(Bloomberg) -- Home Depot Inc. executives said the nation's opioid crisis could be contributing to an unexpected surge in thefts from its stores.
The company said organized criminals are stealing millions of dollars' worth of goods from it and other retailers and storing the merchandise in warehouses. The theft, which retailers call shrink, has gotten so bad that it will narrow Home Depot's operating profit margins next year, executives said during a meeting with analysts and investors.
“This is happening everywhere in retail,” Chief Executive Officer Craig Menear said. “We think this ties to the opioid crisis, but we're not positive about that.”
Home Depot's admission is one of the first times a major U.S. retailer has specifically called out the opioid epidemic as a factor in its financial results. Retailers lose about $51 billion in sales from shrink annually, according to a report from the National Retail Federation, which found that more than two-thirds of retailers had seen an increase in what it calls “organized retail crime activity” over the past year.
“Organized retail crime continues to present a serious challenge to the retail industry,” Bob Moraca, the association's vice president of loss prevention, said in a statement Wednesday.
Most retailers have security systems in place in their stores, but the addictive nature of opioids, coupled with easier ways to hawk the stolen goods online, have apparently made criminals bolder.
QuickTake: Rx, Heroin, Fentanyl -- How the Opioid Crisis Evolved
In one instance, thieves in Rochester, New York, were caught with $16.5 million worth of goods, of which $1.4 million was from Home Depot, executives said on the call. In response, the Atlanta-based company is using technology including machine learning to anticipate where the crime rings are headed next. It's also installing technology so that power tools won't work unless they go through the retailer's point-of-sale system, while working with local law enforcement and taking some high-value inventory off the sales floors.
“We have to be vigilant about it,” Ann-Marie Campbell, Home Depot's executive vice president of U.S. stores, said. “We have initiated several pilots to reduce shrink across the board.”
The “significant” impact of thefts was a reason why Home Depot's operating profit margin should narrow to about 14% next year, the company said. That compares with 14.5% in the third quarter.
The company's forecast, which includes sales guidance for the next fiscal year that's lower than a projection provided in late 2017, sent the retailer's shares down as much as 2.5% Wednesday. They pared some of the decline to trade at $211.8 at 12:55 p.m. in New York. Home Depot expects the financial blow from thefts to abate after 2020.
To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net
To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Sally Bakewell, Jonathan Roeder
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