Home Depot’s CEO thinks millions of dollars in merchandise thefts inside the retailer’s warehouses might be due to the nation’s ongoing opioid crisis.
CEO Craig Menear told Wall Street analysts that the increase in stolen goods stems partly from what he called “organized retail crime” that is on the rise in the U.S. “We have a hypothesis that this ties to the opioid crisis, but we’re not positive about that,” he said during a conference call on Wednesday. “But what we can tell you is that, working hand-in-hand with law enforcement, we are seeing significant busts that are happening.”
Menear didn’t give an exact figure for the company’s losses from theft. But he cited an incident earlier this year in which $16.5 million worth of goods were stolen from a warehouse shared by multiple retailers, with Home Depot’s loss estimated at $1.4 million.
“Where we work with law enforcement, we’ll go into a warehouse facility that gets hit, and it is literally millions and millions of dollars of multiple retailers’ goods in these facilities,” Menear said.
Home Depot didn’t return calls seeking comment on what the company is doing to combat warehouse theft
The company has “initiated several pilots” to protect its warehouses, some focused on the short-term goal of safeguarding high-priced items and other measures that are technology-based and would lower theft overall, Ann-Marie Campbell, a Home Depot executive vice president, said in the call.
Between 2015 and 2018 alone, the opioid epidemic cost the, according to the Society of Actuaries. But Menear’s comments are a rare example of a well-known company connecting the crisis to hits in its own earnings.
“[T]he most significant impact to our [operating] margin outlook is continued pressure from ‘shrink,’ primarily driven by product theft,” Menear said, using a retail industry term for inventory losses.
Loop Capital analyst Laura Champine, who follows Home Depot, said the CEO’s comments are the first mention of opioid-related thefts hurting profits. Even more troubling, Champine said, was that company officials used phrases like “organized retail crime” and “working hand-in-hand with law enforcement.”
“That’s a bunch of words they normally don’t use in these calls,” she said. “We’re hearing about truck loads of product being stolen. If they can’t get it under control, it will hurt their stock.”
Home Depot, which has about 400,000 employees, had sales of $108 billion in 2018, up 7.2% from 2017.
The financial losses from warehouse thefts are much larger than analysts anticipated, said Morningstar analyst Jaime Katz. Strategies that Home Depot will use to curb the problem likely won’t show results until well into 2020, she said.