Robberies Show Up on the Price Tag: What a New Study Means for Retailers' 'Shrink' Story

Theft has a price tag, and you may be paying it

'Shrink' is retail shorthand for inventory that vanishes before it's sold, whether it's stolen, damaged or lost to bookkeeping errors. When it comes up as a reason for weak results, the usual implication is that crime eats profits and shareholders take the hit.

A new paper, highlighted on Marginal Revolution, complicates that. It finds that retailers respond to organized retail crime by raising prices. If that holds more broadly, crime isn't only a profit problem for the store. Part of the cost ends up with shoppers. That changes how you should read any retailer's theft complaints.

Researchers found a 1.7–1.8 percent price increase at victimized stores and nearby competitors after robberies and burglaries.

What the study actually found

The researchers matched store-level crime records to scanner data, which means the actual checkout transactions, covering every sale at cannabis retailers in Washington state. Robberies and burglaries hit some stores and not others, so the researchers treated them as a natural experiment. They compared what happened to prices at stores that got hit against stores that didn't.

The result: prices rose 1.7–1.8% at the stores that were victimized. Prices also rose at nearby competitors. The excerpt we have cuts off before the authors explain why, so we won't guess. What matters is that crime moved shelf prices, and not only at the store that got robbed.

Keep the scope in mind. This is cannabis, in one state, and it covers robberies and burglaries. It doesn't cover everyday shoplifting, which makes up much of what retailers lump into shrink. Nobody has shown the same 1.7–1.8% applies at a national drugstore or big-box chain. What the study gives you is real evidence on a question investors usually have to take on faith: does a retailer eat the cost of crime, or does it pass the cost on?

Why it matters: is shrink a margin hit or a cost passed along?

When a retailer says theft hurt profits, it's implying the cost stayed on its own books. This paper points to another possibility: the cost moves into prices. A chain might blame shrink for a drop in margins while also charging more in the stores or aisles that get hit hardest. If so, the real damage to profits is smaller than the headline suggests. And shoppers are paying more of the bill than anyone is saying out loud.

The competitor finding is the more interesting part for investors. If nearby stores raise prices too, a whole local market may move up together. That points to pricing power, meaning the ability to charge more without losing many customers. A retailer that can pass costs on is in a stronger position than one stuck absorbing them. So don't stop at how much shrink a chain has. Ask how much of it the chain gets back at the register.

Shoppers should keep an eye out too. If the same pattern shows up in mainstream retail, crime could quietly push up prices in particular neighborhoods or product categories. You wouldn't see that in the headline inflation numbers. The study doesn't test this outside cannabis. It's a reason to watch local prices, though, and not assume crime only shows up in earnings reports.

The bigger picture: read shrink disclosures with a skeptical eye

Crime data is messy. In an unrelated case, also flagged by Marginal Revolution, a suburban Chicago man got two years in federal prison for organizing and taking part in hundreds of staged armed robberies. They hit coffee shops, restaurants, liquor stores and gas stations from 2022 to 2024. The goal was to let the supposed victims apply for U.S. visas reserved for crime victims. This has nothing to do with the cannabis study, and nobody is suggesting retailers fake theft. It's a reminder that reported crime and real economic loss aren't always the same thing. Keep that in mind whenever 'crime' becomes the catch-all excuse for a bad quarter.

What to watch: when a retailer talks about shrink on an earnings call or in its 10-K (the annual report public companies file with regulators), check three things. First, does it put a dollar or percentage figure on the hit to margins, or just wave at it? Second, look at gross margin, which is what's left of sales after the cost of the goods. Does it hold up in the categories the company says are hit hardest? If it does, the company may be passing costs along rather than absorbing them. Third, does it say how much shrink comes from theft and how much from its own errors and operations? A company that can't separate those is asking you to trust a story it hasn't shown you.

The bottom line: this paper doesn't prove anyone is exaggerating. It shows that 'theft hurt our margins' and 'theft raised our prices' can both be true. As an investor, you want to know the mix.