Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

Will tech win the war on shrinkage?

Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

With anti-shoplifting and employee theft technology improving, Retailers have more options than ever before, but can some simple steps to improve the culture within the Retailer’s own business be just as effective?

Shrinkage has always been a headache for retailers. Probably the most galling part is that a store's own employees are often a contributor to the problem. Shrinkage will never be eliminated completely, but with the appropriate strategy it doesn’t need to be a major problem.

Woman putting makeup in back pocket

What do the stats say?

The 2014 Global Retail Theft Barometer, produced by Checkpoint Systems, estimates that the cost of shrinkage globally is US$128.5 billion, or 1.3 per cent of retail sales. Shrinkage, according to the Barometer, consists primarily of four components:

  • Shoplifting, which accounts for an estimated 38 per cent of lost sales
  • Employee theft, which accounts for another 28 per cent of losses
  • Administrative shrinkage, which is responsible for a further 21 per cent. This includes, for example, instances where the price for an item is incorrectly entered in the retailer’s POS system
  • Supplier fraud accounts for the remaining 13 per cent of lost sales due to shrinkage. A common method of fraud is for a supplier to provide paperwork to the retailer overstating the actual amount of merchandise it has delivered.

According to Euromonitor, Australia is slightly below the global average for shrinkage, with retailers losing a still very sizable US$2.45 billion worth of merchandise in 2012.

When it comes to shoplifting, the merchandise most likely to be stolen as stated in the 2014 Checkpoint Systems study is makeup, fashion accessories, power tools, mobile accessories, and wine and spirits.

Some kinds of retailers are more vulnerable to employee theft than others. These include stores that operate for long business hours involving multiple shifts. The owners can't be there all the time and dishonest employees have an opportunity to flourish when they’re left in charge of the shop.

The promise of RFID

Technologies like CCTV and tags that set off exit scanners have been around for a long time. More recently, one of the most talked-about technologies is Radio Frequency Identification (RFID) technology. This involves small digital chips attached to an item that can be read from a remote scanner. If a customer walks out of the store with stolen merchandise that still has the RFID tag attached, the retailer is alerted.

RFID technology has been slow to go mainstream partly because the chips have been too expensive to use at the item level. Even when they are attached to individual items of merchandise, as in say a high-end apparel store, a rogue customer can still remove them in the fitting room without too much trouble.

But what if the chips can be embedded in the fabric itself? Retailer and American fashion designer Rebecca Minkoff, who uses RFID chips attached to the price tags of garments in her New York flagship, is reportedly on the verge of selling clothing with inseparable RFID chips.

If Minkoff and other retailers achieve good results with this technology, then it is likely to become a frontline weapon in the fight against shrinkage, at least in retail businesses with relatively high price points and few stock keeping units (SKUs) or identification code (that rules out supermarkets for the time being.)

Technology vs business culture

RFID technology is, in theory, equally effective against both shoplifters and employee theft. In contrast, CCTV and other forms of video recording are not particularly effective against employees, particularly if the store’s owner or security personnel are too busy to review the recordings on a regular basis.

This is one reason that many believe the key to beating shrinkage is through sound hiring practices, good staff training and employee engagement in the business – in other words, a stronger business culture.

A combination of technology and strong culture is probably the ideal way to go in many cases. However, the latter should be the bedrock strategy that potentially makes whizz-bang technological fixes unnecessary.

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