Despite the millions of dollars being invested to root out shoplifters, organized retail crime (ORC) and internal bad actors, billions of dollars-worth of inventory is disappearing off shelves – if it even makes it there in the first place.
According to the National Retail Federation (NRF), the shrink rate jumped to an all-time high in FY 2019, accounting for 1.62% of a retailer’s bottom line. Roughly seven in 10 reported a shrink rate of 1% or higher, compared with slightly more than half in FY 2018. Almost twice as many reported shrink rates of 3% or higher. That equates to more than $61.7 billion in losses across the entire industry – and that was before the pandemic.
Though it will still be a few months before the official numbers are in, retailers that have started to return to normal in-store operations claim losses are intensifying. ORC and employee theft are leading to significant shrinkage, while e-commerce scams and return fraud are hitting retailers hard from a financial perspective.
According to a 2020 study conducted by NRF, 75% of loss prevention (LP) executives from a cross-section of large and mid-sized retail companies said ORC activity had increased in the previous 12 months, and losses averaged $719,548 per $1 billion in sales. That represents a 2% increase from 2019 and the fifth year in a row that the figure topped the $700,000 mark. (For perspective, losses averaged $453,940 in 2015.)
Though traditional theft and fraud scams are still running rampant, retailers say more people are attempting to return stolen merchandise for store credit, which is usually issued in the form of gift cards that are then sold for cash. In fact, one global apparel retailer was just telling me that 80% of its return transactions are completed without the customer presenting a receipt due to its very loose return policy. That’s why it has been looking into ways in which technology can be used to trace and confirm the product’s origin. Unless the retailer can say with complete certainty that the returned item wasn’t purchased in any of its stores, law enforcement is limited in its ability to investigate and prosecute suspected fraud incidents.
Of course, some shrinkage can be attributed to oversights during receiving and reporting, especially right now. Everyone is moving fast to replenish shelves, and products are being taken straight from the loading dock to the store floor at a higher-than-normal rate. Supplier miscounts and delivery shortages aren’t being caught before pallets are broken down and individual items dispersed, so retailers are starting off at a deficit. And there is always a chance that “missing inventory” is due to misreporting by store associates.
According to one NRF report, approximately 20% of shrinkage is due to administrative errors. In some cases, associates are taking damaged goods out of inventory as they should but failing to code them properly in the system. In other instances, item pricing isn’t being properly updated on the shelf tag when promotional discount periods end, forcing cashiers and managers to override the current (full) price at checkout to keep customers happy and close sales. Honoring a $.50 markdown one extra day may not seem like a big deal in a multi-billion-dollar industry, but these little issues can lead to big losses.
Fortunately, administrative losses are among the easiest to mitigate. Focused training and process re-engineering can help associates become more diligent in completing each step in receiving, inspection, quality control, reporting and shelf management workflows. And increased utilization of enterprise mobility and automation tools can help improve task accuracy during peak demand periods when associates must move fast and furiously to fill online orders, restock store shelves and prevent long checkout queues from building.
But catching intentional acts of theft or fraud while in progress has proven a nearly impossible task.
Most retailers are fast to react when theft or fraud incidents are identified. Yet, they’ll admit that uncovering such issues has historically been a slow process. The lack of “live location” asset visibility makes it difficult to know if a missing item has just been misplaced or if it’s walked out, even if they have a way to quickly narrow down the source of certain losses (i.e., the department or checkout lane). Further investigation is often needed to see if the actions leading to inventory and accounting system discrepancies are accidental or intentional.
For example, did the cashier mistype the SKU for produce or trust that the customer properly weighed self-bagged items from the bulk bins? Or did the cashier intentionally charge the lower non-organic price for an organic produce item to help a friend? Honest mistakes like erroneous pricing inputs and mis-scans happen, but it’s hard to confirm intentions based on system data alone. And you can’t be completely certain if it’s an employee or consumer stealing merchandise off a truck or shelf unless you see it happen. This is putting retailers in a tough position.
No one wants to accuse a valued team member or customer of theft or fraud without proof. Yet, the evidence doesn’t always lead LP teams toward the right individual(s) – at least not right away. Patterns generated via the prescriptive analytics system can help pinpoint potential employee fraud almost instantly, especially at the point of sale (POS). Unless investigators are tipped off to a particular individual or group in other fraud and theft incidents, it can take a long time – we’re talking several hours of video review followed by weeks of interviews – to confidently identify and charge the right suspect(s). In the meantime, the inventory, labor and financial losses continue to add up:
That’s why more retailers are investigating the ways in which advanced technologies such as radio frequency identification (RFID) can improve inventory track and trace to help streamline incident investigations and, hopefully, prevent criminal losses from occurring in the first place.
LP teams can’t be in all places at once, and even the best camera systems have blind spots. Wired alarms on high-value merchandise aren’t failproof either, mainly because high-value goods aren’t always the ones with the highest shrink rates. For example, retailers may see more umbrellas than usual walk out of a store during a torrential rain event. These aren’t items that would normally be tagged but, in this instance, they should be – at least temporarily.
Overhead RFID systems such as Zebra SmartLens® automatically alert asset protection (AP) teams to what’s happening at key points of loss in real time:
When used in conjunction with prescriptive analytics, RFID track and trace solutions can also help to:
As more people start coming and going in stores and criminals become more sophisticated, retailers must rethink their asset protection and loss prevention strategies – and specifically their technology utilization.
As many have learned in recent months, RFID tags are the best way to cut criminals off at the pass, whether they’re trying to walk out with an item or fraudulently return stolen inventory. However, the best way to mitigate and prosecute all losses is to implement an RFID solution in conjunction with prescriptive analytics, cameras, intelligent automation and other edge technologies. You need “eyes” on every square inch of the store, and this technology combo is going to allow you to see what’s happening from every vantage point so that you can quickly:
If you’d like to learn more about how Zebra Prescriptive Analytics and SmartLens solutions can help you combat fraud and theft and account for other losses in your stores, you can contact my team here.
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Eric Garland is currently the Sales Director responsible for growing Zebra’s portfolio of RFID solutions in the Retail vertical. Eric has more than 15 years of experience within the real-time location system (RTLS) space and has worked with leading retailers, automotive manufacturers and airplane manufacturers on multi-million-dollar RTLS/RFID solution implementations.
Eric previously served as a Material Planning & Logistics Manager for Ford Motor Co. He has also held various management positions at Toys-R-Us, Jewel Food Stores and the US Army, where he managed up to 300 employees.
Eric holds a Bachelor of Science degree from Western Michigan University.