LOSS PREVENTION 1998-03-09

DEENA AMATO-McCOY

Source tagging of products is one of the prime methods of making electronic article surveillance systems more effective, and could also provide the basis for more effective product-tracking technologies in the supply chain.

Yet widespread use of source tagging in the supermarket industry could be at least five years away, loss-prevention executives told SN. They cite still-high costs, both for the tags themselves and the labor to apply them, and disagreement as to whether retailers or manufacturers should bear more of the burden.

In addition, the lack of a common technology platform for source tagging also hinders its large-scale adoption.

Source tagging places devices within products or packaging that, unless deactivated, can be sensed by EAS systems at the point of sale or store exit. Tags put on at the manufacturing or packaging stage are also more difficult to remove or disable, increasing their effectiveness.

Source tagging has gained more attention as retailers seek cost-effective loss-prevention methods, especially for higher-ticket items that must otherwise be kept under lock and key to prevent shoplifting. Merchandising such items more openly can increase their sales, say retailers.

"There are a lot of vendors out there that are willing to participate in source tagging, but they want a good chunk of change to do so," said John Muzzi, assistant director of loss prevention for Giant Food, Landover, Md.

The antitheft tags can cost between three and five cents each, depending on the system used. Even if the manufacturer picks up this cost, the labor needed to attach the tags to merchandise has retailers anxious to see source tagging increase.

Retailers need to select loss-prevention methods and technologies that are appropriate for their particular business, taking into consideration their operating costs, said Dan Faketty, director of loss control at Super Kmart Centers, Troy, Mich.

"Grocery chains are operating on low profit margins, which puts supermarket owners in a different position [than mass merchants]," he said. "A major problem is the issue of manually applying labels," and seeing a benefit of reduced losses through reduced inventory shrink.

"Many man-hours are needed [at retail] to apply those tags, creating a labor-intensive process. We have yet to find an easy way to put them on product," said Giant's Muzzi. "There needs to be a willingness to share the costs and losses caused by theft of inventory," he added. "It is only fair. We sell their [manufacturers'] product, so instead of taking a beating it would be fair if manufacturers shared the cost of applying the labels."

Another issue slowing source tagging's growth is the lack of a common technology. There is no universal electronic article surveillance label used industrywide.

"We do not have a unified, single technology in terms of EAS tags," said Pete Johnson, director of loss prevention for Carr Gottstein Foods, Anchorage, Alaska.

Currently, retailers can choose from acoustical magnetic labels, which function best on foil, metal and liquid items, and radio frequency-activated units, generally used on health and beauty care items, including high-ticket over-the-counter medications. Retailers told SN that grocers and manufacturers need to determine the best system to use.

"I guess the market will determine what will be the result from a technology standpoint and how it benefits all of the players," said Kmart's Faketty.

Source tagging has proved popular in other industries. Some apparel manufacturers, for example, are looking at the advantages of sewing the labels into fabric, making them nearly impossible to remove. The variety of packaging and product sizes in the supermarket industry, however, makes such tagging more difficult.

Carr Gottstein is determining how to properly incorporate source tags into different types of packaging. "We need to find a way to make the tags difficult to remove or deface," said Johnson. "For example, if we are working with manufacturers to source tag a product and it is visible, it can be defaced and made inoperable.

"If the tag is outside the box, it can be detached. If it is inside the product's package, the product can be removed and the box discarded in the aisle. Neither of these options make the process any different than if we tagged items ourselves," he added.

"If there was a way to incorporate the tag with the product and seal it in the packaging differently, then there would be more of a benefit," said Johnson.

Once the tags are more effectively concealed, retailers expect to be able to display more of their higher-ticket items on the store floor, rather than keeping them under lock and key.

For example, many retailers still keep items such as cigarettes, batteries and film under a display case at the customer service station in order to minimize theft.

"We keep taking a beating when we display film and batteries," explained Giant's Muzzi. "We recently arrested someone for shoplifting $108 worth of batteries. We lose tons of money, but we are in a penny business."

But protecting the items also means limiting their sales, Muzzi added. "Our customers cannot get to it and we, and manufacturers, lose additional sales."

Tagging only a percentage of products rather than all of them, or fractional tagging, can be simplified via source tagging.

"Tagging only 10 boxes out of 25 acts as a halo effect because now the shoplifter does not know which items are tagged and which are not," said Super Kmart's Faketty.

While most retailers told SN they would like to see source tagging used on a large-scale basis as soon as possible, they predicted that such widespread use could be as long as five years away.

"It is possible to see this evolve within five years," said Kmart's Faketty.

"I would like it to happen soon, though it doesn't look to be in the near future," said Giant's Muzzi.

Source tagging could be jump-started with uses for the technology beyond loss prevention. "So far the cost is too high for the limited uses source tagging is providing," said Ken Fobes, president of the consulting firm IT Strategies, Ponte Verde, Fla. "It needs to be exploited to provide better customer service," for example, by tracking product throughout the supply chain.

"The industry should focus on source tagging in the form of a license plate, to be put on pallets and cases in order to identify content," he explained. These tags could be tracked virtually anywhere in the supply chain by manufacturers, wholesalers and retailers.