Underwear Is Going Missing

'Inventory shrink' is real... Target closes stores... Underwear is going missing... The cost of culture... Debt issues are coming to Main Street and Wall Street... Joel Litman: The 'biggest market warning of my life'...

'Inventory shrink' won't go away...

Last month, I (Corey McLaughlin) wrote that "Here in the Real World," many U.S. retailers across the country were reporting a troubling trend in their quarterly earnings calls. As we wrote...

A key theme is theft having a greater and greater hit to their balance sheets, as people's budgets get squeezed, inflation sticks, and anxiety rises on Main Street.

Businesses like Dick's Sporting Goods (DKS), home-improvement store Lowe's (LOW), and the Macy's (M) and Kohl's (KSS) department stores were among those to note the growing influence of "inventory shrink" on their cashflows.

That's corporate speak for items that go missing.

For example, we shared...

Quarterly gross margins at Dick's fell by about 1.5% year over year. The company's CEO Lauren Hobart cut full-year guidance, saying profits came up short for the quarter "due in large part to the impact of elevated inventory shrink, an increasingly serious issue impacting many retailers."

Dick's shares tumbled more than 20% in a day on its earnings report.

Of course, CEOs of companies that are losing money are typically not hesitant to use any number of reasons to justify it. A loss of inventory could be chalked up to fraud, accounting errors, or damage like something falling off the back of a truck.

But as we wrote, this trend of "inventory shrink" wasn't surging across the entire retail industry because everyone suddenly forgot to close the truck doors... It's because of the economy.

The costs of stealing are rising...

Yesterday, Target – one of America's largest retailers – made a move to deal with continued and increased "theft and organized retail crime," it said. The company is closing nine stores – one in New York City, two in Seattle, three in the San Francisco area, and three in Portland, Oregon – that it says are dogged by stealing.

According to global news service Reuters...

Despite heavy investments in security, the company continued to face "fundamental challenges" to running the stores safely, the retailer said. It operates nearly 2,000 stores across the United States.

"We cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance," Target said in a statement.

Target and the other retailers we mentioned are not alone in encountering this issue.

According to a new report from the National Retail Federation ("NRF") trade group, "inventory shrink" accounted for roughly $112 billion in losses among U.S. retailers in 2022, up from around $94 billion in 2021. The losses are piling up this year, and a trend of violent crime is growing as well.

The NRF surveyed senior security executives in the retail industry, representing 177 retail brands. As one officer of the trade group said of the findings...

Retailers are seeing unprecedented levels of theft coupled with rampant crime in their stores, and the situation is only becoming more dire.

Here's more from Reuters, on how retailers are adjusting to an increase in what they're calling organized crime...

Retailers are either being forced to close a specific store location, reduce operating hours or alter in-store product selection to deal with the spike in retail crime, the report added.

Dollar Tree (DLTR) has said it plans to remove goods like men's underwear, an item most prone to retail theft, from its stores.

Retailers are ramping up prevention methods with 34% of respondents increasing internal payroll to support risks related to retail crime and 46% increasing the use of third-party security personnel among other methods, according to NRF.

Closer to our Maryland headquarters, our regional Giant Food supermarket chain has closed secondary exits to funnel shoppers through a single area... And in one particularly theft-prone location in Washington, D.C., the company yanked name-brand health and beauty items from its shelves – leaving only house brands that thieves can't resell as profitably.

In another recent escalation, Walmart officials recently said the big-box chain was "putting armed guards in certain cases" in some urban stores. While this may sound startling, I can tell you that has been happening in at least one location I'm familiar with here in Baltimore for years.

According to the NRF...

As violence has increased, more retailers have opted to enforce a "hands off" approach in the apprehension of shoplifters. More survey respondents said that no employees are authorized to stop or apprehend shoplifters (41%), compared with 38% last year.

The types of products shoplifters are targeting may not be based solely on price point. Products can range from high-price, high-fashion items to everyday products that have a fast resale capability. While [organized retail crime] groups have traditionally targeted specific items or types of goods, that list has expanded to new categories like outerwear, batteries, energy drinks, designer footwear and kitchen accessories.

The top five cities/metropolitan areas affected by ORC in the past year were Los Angeles, San Francisco/Oakland, Houston, New York and Seattle.

I can't tell you for sure if stealing is more rampant in every town and city in America than it was five, 10, or 50 years ago. I'm inclined to think it is... This is the first time I'm hearing about stores becoming afraid to sell men's underwear. But let me know what's going on in your neck of the woods at feedback@stansberryresearch.com.

Whatever individual impressions you or I may have... it has clearly gotten to the point where Target and other retailers are closing their stores because the costs of "inventory shrink" just aren't worth taking on.

Sure, maybe this particular trend won't add up to a huge slice of the American economic pie. But it might. Companies like Target can afford to make decisions like they just did. Target can close nine stores and focus its attention on nearly 2,000 other U.S. locations. Smaller businesses, especially those with just one store, aren't so fortunate.

At the very least, rising "inventory shrink" reflects the rising costs of the state of U.S. culture... inflation... and the results of what was described by some folks as a grand monetary experiment in response to the pandemic.

We're seeing the side effects now.

The dichotomy...

On the one hand, we have the markets and institutions like the Federal Reserve and the banking side of our economy that are fueled by debt and money printing... Stocks can get juiced by "easy money."

Then there's the real world... In the U.S., that's made up of hundreds of millions of people who I believe are ideally trying to live respectable, secure lives – but they're too often living at the whims of decision-makers they've never met.

Similarly, more often than not, market performance and the "real world" don't look like they are aligning.

You might feel this time and time again when it seems like "bad news" doesn't matter to the stock market. And as we've written before, bad news can be good news for the stock market... like how more people losing jobs may mean the Fed will stop raising interest rates (which is good for stock prices).

But every so often...

When trouble and crises on Main Street get serious and large enough, they can hit Wall Street and the foundations of the economy. Most notably, this happens when folks can't afford to pay their debts (a rising threat today)... or have less spending money for anything beyond essentials (also a growing concern)...

The same goes for businesses and the U.S. government. When costs get too high, or they can't afford to pay off their own debts because of higher interest rates than they've been used to for years and years, trouble can strike. And as goes the debt, or the credit market, so does the U.S. and global economy.

Today, the cost of money is catching up with Main Street and Wall Street...

As our friend Rob Spivey over at our corporate affiliate Altimetry wrote in a recent issue of the free DailyWealth newsletter, American companies can't afford to burn more cash...

The Fed's rate hikes are finally starting to take their toll on corporate balance sheets...

Notably, they're threatening debt coverage after 2025. You can see this in the chart below. It shows the number of companies in the S&P 500 Index with enough cash to handle debt coming due in the next three years.

Right now, most companies still have enough cash to cover this year's debt. But when you look at all maturing debt through 2025, the picture isn't so bright...

Compared with 2009, more companies today have cash above their maturing debt... but it's a lot fewer companies than the average over the past 15 years.

That's also a change from May. Just four months ago, nearly 4 out of every 5 companies had more cash than debt coming due in the next year. And the number of firms with enough cash for the next three years was near normal peak levels.

The more companies with enough cash to cover debt, the less risk there is in the market. Today, we have about the same number of those companies as we did in 2018. Any lower, though, and we're getting back to Great Recession territory.

Said another way, the rising cost of doing business is catching up with more and more companies, much like it is for the many people on Main Street who rely on debt to make ends meet.

Here's how to get more details...

From what I've heard and read from his team lately, I expect Altimetry's founder Joel Litman to hit on some of these themes in his brand-new, free video presentation that goes live at 8 p.m. Eastern time tonight.

As we've mentioned a few times here, Joel is a world-renowned "forensic accountant" who has come up with systems to find the truth in companies' balance sheets and determine whether the businesses are as healthy (or unhealthy) as other analysts believe...

His work and research have also proved useful to pinpoint major turning points for the U.S. economy, like the financial crisis and the response to the onset of the COVID-19 pandemic.

Needless to say, Joel is tremendously knowledgeable and experienced in what he does...

Wall Street clients and even the U.S. government have tapped him for his insights, and tonight he is stepping forward with the biggest warning we've heard from him – and he wants to make sure as many people as possible hear the message.

In short, he's extremely concerned about what's next for the economy – and, fortunately, he has a plan to navigate it.

Last call...

If you're still on the fence about tuning in to his free event, here's a note Joel sent to those who have already signed up about what they can expect starting at 8 p.m. Eastern time tonight...

• The event begins streaming promptly at 8 p.m. ET (5 p.m. PT). You signed up in advance, and it's 100% free for you to attend. I strongly encourage you to log in 15 minutes early to test your connection and sound. I don't want you to miss anything because of technical issues.
• Whether you've ever seen a similar event before or not – it doesn't matter one bit. I'm frankly "taking the gloves off" when it comes to the dangerous B.S. you've been fed about the markets over the past few years. (In fact – as you'll see – for a lot longer than that.)
• I have zero interest in "teasing" the critical info for an hour and never getting to the point. I'll share my big warning right away, in the first few minutes. And I'll show you exactly the strategy I recommend, with details and specific examples.
• I'll show you the signal that's warned of every crash for a century... and how you can use it from now on to forecast future moves in the market and individual stocks.
• When you understand this (and I'll make it easy), you'll be holding the keys to one of the greatest and lowest-risk money-making strategies of all time. It works spectacularly in a crisis like the one we're about to see. And it's the only strategy many of the world's most successful billionaires care about. As I speak, many of them are preparing to deploy billions of dollars on this one strategy I'm unveiling tonight.
• It's also the only strategy I've ever seen where your potential income and gains are essentially locked in, in advance – along with the exact timing of your payoff – by law. Almost no one knows about this. And even if you think you do, I'm certain you don't have the full story.

Joel is calling this the "biggest market warning of my life." Sign up for the event here to make sure you don't miss a minute. You can also visit 2023CrashWarning.com at 8 p.m. Eastern time sharp for this must-see event.

New 52-week highs (as of 9/26/23): None.

In today's mailbag, feedback on yesterday's Digest, which touched on government spending... and included information about our annual Stansberry Conference coming up next month in Las Vegas. (To that point, in-person tickets are sold out, but livestream passes are still available.) Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Hello from Istanbul, I keep reading conclusions from various analysts who seem to not understand that the U.S. government is not an individual re: debt...

"If one asks, would you borrow money (in the case of the country, print money) to assure yourself of a reliable source of food (in the case of an individual) or in the case of a country, a viable technological base... to assure your security and prosperity, most would do it immediately..." – Subscriber George O.

"Why would you invite a guy [Lance Armstrong] who cheated and lied and cheated and lied and then cheated some more while denying it and wrecked other people's lives the whole time as well?

"He is a disgrace and I will think less of your organization if you invite him to be a guest speaker [at the annual Stansberry Conference]. What are we to learn? How to rake in millions while selling your soul?" – Subscriber Rick V.

Corey McLaughlin comment: I hear you, Rick. We covered Armstrong's obvious lightning-rod status – and shared various feedback from subscribers – several months ago when we announced Armstrong would be speaking at our conference this year.

We heard everything from "everyone in cycling was cheating back then" and the "Europeans were jealous of him" to comments much like yours questioning Stansberry Research's integrity and sharing disappointment in Armstrong's decisions.

Without a doubt, it sure is controversial to host the former winner of seven straight Tour de France cycling races who was stripped of his titles after finally admitting years later to using performance-enhancing drugs. No argument here.

So, I'll just repeat what I wrote back in a May Digest, which is that Armstrong certainly has a story to tell...

In our era of "cancel culture" – which has only intensified over the past decade since Armstrong's admission – I'm curious to hear what he has to say and what his life has been like since becoming a lightning-rod figure and largely shunned.

There's no doubt Armstrong made mistakes. He cheated in competition to win a world-renowned sporting event. He spoiled his reputation, despite having raised more than half a billion dollars for cancer research and made yellow LiveStrong Foundation bracelets a brand.

If you're disgusted by the idea of hearing from Lance Armstrong, I understand, but I'm keeping an open mind. I expect his talk at our conference to be interesting, entertaining, and enlightening, which is the point.

Also, Armstrong can talk about more than his famous rise and fall in the bicycling world...

Recently, he began hosting two popular podcasts: "TheMove" (about cycling) and "The Forward" (about all kinds of things). And he's now an investor, too... as a partner in Next Ventures, a venture-capital firm investing in early-stage health and wellness companies with at least 15 businesses in its portfolio.

To be clear, I personally have no say in the decision to host Armstrong (and I'm not complaining about that, either). I'm going to be listening to what he has to say and plan to report objectively on the highlights here in the Digest as part of the coverage we'll provide live from Las Vegas from October 16 to 18.

And if anyone wants to hear everything directly from Armstrong and all of our other speakers, including the most recently announced addition – Stansberry Research founder Porter Stansberry – note that in-person tickets are now sold out... Your remaining option is to grab access to our livestream.

It's a pretty good deal... You can watch everything from your home or office, or wherever you'd like. Plus, you'll get access to on-demand video replays and transcripts after the event, too, among other features.

Click here for more information about our livestream package and how to get a discounted ticket today. At the link, you'll also find our full speaker lineup and everything else to expect at the conference at the Encore at Wynn Las Vegas.

All the best,

Corey McLaughlin
Baltimore, Maryland
September 27, 2023