Investors putting money into shop lifting prevention

With all the talk of recent “Zombie” consumers in the United States and all the retailing doom and gloom in Europe, you’ll be glad to know that one consumer is seeing a resurgence in activity as of late. Unfortunately for retailers, these consumers have “sticky” fingers: I’m talking of shoplifters. Today’s piece will look at companies that are targeted by shoplifters, as well as companies involved in the prevention of shoplifting, all the way down to the companies which ultimately deal with shoplifters once they have been arrested.

Shrinkage, as retailers call it is very much the talk of the industry as economic headwinds fan the fire that slowly burns holes through already stretched margins, costing U.S. retailers a staggering USD 37 billion a year.

The Retail sector is the 2nd most shorted in the S&P 500 with an average of 4.35% of total shares out on loan across - against an average of the wider Index of 2.5%.

GameStop Corp. (NYSE:GME) is vocal about the risk of shrinkage to its operation. The video game retailer has short interest representing 27% of its shares, up from 18% at the beginning of the year making it the most heavily shorted shares in the S&P 500. Beneficial owners have also trimmed back their holdings over the same time, selling 20% of their shares to 38% of the company.

Saks, Inc. (NYSE:SKS) is another company associated with discerning shoplifters, most famously Winona Ryder. As the below Bloomberg Relative Value screen shows, Saks is one of the most amongst its peers, with a short interest of 14% of total shares against 1.6% average across its Bloomberg peers.

Although shoplifting is a burden on already struggling retailers, other companies are benefiting from the recent crime wave; 46% of retailers recently polled by the National Retail Federation reported increasing their budgets allocated to loss management in order combat shoplifting.

Tyco (NYSE:TYC),which offers retailers solutions to combat shoplifting, has recently seen its share price soar and its short interest fall from around 1% in January to virtually zero. Long only funds who lend shares have also increased their holdings 10% over the same time to 24% of overall shares (see chart).

Intermec (NYSE:IN), which manufactures smart security tags recently touted as the new frontier in retail inventory management and loss prevention, has seen its short interest decrease to all time lows in recent months from around 3% of shares last October to 2% recently. Taser International (NASDAQ:TASR) recently expanded its product offering into evidence tracking and video monitoring for law enforcement with its evidence.com solution. Investors have reacted positively to this new development with short interest falling from 10% last year to 4% currently, an all time low.

Bottom line

The cost of shoplifting to retailers is staggering, but what is not clear is how much they save through thier investment in loss prevention services. These Companies seem to be making hay while the sun shines, as shorts have covered positions. It will be interesting to see whether their systems can materially impact the blight of shoplifting as retailers continue to struggle.