainstay in income investors’ portfolios. After continuously increasing its dividend for 49 years, it is in the running to become the Dividend King in 2024. However, investors will remain concerned regarding self-checkout theft issues, particularly in Florida. One theft alone cost the retailer over $100,000 worth of goods.

Richard McPhail, CFO of Home Depot, emphasized the effect of such shrinkage on the company’s financial health, especially in times of weak consumer spending, thanks to inflation and high mortgage rates​.

To combat this issue, Home Depot introduced chips that use Bluetooth technology and need activation upon purchase of power tools from names like Milwaukee and DeWalt. Unless the tools are paid for and activated at the store, they will not function even if stolen.

Interestingly, compatriots Walgreens (NASDAQ:WBA), Walmart, Target and HD are now sharing data for heat maps to locate the hot spots where theft is most prevalent. Although they are competing, collaboration will help everyone’s bottom line.

Despite all obstacles, Home Depot says it will remain in high-theft regions. It continues to invest in security systems, including staff reporting portals, license plate recognition cameras and shopping trolleys that lock when left paid for.

On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

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