SUPPLIER OUTLOOK 1999-01-18

DEENA AMATO-McCOY

SCOTTSDALE, Ariz. -- The supermarket industry is already well aware of loss-prevention technology's ability to bring quick returns to the bottom line. But that's only a fraction of its potential. By adopting an overall philosophy of linking loss-prevention techniques to other key store systems, retailers can cut shrink rates dramatically as well as improve overall retailing operations.

"Retailers are investigating how to step up to a new generation of profit recovery," said Larry Miller, president of Trax Software & Consulting here. His vision of the potential offered by loss-prevention technology requires companies to implement a comprehensive strategy that unites store-level associates, integrated information technology and the support of vendor partners.

Retailers pursuing this approach will need to rely on more store-level associates who are attuned to innovative and sophisticated technology opportunities, Miller told SN in an exclusive interview. These "technology-savvy" store managers could help retailers direct loss-prevention efforts as part of total store operations, as well as spur the use of innovative applications such as data mining and sophisticated data analysis.

Technology vendors can and should play a role in such comprehensive loss-prevention programs, by integrating their own applications and offerings more closely. Linking loss-prevention applications with current store systems, such as point-of-sale, labor scheduling and direct store delivery applications, would allow retailers to curb, if not eliminate, unnecessary shrink, Miller said.

To achieve the power that a united front of technology vendors could provide, however, these manufacturers need to work together, on behalf of the retailer, to provide integrated systems and deliver support to retailers.

Even as these new technologies evolve, however, shrink continues to rise, according to the upcoming 1999 Shrink Survey, conducted by the National Supermarket Research Group here. The group is composed of corporate sponsors Kyrus Corp., Greenville, S.C.; Senn Delaney, a unit of Arthur Andersen, Chicago; IBM, Armonk, N.Y.; NCR, Dayton, Ohio; Sensormatic Electronics, Boca Raton, Fla.; Trax Software here; and accounting software firm FMS, Baltimore.

The level of retail shrink among supermarkets is 2.48% of retail sales, an increase from 2.24% last year, the study found. Employee theft continues to be the leading component of store shrink, as survey respondents reported internal theft accounted for 56% of store shrink.

"Preventing loss caused by shrink is one of the last pure profit frontiers," said Miller. "Loss continues to occur out there, but it is recoverable."

In order to lower these statistics, retailers cannot rely solely on "tried-and-true" technologies like electronic article surveillance tags, source tagging and closed-circuit television systems. Rather, supermarket companies need to merge the intelligence of their staff, the use of innovative technologies and vendor support, according to Miller.

"This three-part approach -- people, processes and technology -- needs to be in place for the technology vendors to deliver quality service," he said. "That is the vendor of the future, and this methodology will allow us to become a profit partner for the retailer."

First, retailers need to deploy professionally trained and technologically savvy store managers, Miller told SN.

"In the information age, information is not 'king,' using it is," Miller said. "A retailer's key secret weapon is a professionally trained store manager.

"Technology turns data into information, and information into knowledge," he added. "However, it takes competent people to use that knowledge, achieve superior results and give those bottom-line results back to the customer."

Next, retailers need to be aware of sophisticated applications, such as data mining. Though data mining is still in its infancy in the loss-prevention arena, eventually retailers will be able to use it to analyze stored data, and determine anomalous and detrimental patterns, according to Miller.

"Today retailers should be using intelligent communications to analyze data in order to draw definitive conclusions," Miller explained. "In addition, intelligent information systems should direct and automate store-level loss-prevention devices to function without human intervention. This technology is available today, but it is still being developed."

Finally, to achieve the intelligence level necessary for superior results, a "total package" of systems, or a merging of applications that connects the store from the front end to the back room, is required.

"The worlds of technology and operational excellence must come together," he explained. "Our smartest retail partners want to unite loss-prevention goals with financial, operational and technological goals for a 'total profit impact.' "

Trax Software hopes to be the catalyst for the transition to a more informed, technologically integrated store. Trax, which supplies productivity and security management applications, plans to release a template for an intelligent store-management automation system.

Miller is seeking to form strategic alliances with other technology vendors, including those offering products in the POS, DSD, time-and-attendance and labor-scheduling areas. The goal is to produce a suite of applications and training programs that will create an open data warehouse available "for cross-over analysis of all of these areas," he said.

The application will allow retailers to better pinpoint and control store operations, including shrink, he explained, noting the application is expected to be released at the Washington-based Food Marketing Institute's MarkeTechnics convention, to be held in New Orleans Feb. 24 to 26.

Currently, the loss-prevention vendor provides a suite of modules that integrates into retailer POS systems, enabling companies to monitor where loss is occurring with regard to cashier performance.

Among the long list of retailers that are successfully using Trax applications and seeing results are Jitney-Jungle Stores of America, Jackson, Miss.; D&W Food Centers, Grand Rapids, Mich.; and Bruno's, Birmingham, Ala.

Though Shrink Trax has provided impressive results for its users, Miller is thinking about how to enhance the value its applications provide retail partners. "I want to deliver breakthrough solutions to retailers -- not just applications that 'do things,' but strategic analysis that contributes to operational conclusions," Miller said.