What's the context behind Target's store closures?

[MUSIC PLAYING] CATHY WURZER: --always, it's The Replacements here on the program. It's 12:17. It's Minnesota Now on MPR News. I'm Cathy Wurzer. It's been about a week since Minneapolis-based retailer Target announced it's closing nine stores in four states because of organized theft. The closures represent a small fraction of Target's nearly 2,000 stores across the country, but they leave questions about Target's vitality in the retail market.

Target issued this statement. "We know that our stores serve an important role in their communities, but we can only be successful if the working and shopping environment is safe for all." For more, we're joined by Professor George John. He's the marketing chair at the Carlson School of Management at the University of Minnesota. Professor, welcome.

GEORGE JOHN: Thank you for having me, Cathy, and I love your bumper music.

CATHY WURZER: I do, too. Thank you so much. It's really a pleasure having you here on the program. Back a number of years, store closures were a big sign of trouble. But here in 2023 with such a large company like Target, what does this really mean?

GEORGE JOHN: So this is an unusual event. Normally with as many stores Target has, we wouldn't be talking about it if they closed nine stores. Stores come and go.

But this is unusual because they've called out the reason as being security and safety of customers, so that's really why we're, in fact, talking about it. This is a new phenomenon. We haven't seen it before, or at least not in the recent past, so that's really what makes it different.

CATHY WURZER: Now, retail crime is absolutely real, right? I mean, the National Retail Federation says that it has definitely increased.

GEORGE JOHN: Yes. I think there's two ways to look at this. One is what we see on television and radio and newspaper reports of mobs crashing into stores and looting and stuff like that.

That's different from what I would call a more organized retail theft that's been part of the retail landscape for a long time, and those are two distinct things. And I think what's driving the current problem is more of the first type where you see these people brazenly walking into stores and picking up stuff and leaving with it.

CATHY WURZER: Not to be a cynic, but sales trends have softened for Target recently. They received some pushback after pulling some LGBTQ Pride Month apparel. I'm wondering if some of this-- might the retail crime reason be given to cover up other potential issues?

GEORGE JOHN: It's all murky, so let me just stay with the two kinds of theft. There's sort of been an inside the industry battle going on about organized theft where the brick and mortar retailers are insisting that the ease of selling online is contributing to it. So that's a completely different issue from what we would normally consider sort of open theft of walking in and picking up something and leaving-- the stuff you see in TV reports all the time.

And I think it's important to keep those two separate. It's also important for us to recognize that store closings are a regular feature. But again, these closings are being called out by the company for a particular reason, and companies always give reasons that make them look less culpable, shall we say.

So it's always kind of murky as to the root causes and reasons, but we do know that retail theft is a visible problem, and particularly in some cities and neighborhoods. That's undeniably true.

CATHY WURZER: How are brick and mortar retail businesses doing at this point?

GEORGE JOHN: Well, it's interesting. So the big people-- by that, I mean Walmart and Target-- did quite well during COVID because they weren't closed down, you see? The little retailers got hammered. So as we came out of COVID, the big retailers have cooled off a little bit because their serious bump up during COVID has sort of returned to more of a trajectory.

For example, overall online sales actually took a huge leap during COVID and have come back to the trend line now. So the little retailers are still in desperate shape. So many of them went out of business, and they're all just hanging in there. So it's a different picture depending on who you look at and what the size of the retailer is.

CATHY WURZER: I note that Target indicates they plan to open at least 25 new stores in the future, which is interesting. You're closing some. You're opening more, which I guess would just be the regular ebb and flow of the retail industry.

GEORGE JOHN: Yes, and I think that's really important for us to realize. They've got, what? A couple of thousand stores nationwide? So these numbers are small. But I think what captures the media attention and the public's attention is the fact they called out retail theft for these nine stores. So I think that's trying to put a little pressure on local governments to do more. That's my non-political science take on it.

CATHY WURZER: What are you familiar with in the industry when it comes to how other retailers are trying to deal with this theft issue?

GEORGE JOHN: Right. It's actually useful to think about it in the long haul. If you go to most countries in the world, especially in Asia and things, you'll find that self-service is not the norm, that somebody actually helps you out. So the US retailing industry sort of pioneered self-service.

We're used to walking into stores, picking up the merchandise, paying for cash or credit cards or what have you, walking out. And what we're seeing is a little reversal of that. Now, you've got lots of stuff locked up behind cases or what have you, and I think the unappreciated fallout is the difficulty manufacturers will have introducing new products.

Because one of the great advantages of self-service is that you want to introduce a new product, it's fairly easy for consumers to touch and feel it. And that's kind of going away. So as a long run matter, I think that's actually more serious than anything else. How do you introduce a new product when things are locked up if you're operating in that kind of a category?

CATHY WURZER: For self-serve, wasn't it implemented just as a way to be more efficient?

GEORGE JOHN: Yes, because our labor costs are very high. And it's had all these benefits because retailing is a low profit business. Let's start there. And the biggest controllable cost is really labor cost, so they've been trying to find ways to reduce labor costs.

And all of this theft has an effect of increasing their labor costs, both in terms of having to open up locked cases, have more people on staff, all of those kinds of things. So it actually does have ramifications well beyond the nine stores that we think of as closing.

CATHY WURZER: Interesting. It's been really fascinating. Professor, thank you so much for your time today.

GEORGE JOHN: You're very welcome. And hopefully, the bumper music will continue with its glorious '80s music. [LAUGHTER]

CATHY WURZER: Thank you. I appreciate that. Professor George John is the marketing chair at the Carlson School of Management at the University of Minnesota.