By focusing their loss prevention efforts on the entire enterprise, grocers are in a better position to combat internal and external theft.
Supermarkets are complex operations, encompassing multi-faceted supply chains as well as diverse store operations and departments. These all increase their levels of risk and exposure to loss.
Add sophisticated strategies for promotions and pricing and the reliance on associates to manage all of these moving parts, “and supermarkets’ risk profiles only continue to increase,” says Nathan Smith CEO for Sysrepublic, a Los Angeles-based provider of loss prevention technology.
However, by expanding loss prevention solutions across the enterprise, many grocers are learning how to control shrink while meeting changing business needs.
“The recession has also forced companies to change their merchandise profile to increase profits, and this includes a move to more non-foods, including seasonal merchandise and electronics,” he says. “Add in franchise opportunities, including coffee shops or book stores that draw even more traffic, and supermarkets struggle to identify holes in the enterprise.”
Retailers continue to grapple with how to keep shoplifting and dishonest employees at bay, but increased organized retail crime (ORC) is adding even more pressure. After sweeping a shelf clean of high-margin merchandise ranging from baby formula to batteries and razors, thieves often sell the stole goods to fences that re-sell the items out of car trunks, through online auctions, even to small local bodegas that add these goods to their own store shelves. Besides milking retailers for more than $30 billion in losses in 2010, ORC has impacted 95% of retailers last year, according to a survey of 125 theft-prevention executives, conducted by the National Retail Federation, based in Washington D.C.
“Currently, we find that 36% of loss is caused by theft,” says Larry Miller, president, The Retail Control Group, based in Scottsdale, Ariz. “The revelation is that 29% of this shrink is controllable.”
Eager to gain control, retailers are increasing loss prevention spending, according to the fifth annual Global Retail Theft Barometer 2011, a study released by The Centre for Retail Research, based in Nottingham, England. Spending increased to $28.3 billion in 2011, a 5.6% jump, which represents 0.35% of retail sales, the study says. Technology investments are contributing to this increased spending and electronic article surveillance tags continue to be a priority.
Düsseldorf, Germany-based retailer Metro Group uses a loss prevention system that combines overhead RFID hardware, specialized on-board filtering software and new RFID hard tags and labels. By leveraging open RFID standards, the solution from Thorofare, N.J.-based Checkpoint Systems, which resides in the ceiling, allows the retailer to use the RFID tag’s unique identifiers to understand exact items that were stolen, the quantity and the dollar value—all factors that help maintain shelf availability. The solution also allows the grocer to distinguish between casual shoplifting incidents and ORC crimes, which enables them to take action based on the size and scope of the event.
Checkpoint features another solution that deters shoplifting and ORC all in one effort. Called the Clear EP 2933 Tamper Tag, the technology is a one-inch, clear, round RF label. The label can be placed inside merchandise to remain discreet or on the outside so would-be thieves can see that the item is being monitored and electronically protected.
“When merchandise is fenced, it is difficult for a retailer to get it back, since it is often considered evidence in ORC cases. And when they do get it back, depending on the merchandise or category, it could be expired and unsaleable,” says Sean Ryan, Checkpoint’s director of business development for supermarkets. “The new tag provides twice the security against ORC and shoplifting and only needs half the labor to tag product since RF resides within the label.”
One retailer that used the tag to protect merchandise across its health and beauty category reported it decreased category shrink by 51% and increased sales by 6.7%, according to officials for the technology company.
Caught on camera
Other grocers are rethinking their closed-circuit television strategies and boosting efforts with enhanced public monitors. Retailers including Minneapolis-based Target and Deerfield, Ill.-based Walgreens already position television-like digital screens overhead at their store entrances, in clear view of customers as they enter stores. However, savvy retailers are taking the digital technology one step further by placing units at eye-level right in store aisles. The digital screens may feature promotions and advertisements, but built-in cameras allow store managers to monitor shoppers as they pass the device.
“Retailers are eager to secure merchandise, and this is paving the way for public view monitors gaining attention as an option,” says Lee Pernice, director of retail marketing, Boca Raton, Fla.-based ADT, a division of Tyco International.
IP video monitoring has helped retailers analyze shelf sweeps, “and now retailers are using that data in real-time to deter incidents,” she explains. “If a thief comes to an aisle ready for a shelf sweep and sees a video of himself on a camera at eye-level, chances are good that he will walk away. The technology has made a name for itself in the do-it-yourself segment, and now more supermarket retailers are adopting it.”
While many companies consider shrink as an all-encompassing term for loss, more specifically, “retailers should be considering shrink as a loss of profit,” says The Retail Control Group’s Miller. “The industry’s challenge today is to stop thinking about how to stop shrink, but instead, how to stop losing profit.”
For this theory to come to fruition, a new mindset is required across the industry—one that focuses on better understanding internal operations. “Too often loss stems from internal daily operations,” says Derek Rodner, vice president of marketing and product strategy for Camden, N.J.-based Agilence. “And too often, grocers also don’t realize this is a problem.” Agilence offers Hawkeye, a POS video auditing solution that enables retailers to quickly identify losses caused by operational errors, promotion execution, systemic errors and associate fraud, say company officials.
In fact, 64% of store shrink is caused by a breakdown in operational practices, according to The Retail Control Group. “Of this 64%, we believe that 57% is controllable, or preventable,” Miller says. “By changing the behavior of store and department managers, and integrating the fight against loss beyond loss prevention and into the overall corporate culture, companies will be able to concentrate on changing processes to increase profits.”
This includes training store and department managers on how to expertly follow business processes and operations. The other transition is to break down the silos that define loss prevention as a stand-alone process. Rather, companies must expand loss prevention as a critical component of everyday operations, say industry observers.
The key to embarking on this new corporate mindset is to “look at holes in business processes,” says Sysrepublic’s Smith. “It is easier to fix internal processes, or end-to-end gaps, when you have a clear insight into them.”
This includes leveraging behavioral analysis to gain a holistic view of how associates operate within the overall business structure.
“This will reveal process inefficiencies that could be causing loss,” Smith explains. “It is hard enough to attract more shoppers into the store, so it is just criminal for any retailer to lose money due to bad processes.”
With so much data filtering through the average supermarket, exception reporting became a priority for many companies. “Many used the technology to find the cashier with the most voids or refunds, but too often it became a solution focused on people, not processes,” Rodner says. “By transitioning to business intelligence, which uses multiple streams of data, the solution provides historical, current and predictive views of business operations, and one can learn what to improve. It presents points to drill down to versus requiring companies to sift through volumes of data.”
Officials at Strack and Van Til Super Market, based in Highland, Ind., tapped The Retail Control Group to guide them through their profit improvement initiative. The Retail Control Group conducted a detailed store shrink audit, and implemented its Total Store Manager Program for Profitable Selling program in early 2010.
The strategy is designed around core store operating control practices, the development of comprehensive store standards, and disciplined implementation execution, all coordinated by The Retail Control Group. Besides reducing inventory, the program reduced shrink levels across all fresh categories, and slashed overall supply costs by 9%. All results contributed to an improvement across deli, meat and produce gross margins, the company reports.
Grocers are expanding other solutions, some which are even considered traditional loss prevention technology, into other areas of their enterprise in hopes of gaining a better view of business. “CCTV for example, is an under-utilized asset,” says Checkpoint’s Ryan.
By using CCTV and analytics solutions to monitor other operations, such as how long shoppers dwell by end caps, or shopper traffic trends and shopping patterns, “grocers will be in a better position to allocate merchandise in-store,” he says.
Some companies are leveraging RFID-based EAS systems within inventory management operations. Metro Group is leveraging its RFID EAS solution beyond loss prevention. By using this one tag for multiple purposes, the retailer is increasing efficiency at the point-of-sale and cost-effectiveness over the long-term.
“We’re confident that RFID builds on the usability of traditional RF EAS both for loss prevention as well as inventory visibility, enabling us to better serve our customers,” according to a statement from Dr. Gerd Wolfram, managing director at Metro Systems, a division of Metro Group.