The Battle Against Retail Shrink: Home Depot's Hope for the INFORM Act

Home Depot Inc. and many other retailers are grappling with inventory "shrink," caused by theft and organized retail crime. However, Home Depot remains optimistic that a new law, the INFORM Act, will aid their efforts in combatting this costly problem.

The Power of Mitigation

During a conference call to discuss the company's second-quarter results, Ann-Marie Campbell, Home Depot's Executive Vice President of U.S. Stores and International Operations, acknowledged the ongoing battle against retail shrink. Despite this, she emphasized their commitment to initiatives that have shown positive impacts on mitigating this issue. Campbell believes that the INFORM Act, though still in its early stages, will provide valuable visibility into organized retail crime.

Introducing the INFORM Act

The Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act came into effect on June 27th. This legislation aims to bring more transparency to online transactions and deter criminals from selling stolen, counterfeit, or unsafe items via online marketplaces. Specifically, the INFORM Consumers Act mandates that e-commerce sites verify and disclose information about their high-volume third-party sellers.

The Rising Impact of Theft and Organized Retail Crime

In recent years, theft and organized retail crime have become significant drivers of inventory shrink. Numerous companies, including Target Corp., Walmart Inc., and BJ's Wholesale Club Holdings Inc., have highlighted this escalating problem.

As Home Depot remains committed to combatting inventory shrink, they are hopeful that the implementation of the INFORM Act will enhance their ability to address organized retail crime effectively.

Home Depot's Efforts to Mitigate Shrinkage Paying Off

During a recent conference call, executives at Home Depot discussed the company's efforts to combat shrinkage, a challenge that has persisted over the past few quarters. Despite this ongoing issue, Home Depot has implemented key initiatives to address the problem effectively.

The retail sector, including Home Depot, also emphasized the importance of support from government partners in mitigating the impact of shrinkage. By working together, they can find solutions to overcome the challenges faced by the industry.

The second-quarter results revealed Home Depot's gross margin was 33%, which represents a slight decline of 8 basis points compared to the same period last year. This decrease was primarily attributed to the pressure exerted by shrinkage.

According to the National Retail Federation, shrinkage in the retail industry reached $94.5 billion in 2021, an increase from $90.8 billion in 2020. This rise was largely driven by incidents of external theft, including organized retail crime. The NRF's National Retail Security Survey, conducted in collaboration with the Loss Prevention Research Council, reported that retailers experienced a 26.5% increase in organized retail crime incidents in 2021. Additionally, 80% of retailers surveyed noted a surge in violence and aggression associated with these incidents.

Despite these challenges, Home Depot's shares only experienced a marginal decline of 0.3% on Tuesday, in contrast to the broader decline seen in the S&P 500 index, which fell by 0.7%.