Sunday Summary: Retail’s Big Theft Problem


A few weeks ago Brian Cornell, the CEO of target, dropped some shocking news on the company’s earnings call: The company expects to lose half a billion dollars this year due to theft.

That’s more than a million dollars every single day.

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Theft is one of the biggest problems out there for U.S. retailers, with losses expected to exceed $94 billion in 2023.

Needless to say, such towering figures show this is a problem not confined to shoplifters taking the unwatched Twix bar. The cause is more pernicious and organized.

“What they’re dealing with is a high frequency of theft, repeat offenders, and large quantities of merchandise being stolen — really, indicative of organized groups,” David Johnston, vice president of asset protection and retail operations for the National Retail Federation, told CBS News earlier this year. “When someone sweeps a shelf of Tide detergent, or looks at taking an entire shelf of white strips, that’s not for personal consumption. There’s something behind them.”

In New York, Mayor Eric Adams launched a plan last month to combat shoplifting and organized theft, noting that there was a 44 percent increase in the number of complaints between 2021 and last year.

“Last year alone, 327 repeat offenders were responsible for 30 percent of the more than 22,000 retail thefts across our city,” Adams said when he unveiled the plan to fight organized theft, ringed by city officials and retailers. “This hurt our businesses, our workers, our customers and our city. This plan will help us invest in diversion programs and in underlying factors leading to retail theft, works upstream to stop some of the factors leading to a crime before one takes place, trains retail workers in de-escalation tactics and security best practices, and takes numerous actions to increase necessary enforcement against repeat shoplifters and deter organized crime rings perpetrating these thefts.

Only time will tell if the mayor’s plan is successful.

At least there’s no default

One big, big worry that had settled in the back of our brains for the last few months was that Congress was going to allow a default on the national debt, which was set to reach its ceiling this month.

This unforced crisis could have tanked the economy and had a horrific effect on the nation’s credit. And, for dodging that bullet last week, we’re extremely grateful.

But we seemingly can’t have a piece of unalloyed good news for long. We’ve been keeping our eye on credit ratings in general, and it hasn’t been a pretty picture for the nation’s biggest office real estate investment trusts. Moody’s, Fitch and S&P have been on the warpath with office REITs.

Some of the biggest in the business — SL Green (SLG) Realty, Vornado Realty Trust (VNO), and Hudson Pacific Properties — have all been in the credit rating agencies’ crosshairs for a downgrade or a potential downgrade.

They’d be much better off if they were a non-office-focused REIT — those have actually been doing pretty good!

If you want extra space, just Google (GOOGL) it

You know what the commercial real estate scene could not use right now?

If we had to guess we would say: 1.4 million square feet of office space in an already overpriced and underutilized market.

Well, that’s exactly what the good folks of Silicon Valley are about to get.

On Friday, Commercial Observer learned that Google is subleasing at least seven of its buildings in Mountain View, Sunnyvale and Moffett Park, Calif. Combined, those sites total around 1.4 million square feet of office space.

While certainly not welcome news, it could hardly be surprising. Google laid off some 12,000 employees in January and also announced that it would spend half a billion dollars on “exit costs” to sever leases and close offices. Moreover, Google is following a pattern of real estate and employee contraction that a lot of tech companies have also been ensnared in.

Still, it hurts when it actually happens.

The bad hits keep coming

One thing we knew for certain in the last three years: South Florida is economically rock solid for real estate.

There would be bumps along the way not the least of which would be that Florida had a number of serious environmental liabilities and the fact that the governor has a tendency to spar with the state’s biggest employer but it remains a land of rising rents and ebbing vacancy even when we’re talking about office.

Slow your roll, slick.

According to an ugly report from Dwntwn Realty Advisors, the investment sales market in Miami has seen an 80 percent dip in the first quarter of this year. (Yes, you read that correctly: 80 percent.)

Next thing you know, they’re going to be closing trendy food halls. (Oh crap…)

An important caveat must be retained about the Dwntwn report: This plunge is in comparison to 2022, when the market was the hottest it had ever been. So there’s that. But this should sober up anyone who doesn’t take the vulnerabilities seriously.

Remain calm and carry on

Just one quarter, people. So switch to decaf and take heed from one of the mandarins of real estate, Al Brooks, that much of the gloom and doom is overwrought.

“It’s not a time for panic,” Brooks, the managing director and head of JPMorgan Chase Commercial Real Estate, told CO on a webinar last week, “this isn’t ’08 or ’09. It’s night and day, and that’s true for all banks.”

Feel better?

“Do I think we’re completely through? Is every single banks’ balance sheet constructed the way they want it to be?” Brooks then asked. “Probably not, but I also don’t think we’re in a free-fall like we were in 2008, where housing prices on a national basis, for the first time in the country’s history, dropped precipitously and caused problems from community banks to the largest banks.”

Moreover, every crisis is also an opportunity. There is plenty of money out there waiting for the right moment to strike.

“We think there’s a real opportunity to deploy more capital,” said another mandarin of real estate, Blackstone’s Jonathan Gray, during a Bloomberg TV appearance. “I think the private credit area is really at a golden moment because we do see tightening out there.”

Now, that’s the spirit — and strikes us as a good note to leave on.

See you next week!