“Shrink” Emerges as Dominant Theme in Retail Landscape

August 29, 2023 at 10:22 AM EDT

“Shrink,” or retail theft, has become a pressing challenge for retailers, featuring prominently in earnings calls as a counterpart to AI discussions, but with a negative impact on profits. Dick’s Sporting Goods’ recent call emphasized the surprise impact of shrink, attributed to higher-than-expected theft incidents and organized retail crime. Other retailers like Dollar Tree (NYSE:DLTR), Macy’s (NYSE:M), The Home Depot (NYSE:HD), and Target (NYSE:TGT) have also addressed missing merchandise in their earnings calls. This growing trend indicates a major issue for retailers, prompting defensive actions. Despite concerns of a “bandwagon effect,” the rise of shrink as an industry-wide concern is driven by an increase in theft, evident in $94.5 billion worth of shrink in 2021, up from $90.8 billion in 2020. While accurate inventory estimates reflect theft-related shrinkage, external factors like online resale platforms contribute to the rise. This problem, coupled with economic challenges and evolving consumer behavior, underscores the complexity retailers face. Knightscope (NASDAQ:KSCP) is at the forefront of combating theft. The company’s innovative solutions are making a significant impact in the fight against criminal activities and the wins are stacking up.

By leveraging cutting-edge technology, Knightscope (NASDAQ:KSCP) is providing businesses and organizations with advanced tools to enhance security and protect their assets. Using a combination of robotics, artificial intelligence, and data analysis, Knightscope‘s autonomous security robots are revolutionizing the security industry. These robots are designed to patrol areas, monitor activities, and detect potential security breaches. By constantly analyzing the environment and identifying unusual behavior, they can help prevent theft and other security incidents.

On August 24,Knightscope announced the acquisition of two new contracts in Texas. One contract involves three of its K1 Hemispheres, while the other is for a K1 Blue Light Tower.

One of Knightscope‘s resellers, a Houston-based security company offering tailored security services across 42 U.S. states, has secured a pre-order contract for three K1 Hemisphere Autonomous Security Robots (ASRs) from a gated golf community in central Texas. This contract follows Knightscope‘s recent announcement of the Hemispheres entering their final testing phase as the company prepares to fulfill pre-order contracts.

Another sale originates from an existing Knightscope customer in San Antonio, expanding their deployment of K1 Blue Light Tower (K1BLT) emergency communication devices. This sale increases the total number of K1BLTs in park areas to 16. Blue light towers and emergency phones provide swift access to first response services, enhancing emergency assistance availability for park users facing crises or distress situations.

Earlier in August, Knightscope announced the acquisition of two new contracts with a casino located in northern California. The casino has entered into an agreement for one K1 Tower and has separately pre-ordered two K1 Hemisphere Autonomous Security Robots (ASRs) from the company. Knightscope recently finalized the testing phase by deploying two K1 Hemispheres in Hawaii, gearing up to fulfill its pre-order contracts.

Knightscope also recently revealed a new agreement with a leading self-storage company. The initial contract involves the purchase of five K5 Autonomous Security Robots (ASRs). This self-storage client is a rapidly expanding platform with assets concentrated in densely populated urban markets across the United States.

The K5 ASRs by Knightscope will undertake security patrols at five self-storage sites, encompassing two locations in the Portland area and three others in California. These robots will play a crucial role in enhancing security measures and safeguarding tenants’ belongings. Alongside their security functions, the robots will broadcast informative messages to pedestrians and also serve as brand representatives. Pending the success of these initial deployments, the client is considering the possibility of implementing these robots at numerous other store locations.

For more information about Knightscope, Inc. (NASDAQ:KSCP), click here.

Retailers’ Recent Developments

In the second quarter, Dollar Tree’s (NYSE:DLTR) consolidated net sales rose 8.2% to $7.32 billion, with a 6.9% increase in enterprise same-store sales. Dollar Tree‘s same-store sales grew 7.8% due to higher foot traffic but a lower average transaction value, while Family Dollar’s sales rose 5.8%, boosted by increased foot traffic and average ticket. Gross profit edged up 0.5% to $2.13 billion, but gross margin declined 220 basis points to 29.2% due to the previous year’s unique margin benefit. The company opened 118 new stores, expanded its multi-price Plus offering to 715 more Dollar Tree stores, and added frozen and refrigerated items to 1,645 additional Dollar Tree stores. It also completed 276 Family Dollar store renovations, established a $1.5 billion commercial paper program, and saw a $189.7 million rise in net cash from operating activities and a $40.5 million improvement in free cash flow compared to Q2 2022.

Macy’s (NYSE:M) has revealed plans to open four new small-format stores in the fall of 2023. This expansion marks the first entry of its small-format stores into the Northeast and Western regions of the United States, with store openings set for Boston, Las Vegas, and San Diego. The expansion trend continues in the Midwest with the addition of a third location in Highland, Indiana. While the existing eight locations are called Market by Macy’s, the upcoming small-format stores will bear the iconic Macy’s nameplate. These stores aim to provide a seamless shopping experience, offering well-known market brands, Macy’s private brands, convenient services, local events, and the latest trends, all within an easily navigable environment.

The Home Depot (NYSE:HD) unveiled in July its 2023 ESG Report, detailing the company’s strides in its environmental, social, and governance (ESG) pillars: Focus on our People, Operate Sustainably, and Strengthen our Communities. Throughout this year, the company accomplished several ESG objectives and established new ones to benefit associates, customers, communities, and the environment. In 2022, the company notably curtailed its Scope 1 and 2 carbon emissions by around 92,000 metric tons, equivalent to removing over 20,000 cars from roads for a year. The Home Depot recently presented fresh carbon reduction targets for Scope 1, Scope 2, and Scope 3 “Use of Products Sold” emissions to the Science Based Target initiative.

During the second quarter, Target’s (NYSE:TGT) operating income margin rate reached 4.8%, driven by a higher gross margin rate, exceeding last year by 3+ percentage points. Q2’s GAAP and Adjusted EPS of $1.80 surged more than fourfold compared to the prior year, surpassing the upper guidance range. Despite a 5.4% dip in comparable sales, growth in frequency-driven segments like Essentials & Beauty and Food & Beverage partially offset discretionary declines. Same-day services grew nearly 4%, led by a 7% increase in Drive-Up. Q2’s end saw inventory down 17% YoY, due to a substantial 25% reduction in discretionary categories, offset by investments in frequency-driven areas. Adjusting projections due to recent sales patterns, Target foresees mid-single digit comparable sales decline for the year, with full-year GAAP and Adjusted EPS ranging between $7.00 to $8.00.

Knightscope‘s Robot Roadshow is set to arrive in Dallas, TX, from September 11-13, 2023, as part of the Global Security Exchange (GSX) 2023 event.

Featured Image @ Freepik

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