SOLVING SHRINK

KELLY GATES

Shrink in nonfood categories has not shrunk. Despite new and improved loss prevention strategies and advanced anti-theft technologies, many retailers still don't have a handle on shoplifting.

Some blame employee negligence. Others claim that the high cost of security equipment and the extensive manpower required to effectively monitor a complete system are not worth the hassle.

Whatever the excuse, shrink is a matter that can't be ignored, retailers told SN.

“Shrink is definitely a big problem for us,” said Mike Bevel, category manager, Minyard Food Stores, Coppell, Texas. “Razor blades, condoms and pregnancy tests are commonly taken. We also have problems with Tylenol PM because a mixture of heroin and Tylenol PM, a drug called ‘cheese,’ is popular in our neighborhoods.”

While Minyard Food Stores has OTC drugs, the retailer doesn't dare carry higher counts of analgesics. Most of its stores lock up selected HBC items priced at more than $10. High-theft items like Tylenol PM are either under lock and key or heavily monitored by store personnel.

“Obviously, when we lock an item up, it kills sales. But we haven't found a better way to handle it so far,” Bevel said. “We have Checkpoint [a tag-and-sensor-based security system], which does deter shoplifters, but it doesn't stop them.”

Al Jones, senior vice president, procurement and merchandising, Imperial Distributors, Auburn, Mass., agrees that extreme merchandising measures, such as hiding or isolating product, can backfire on retailers.

“People are pulling razor blades out of the aisle and putting them up only at the registers,” said Jones. “Shrink might go down 50%, but sales could also decline 50%. If by managing shrink you're eliminating sales, it's not a good thing.”

Indeed, such tactics haven't curtailed theft. According to the 2006 Retail Shrink Study by National Retail Research Group, Scottsdale, Ariz., shrink during 2005-2006 totaled 2.76% of overall retail sales. The study, which consisted of 108 participating supermarket companies, representing 26,280 stores, also revealed that general merchandise accounted for 19% of nonperishable shrink, while HBC shrink was at 14% during the same time period.

“In the past eight years, the percentage of overall shrink has varied slightly, but it has never dipped below 2.25% of total retail sales,” said Larry Miller, director of the research group. “A lot of people talk about loss prevention programs and about employing new concepts, but very few companies live it, and as a result, shrink is still a big source of profit loss.”

Cigarettes, over-the-counter medications with pseudoephedrine, vitamins, and drugs like chondroitins, which can cost upwards of $50 per bottle, are repeatedly stolen, he said.

Instead of putting such items on lockdown, Miller suggests relocating them to more visible locations of the store where both consumers and store employees can easily see them.

Endcaps up front are ideal. The first few feet in aisles, particularly those adjacent to busy checkout lanes or a customer service desk, are also good locations, he said.

Rearranging products is a great idea. Forgoing certain items altogether is not, Jay Goble, vice president of merchandising, Valu Merchandisers Co., Kansas City, Kan., told SN.

“There is resistance on the part of the retailer in many cases, at least in a traditional supermarket, to put in a product that has a high retail ring,” he said. “That will be very problematic going forward as many of the prescription drugs switch to OTC, and as more high-tech beauty care products for anti-aging and other purposes come into the market. If [shoppers] can't find the items they want, they're not going to have legitimate shopping experiences.”

Products on Goble's list of routinely stolen goods include teeth whitening strips — especially those priced at $30 to $40 per box — as well as Prilosec and videos. These items aren't usually taken for personal consumption. They're often resold online or at flea markets, he said.

High-Tech Defense

Merchandising strategies aside, many retailers turn to technology to help deter or catch thieves.

Goble, for one, believes that retailers should take advantage of technology whenever possible to combat pilfering.

“Having a virtual system is probably most effective, such as an electronic surveillance system that can track a shopper's activity from when they get out of the car in the parking lot to the time they leave the store and points between,” he said. “That, along with tagging, is what the best-in-class are doing.”

Supermarkets could learn a thing or two about security from drug chains, claimed Charles Yahn, vice president of sales, retail development, customer service and pharmacy, Associated Wholesalers Inc., Robesonia, Pa. Yahn believes that the high value of the products in drug stores inspires the extra effort to guard their goods. He hopes food stores will follow suit.

“Drug stores have scanners on the front end, cameras in the store and, in general, more awareness,” he said. “That's what we in the food business have to do. The company that says it can't afford to spend money on loss prevention technology is sending a real message to the consumer and to the employee that they're not watching shrink, so it's okay.”

Security gates are an important part of the equation. However, current electronic article surveillance technologies aren't standardized, and therefore don't make economic sense to most retailers, he added.

Another thing that has kept many supermarkets from committing wholeheartedly to technology is inefficiency, said Warren Brown, director of marketing, IntelliVid, a security software company based in Cambridge, Mass.

“By the time a customer or store employee discovers an empty shelf, the shoplifter is usually long gone, and they might have to search through weeks of video to figure out when it happened and who did it,” he said.

IntelliVid makes software that instantly alerts store personnel when large quantities of camera-monitored product are removed from the shelf, said Brown.

Cameras are rarely utilized to their full potential in supermarkets, according to Larry Ishii, general manager, GM/HBC, Unified Western Grocers, Commerce, Calif.

“When cameras are there, sometimes they're not even hooked up to anything,” he said. “What would help is if someone developed a special kind of unit for merchandising, one that limits the amount of product that a would-be thief could get at a given time, so we wouldn't have to rely on a camera.”

Anthea Jones, group vice president, center store, Bi-Lo, Mauldin, S.C., likes the idea of anti-swoop devices, which make it difficult to wipe out an entire section of product quickly.

Skin care is a popular category for shoplifters at Bi-Lo. Everything from lotions to Olay's line of Definity items and other upper-tier facial products are regularly stolen. DVD is another target of criminals. “A lot of retailers are taking advantage of scan-based trading programs for things like videos,” he said.

While technology is a great tool in a retailer's arsenal, humans can be just as effective, if not more so, according to Bill Mansfield, president and chief executive officer, VIP International, Garland, Texas.

“Every time I go into a Wal-Mart, I see many stockers, service providers and people within the aisles that are not customers, they have Wal-Mart badges on,” he said. “It's all about people.”
Additional reporting: Dan Alaimo

Theft From Within

Thieves aren't just coming from the outside. Employees are responsible for a significant portion of shrink in stores. They have the greatest access to products and tend to know a store's security methods — or lack thereof, said Al Jones, senior vice president, procurement and merchandising, Imperial Distributors, Auburn, Mass.

“Employees can hit you the hardest, and always do,” he noted. “When it comes to preventing shrink, look to yourself.”

Sources of internal shrink include employee dishonesty and unintentional errors, noted Larry Miller, director, National Retail Research Group, Scottsdale, Ariz. It also results from cashier error and “sweethearting.” Sweethearting is when a cashier consciously undercharges, gives cash refunds that aren't deserved or allows a friend to walk away without paying for items, he explained.

“Sometimes, thieves are in collusion with a store employee who simply walks product out the back door and loads it into a waiting vehicle,” said Miller. “You've got to make the consumer, plus the employee, aware that you're watching, you're doing things to catch them. Upping the awareness is the way you reduce shrink, whether it is internal or external.”

Security devices can do double duty, said Warren Brown, director of marketing, IntelliVid, a security software company based in Cambridge, Mass. For instance, the same cameras, recording equipment and tracking technology that watch shoppers can effectively monitor employees. But there are other ways to specifically detect employee problems, he said.

“Retailers can use cameras and surveillance to watch employees,” said Brown. “They can also implement technology that automatically tracks POS transaction reports and picks up suspicious patterns. A cashier who hands out cash refunds unnecessarily will surely be detected using this method.”

Whether the answer lies in technology, merchandising strategies, purchasing concepts or people — or a combination of all these things — the retail industry must be proactive, said Anthea Jones, group vice president, Center Store, Bi-Lo, Mauldin, S.C.

“We need to continue to look as an industry at ways to make sure we can get and keep our products on the shelf where they are available to the consumer,” he said, “whether it be putting safe spots on the product, putting product in clamshells or making sure there's technology at the shelf that deters theft. Something needs to be done.”
— K.G.