Back in June, Nardelliâs former company settled a class-action lawsuit with workers alleging widespread wage theft for $72.5 million.
More than 885,000 Home Depot workers were members of the various classes, including those who were locked in their stores off-the-clock following the dayâs closing shift until a supervisor got around to letting them out. Home Depot didnât admit to the allegations, and said it had settled merely to make the lawsuit go away.
Juxtaposing Nardelliâs remarks and the settlement points to the discordance in how we define âcrimeâ in the workplace. On the one hand, sporadic robberies inflated by retail lobbyists and media via eye-catching reports; on the other, the pervasive shortchanging of hourly workers by their employers.
Estimates of the scale of both phenomena are all over the map, but run into billions of dollars a year. Yet itâs reasonable to conclude that, in terms of the direct impact on households, wage theft is the bigger deal.
Letâs take a look, starting with what retailers call âshrink.â
The term covers three categories of loss: First is âexternal theft,â such as individual shoplifting and organized retail crime exemplified by those mass invasions of shops by gangs. Then thereâs internal theft â pilferage or embezzlement by employees. Finally, what retailers call process and control failures, such as paperwork glitches and other mixups that result in their losing track of inventory.
Itâs the first category that gets all the attention, thanks to those video reports so popular on cable and local news shows, and to corporate executives trying to blame their inventory shortfalls on outside parties beyond their control, rather than breakdowns in their internal systems.
A survey published last year by the National Retail Federation attributed 37% of all âshrinkâ to external theft, but more than 54% to those two internal categories.
Yet executives talk as though external theft is the whole ballgame. They lobby local, state and federal law enforcement agencies to pump up their efforts against it â and largely succeed.
As it happened, an independent study commissioned by the NRF itself acknowledged that the publicâs perception of the scale of organized retail theft has been distorted by âselective reporting of retail theft incidents by retailers and skewed media coverage of retail theft,â which has âtended to focus on sensational incidents that feature violence or brazen daytime theft operations.â
The panic inspired by these reports has gone on for years, as my colleague Sam Dean documented in 2021. Dean showed that retail groupsâ estimate of $70 billion lost annually to organized thieves was conjured out of thin air. The NRF last year raised its estimate to $94.5 billion for 2021.
That feeds the claim commonly heard these days that the level of organized theft has reached âunprecedented levelsâ (to quote a recent report by ABC News). But itâs based on very misleading math.
As a percentage of total retail sales, âshrinkâ has barely budged. The NRF estimated it at 1.4% of retail sales in fiscal 2021, the latest year available. Thatâs exactly what it was in fiscal 2016. The percentage edged up to 1.6% in fiscal 2019 and 2020 before falling back down.
Total retail sales, however, have risen inexorably, according to the Census Bureau, from about $6.2 trillion in 2019 to $7.4 trillion in 2021 and $8.1 trillion in 2022. That means that retail theft will continue to reach âunprecedentedâ levels in absolute terms even if its percentage of total sales doesnât change.
Itâs not unusual for corporate leaders to play games with these figures to distract investors. dikkâs Sporting Goods, which is often cited as a victim of organized theft rings, said its gross profit for the second quarter of this year that ended July 30 fell âin large part to the impact of elevated inventory shrink, an increasingly serious issue impacting many retailers,â as CEO Lauren Hobart put it.
The companyâs quarterly earnings report, however, explained that only about one-third of the decrease in its quarterly profit margin was due to âinventory shrink.â Most of the rest was due to larger discounts on merchandise â another issue âimpacting many retailersâ that had saddled themselves with excess inventory after misjudging consumer demand.