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01/10/2022

Walgreens Executives Say Shrink Is About 50% Higher Than 2020

The drugstore retailer is absorbing a 52% increase in shrink, Walgreens Boots Alliance CFO James Kehoe said. Hear why it’s a growing problem.
Jamie Grill-Goodman
Senior Editor
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Walgreens estimates that shrink, the loss of inventory attributed to theft and damage, is about 40%-50% higher than it was prior to 2020.

The drugstore retailer is absorbing a 52% increase in shrink, Walgreens Boots Alliance CFO James Kehoe said on the retailer’s earnings call for Q1 2022. While the company saw strong sales growth drive an increase in gross profit, gross margin declined slightly, constrained by higher shrink from organized crime tests and increased import freight costs.

“I think Congress needs to step up a little bit here because the magnitude of the problem is -- it's enormous,” said Kehoe.  He noted the shrink is “organized crime” and “not petty theft.”

“It's not somebody who can't afford to eat tomorrow. These are gangs that actually go in and empty our stores of beauty products.”

About 69% of retailers said they had seen an increase in organized retail crime (ORC) activity over the past year, according to NRF’s “2021 Retail Security Survey.” They cited reasons such as COVID-19, policing, changes to sentencing guidelines and the growth of online marketplaces for the increase in ORC activity.

Q1 2022 Highlights

Beyond reporting issue with growing shrink, Walgreens Boots Alliance (WBA) reported U.S. digital sales up 88% in the quarter, driven by 3.6 million same day pick-up orders. Boots online sales nearly doubled versus pre-COVID levels and Walgreens saw its biggest Cyber Monday ever. Average order value is about $30 online versus $20 in stores, CEO Roz Brewer said on the call.

[See also: Walgreens’ Mehra on Taking BOPIS from Zero to 9K Stores in Two Months]

“We are in the early innings of possibilities for Walgreens' digital platform,” she noted. “We've enrolled over 92 million myWalgreens members, up 7.2 million since the fourth quarter. Additionally, our alternative profit businesses are growing nicely, including media advertising and financial services.

“First quarter results exceeded our expectations, with a very encouraging performance across all our business segments,” Brewer said in a press release. “I am particularly excited about the progress we’re making in building out Walgreens Health. Our majority investments in VillageMD and Shields closed during the quarter, and we’re rolling out VillageMD primary care co-locations and Walgreens Health Corners at pace. The strong start to the fiscal year reinforces our confidence in the future, and as a result, we are raising our guidance for the full year and increasing investments in our people. Looking ahead, we are well positioned for sustainable, long-term value creation.”