Limiting Loss

Loss may be a cost of doing business, but new and innovative concepts are upping the ante on apparel retailers' ability to protect merchandise. To combat ever-rising shrink levels, apparel retailers are involving loss prevention teams in new IT rollouts, as well as adding more intelligent solutions to fight loss — two moves helping companies to predict and combat shrink.

The retail industry has been struggling to reduce the rate of shrink, which has risen over the past five years, according to the Loss Prevention Research Council (LPRC). Retailers attribute these losses to traditional internal and external factors, such as intentional theft and shoplifting, organized retail crime, returns fraud and a lack of insight into goods in the demand chain. However, new factors are adding fuel to the fire, and one of the most recent culprits to join the list is personal consumer devices.

It's no secret that consumers are increasingly using personal mobile devices, such as smartphones and tablets, to aid in their shopping experience. "It is a new value proposition that opens a whole new revenue stream," Michael Sajor, CIO, Ann Inc., New York City, explained at Washington, D.C.'s annual NRF Convention and Expo. "As we make the move to multi-channel operations, we can't ignore mobility. In the past, if a client didn't find desired merchandise, she would leave the store and maybe make a purchase online. By coupling mobility, we are creating a closed-loop revenue opportunity that has never existed."

"There are more than 82 million people in the United States who own a smartphone, and they are forcing us to support this new way of shopping," William "Bill" Titus, vice president of loss prevention, Sears Holding Corp., said at the show. Businesses also have to consider how these solutions will impact their loss prevention strategies, he added.

Indeed, while mobile shopping presents a great retailing opportunity to connect with consumers, it also opens up another channel for loss.

For example, mobile point-of-sale applications — either those conducted through device-specific apps or store-level customer-facing solutions — present new concerns. At the top of the list is the need to maintain a secure wireless network.

Whether supporting mobile apps for search or to conduct purchases, devices produce new streams of sensitive transaction and customer data that flow between devices and corporate networks. As such, retailers' top priority must be to add layers of network firewalls for authorization and validation of all transaction data traveling across the network.

"The challenge with Wi-Fi is there are always concerns with unwanted intrusions," said Ann Inc.'s Sajor.

"You want to add solutions that are appropriate to the brand," he said. "It is imperative to add layers of authentication and multi-factor validation that can be used throughout the entire wireless transaction."

The next area of concern is how to safely and efficiently handle in-aisle checkout logistical matters, such as bagging merchandise, removing electronic article surveillance tags and printing receipts. "Without a proactive focus on loss prevention, retailers could be setting up themselves — and shoppers — for potential hardships," said Joe LaRocca, vice president, loss prevention, NRF. "There are very intelligent, ill-minded individuals who go after data or try to disrupt business just for kicks. They are focused on cracking systems and intruding into software. It is time to make loss prevention a part of all technology discussions."

How to approach LP
Retailers are taking LaRocca's suggestion to heart by giving centralized loss prevention teams a much larger role. For example, while 16 percent of retailers deploy loss prevention teams at each store, 40 percent of companies have regional loss prevention managers who are responsible for activities across a cluster of stores, according to "The State of Loss Prevention in Retail: Controlling Losses and Maximizing Profits," a report released in April by Boston-based Aberdeen Group.

More specifically, 53 percent of retailers have a cross-functional team comprised of loss prevention, field marketing, inventory management and revenue — a team completely dedicated to loss prevention strategies and decisions, the report said. This team has become an asset for Ann Inc.'s IT deployments.

"To have a loss prevention perspective on an IT project is invaluable," Sajor reported. "The LP vantage point allows us to address all areas of fraud that we might not have considered prior to a deployment."

Sears has seen positive results since integrating its loss prevention team's input in its IT planning strategies. "LP's responsibilities include identifying trends, risks and exposure points," Titus said. "They ensure we address problems and take advantage of opportunities during our planning."

International companies follow a similar plan. For example, Stockmann Group, Helsinki, Finland, operates three divisions: its department store division; and the Lindex and SeppÄlÄ fashion chains. The company has an LP coordinator embedded in the company's IT department, a move that ensures "from a business perspective, that IT remains an integrated part of the LP strategy," said Erik Jerker Engstrand, CPP, head of group security and risk management at AB Lindex.

Upping the ante with intelligent solutions
Once a dedicated LP team is established, many retailers task these teams with augmenting traditional loss prevention tools with more intelligent solutions. For example, 49 percent of retailers continue to rely on closed-circuit television video surveillance, Aberdeen's study reported. Yet, companies are contemplating how to enhance the power of these solutions.

Sears for example, is exploring how to leverage associate-facing mobile technology, such as tablets and smartphones. "As more transactions happen in store aisles, coverage by traditional camera systems needs to be expanded, and users need more access to video data," Titus reported. "By tying video to tablets and smartphones, users can monitor store-level transactions in real-time."

For some companies seeking greater insight into their merchandise movement, augmenting EAS tagging programs with radio frequency identification (RFID) solutions is the answer. According to the study, 27 percent of retailers currently use EAS tags to protect merchandise from theft, while 31 percent of retailers are using RFID at the store level, with 14 percent using the tags specifically as a loss prevention solution.

Stockmann is one of these companies. Finding that for every SEK (Swedish krona) of shrink it can reduce, the company earns back three times the amount in merchandise (sold vs. stolen), and earns two times back to its gross profit and operating profit, it made sense to evaluate the impact RFID could have on its business.

Stockmann is currently testing RFID with the help of Nordic ID, a Salo, Finland-based provider of RFID technology and data capture technology. The retailer is exploring the value of RFID from a total perspective within all departments, including LP and shrinkage, as well as logistics, purchasing, inventory and customer service. While Stockmann is still evaluating business improvements, business case and potential return on investment, Nordic ID's other retail partners are already experiencing benefits.

For example, Gant, an apparel brand operated by Liwa Group, Abu Dhabi, United Arab Emirates, is working with the vendor on an RFID project that uses the smart tags to optimize internal logistics, real-time inventory and product handling. By merging smart PIN, an add-on solution that brings benefits of RFID to existing EAS tags, retailers can combine advantages of RFID and conventional EAS tags, without modifying existing EAS installations. This hard tag is EPC, Gen 2-compliant and utilizes RF functionality.

While intelligent solutions may be the catalyst to fighting shrink, retailers need to ensure their efforts are making a difference. This is where the value of analytics comes into play. Although many retailers are able to benchmark loss by analyzing historical data, this has not provided insight into current loss trends or helped companies plan for incidents of shrink.

The good news is that more retailers (37 percent) are taking steps toward implementing real-time analytical tools to forecast shrink incidents, and another 33 percent plan to leverage real-time theft analysis, according to Aberdeen's loss prevention study.

Stockmann already uses a systematic LP audit program comprised of analytics and basic reporting. On top of that, the company uses a business intelligence tool and a report module that accesses fraud data stored in databases. The retailer utilizes reports that analyze key performance indicators by country, regional and store levels. "This brings responsibility to the correct stakeholders. Then, our central LP team can address them and take action," Jerker Engstrand said.

The company plans to add an enterprise-wide fraud detection system that will segment risk areas across stores. LP working groups in each market will be tasked with combating these risk issues. Jerker Engstrand added, "I believe responsibility and ownership are key factors to achieving lower shrinkage levels."

Stockmann's current efforts have contributed to a drop in shrink on high-value goods from 14 percent to 6 percent. In its fashion and apparel category specifically, the company has slashed loss from 2.8 percent to 1.4 percent, which "improves gross margin, adds customer satisfaction in our stores and requires less handling of goods for our staff," he explained. "Our LP efforts are improving profits and operations. LP strategy is all about good sales, good visibility and customer service for the stores — as well as making money."

Deena M. Amato-McCoy in a New-York based Apparel contributing writer focused on business and retail technology.

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