Can Nvidia help Walmart and Target solve their theft problem?

walmart (WMT -0.25%) When Goal (target 0.45%) I have a theft problem. In recent months, major retailers have complained about an increase in “shrinkages.” This is a retail industry term for when store inventory is less than book inventory. That means more people are leaving the store with unpaid inventory.even commerce software companies Shopify (shop -1.11%) A frequently visited web page explains the “shrinkage”, how it is increasing, and how small retailers can address the problem. Shopify estimates it was a $61 billion annual loss for the retail industry a few years ago, and that figure is reportedly up in 2022.

come in NVIDIA (NVDA 0.07%), believes there is a solution that can help retailers shrink. Here’s what investors should know:

Shrinkage is the biggest cause of shrinking profit margins

During their Q3 2022 earnings call and post-earnings interviews, executives from Walmart, Target, and other retailers explained how the shrinkage has become a big deal. Target specifically said the theft had an estimated $400 million impact on gross margins on merchandise sold through the first nine months of 2022.

Target is huge, selling tens of billions of dollars in merchandise each year, but the retailer’s margins are already low, with low to mid-single-digit operating margins about average. $400 million is a big deal when it’s a full 2% of total gross profit year-to-date. Target expects total drawdowns for the full year 2022 to reach an estimated $600 million.

What’s particularly notable about this figure is that e-commerce now accounts for more than 20% of Target’s sales. Shrinking doesn’t seem to be that big of an issue in this case. Of course, e-commerce (whether it’s delivered to the consumer’s home or ordered online and picked up in store) has its own set of challenges that affect profit margins. problem becomes more dramatic. On its third-quarter 2022 earnings call, Target CEO Brian Cornell said the company “has invested heavily in training and technology that can stop theft and keep customers and his members of the store team safe. I am going,” he said.

Walmart similarly said last year that it believes theft has lost about 2% to 3% of the value of its merchandise. Walmart says it is taking measures such as locking more products behind glass, and may raise prices to make up for the losses.

But locking goods is inconvenient, and raising prices to combat theft is unfair to non-criminal shoppers. also want Amazon (AMZN -0.21%) When metaof (meta 0.07%) Facebook Marketplace does more to crack down on the sale of stolen goods on its site.But with a recent presentation on the future of AI, Nvidia thinks it has a better idea.

The Rise of Artificial Intelligence Crime Fighters

In Nvidia’s 2023 AI Predictions blog post (a very interesting and must-read primer on what AI is actually doing), Azita Martin, vice president of Nvidia’s AI for Retail segment, mentioned the shrinking (supply chain is similar, but that’s a whole other topic). Martin specifically mentioned the new challenges arising from her option for contactless checkout in brick-and-mortar stores. As it becomes easier to carry unpaid products, Nvidia offers solutions like computer vision-enabled cameras that can detect theft, and analytics that can recognize if an item is actually the correct item purchased at a self-checkout. is combined with

Nvidia has other retail solutions that help further automate the checkout experience, so retailers can assign employees to other tasks like replenishment and store monitoring. Such technology could help stores like Walmart and Target combat theft and improve profit margins. Of course, buying and implementing new technology comes at a cost. But given the scale of the shrinking problems Walmart and Target reported this year, making upfront investments could dramatically improve their bottom line in the years to come if they could better track their inventory. Target’s CEO comments above seem to indicate they agree.

All of this speaks to how strong Nvidia has become. The company’s AI platform now has specific use cases that span every sector of the economy, not just video games where it started. In fact, Nvidia plans to provide details on its largest revenue segment, ‘Data Center’, starting with its Q4 2023 update (three months ending January 2023). The data center end market surpassed his $3.8 billion in sales last quarter (almost two-thirds of total revenue) and includes AI software used in all kinds of industries, including retail.

Nvidia’s technology could actually help solve some of the most significant problems facing companies like Walmart and Target today, such as theft. And that could be really great for both retail shareholders and Nvidia.