Costco keeps shoplifting low by checking receipts, having unique layout, CFO says

By RetailFOXBusiness

Costco beats on Q3 earnings

FOX Business’ Gerri Willis reports on Costco’s third-quarter earnings.

Costco has reportedly managed to keep shoplifting from their warehouses incredibly low -- giving it an edge against competitors.

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The company’s Chief Financial Officer (CFO) Richard Galanti said the company’s shrinkage -- the term for merchandise lost to theft -- is around 0.11 to 0.12 percent, according to Barron’s. Meanwhile, the average across the retail industry is about 1.33 percent, according to a 2018 study by the National Retail Federation.

The outlet reported Costco could have the lowest shrinkage, which Galanti reportedly attributed to the single entrance and exit of most Costco locations, as well as the fact that Costco staff check receipts at the door. In Costco’s annual report from 2018, the company also noted the store’s set up as a way to keep theft at a minimum.

“By strictly controlling the entrances and exits and using a membership format, we believe our inventory losses (shrinkage) are well below those of typical retail operations,” the report said.

For Costco’s competitors, multiple exits and entrances, as well as staff cuts, can make it easier for thieves to get away with merchandise without being seen.

It also helps Costco that the company sells many items in bulk that are harder to hide.

Because of the company’s low prices, if Costco suffered from average retail shoplifting levels, “it would have no operating profit margin excluding membership fees,” Barron’s reported, adding the company would likely have to raise prices.

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As it is, the company said Friday prices will increase because of the trade war between China and the U.S. and the tariffs imposed on Chinese goods.

Galanti said in a post-earnings call Thursday with analysts that the “situation is pretty fluid,” Reuters reported.

“At the end of the day, prices will go up on things. What’s interesting is that it’s hard to predict what the impact is,” Galanti said.

Last week, Costco announced its operating results for the third quarter and the first 36 weeks of fiscal 2019, ended May 12, 2019. Net sales for the quarter increased 7.4 percent, to $33.96 billion, from $31.62 billion last year. Net sales for the first 36 weeks increased 8.3 percent, to $102.90 billion, from $95.02 billion last year.

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Costco currently operates 773 warehouses, including 536 in the United States and Puerto Rico, 100 in Canada, 39 in Mexico, 28 in the United Kingdom, 26 in Japan, 16 in Korea, 13 in Taiwan, 11 in Australia, two in Spain, and one each in Iceland and France.

It also operates e-commerce sites in the U.S., Canada, the United Kingdom, Mexico, Korea, and Taiwan.

Fox Business’ Kathleen Joyce, Thomas Barrabi and The Associated Press contributed to this report.