Loblaw investing to combat 'organized retail crime' that is 'significant problem'

Loblaw (L.TO) says higher theft drove down margins at Shoppers Drug Mart, but the company is continuing to invest and work with law enforcement to address the impact of what it calls “organized retail crime.”

The grocery retail giant’s chief financial officer Richard Dufresne says the company saw “sequential improvements” in its most recent quarter when it came to shrink, which is when a company loses inventory due to factors including theft, product damage and fraud, among others.

“That said, we continue to invest in stores and in labour and work with law enforcement to help reduce the impact of organized crime on our colleagues and customers,” Dufresne said on a conference call with analysts following the release of third-quarter results.

“This surge in organized retail crime remains a significant problem for the retail industry. These are sophisticated organizations that are increasingly using violent tactics and complex networks to steal and sell stolen goods for profit.”

Loblaw says its total retail gross margin – the amount of profit made on goods as measured by a percentage – declined in both its food and drug business in the third quarter ending Oct. 7, but that the driving factor in the drop was higher shrink in its drug business.

Many retailers have been grappling with rising theft in the wake of high inflation. The Retail Council of Canada, an industry group that lobbies on behalf of retailers, says shoplifting has increased across all categories including food, apparel and footwear merchandise. The group says it has been working with retailers to help implement loss-prevention strategies.

Urgent measures

Loblaw has already been investing in theft-prevention at its stores, particularly at Shoppers Drug Mart. The company said in the summer that it had started locking up higher-priced items at its drug retail stores that have been targeted by “professional thieves.” In addition to the locked cabinets, it also added time-delayed safes and security gates to try and stop shoplifting.

The investment comes as the company reported that total sales grew 5 per cent to $18.3 billion in the third quarter, up from $17.4 billion during the same time last year. The grocery retailer says its net profit attributable to common shareholders rose nearly 12 per cent from $556 million, or $1.69 per diluted share, to $621 million, or $1.95 per diluted share.

The growth in both profit and sales came as more shoppers continue to turn to discount brands as they grapple with higher food costs. Loblaw’s discount banners have outperformed the company’s conventional brands with higher traffic and growth in market share.

While Canadians are still facing higher food prices, Loblaw says food inflation is falling “rapidly and consistently.” Dufresne says the company’s internal food inflation number was lower than the Consumer Price Index. In September, Statistics Canada said the cost of food purchased from grocery stores was up 5.8 per cent annually.

Still, Loblaw says it remains concerned about higher costs from its suppliers, and adds “it will be difficult for the industry to sustain the current momentum of falling food inflation.”

“Unfortunately, several large global suppliers are still coming with higher-than-expected cost increases for the next year,” Dufresne said.

“Especially from the large suppliers, they’re still coming with large nominal cost increases that are going to hit us next year.”

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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