Analyzing Loss

With the average inventory shrink rate estimated at 1.54 percent of total annual sales, retailers are taking notice and updating their loss prevention (LP) programs. Although it appears that shrink is on the decline, since 1.54 percent is the lowest rate reported in the last 14 years, it still represents approximately $37 billion, assuming a retail base of $2.4 trillion in 2004. These statistics are taken from the 2004 University of Florida National Retail Security Survey (NRSS).

Inventory shrinkage can be defined as financial loss attributable to a combination of employee theft, shoplifting, administrative error and vendor fraud. Preventing that shrinkage, or loss prevention, ranked second along with POS as the most important application investments for retailers in 2005, according to the 2004 AMR Research Market Analytix Report. "Over the last several years, retailers have been looking to augment any loss prevention strategies with more analytics," says Rob Garf, senior research analyst at AMR Research. "Shrink is a huge problem for retailers and in order to prevent it, retailers must identify where it is coming from."

Analytics help determine anomalies in customer transactions and payments. Retailers trying to counter payment fraud are creating a single data warehouse of transaction information, explains Garf.

Updating Technology

Web-based systems help to improve accessibility and reduce maintenance costs, as in the case of the Marine Corps Exchange (MCE). The MCE recently decided to implement a Java-based LP solution after initiating implementation of Triversity's FraudWatch, designed to help detect fraud and policy violations. The Web-based system can be accessed from any location via a Web browser, reducing the cost of deploying and maintaining the solution. Deployment is expected to be completed this year.

Also looking to update its LP system, Brooks/Eckerd Pharmacy, a 1,900-store division of the Jean Coutu Group, decided to move from its Electronic Article Surveillance system (EAS) to a digital system. The retailer will replace its existing EAS with Checkpoint Systems' Digital Radio Frequency Electronic Article Surveillance (RF-EAS) technology.

"We wanted to make sure that we availed ourselves of the technology that meets the requirements of our store management," says Bud Pelkey, vice president, LP, Brooks/Eckerd.

Installation of Checkpoint's Liberty family of EAS sensors will begin in existing Brooks Pharmacy stores and also in new stores in the chain throughout the life of the contract. Stores will be upgraded and new stores will be installed with custom designed CCTV solutions.