Inside Job

Jun 1, 2003 12:00 PM, By RANDY SOUTHERLAND

Some people just don't like to pay for things. When a shoplifter walks out of a store with an item cleverly concealed in an oversized jacket, it's chalked up to shrinkage.

Shoplifting, when combined with employee theft and administrative error, marks a decline in inventory — a staggering $46 billion annually according to one Ernst & Young study. And when profits take a hit, retail prices are usually hiked to make up the difference.

That explains why retailers devote considerable resources to curbing this all-too-common occurrence. Sensors scan customers for tagged items — usually shoes and clothing — and sound an alarm if a cashier hasn't deactivated a protective tag.

Needless to say, even though companies have increased security methods, added guards and improved protection in general, shoplifters have become more resourceful. Source tags can be removed, and merchandise walks out the door with no one the wiser — at least until inventory count.

That was the problem faced by West Nyack, N.Y.-based Footstar Inc., a footwear retailer. “Previously, we relied to a limited extent on external tags that were visible to customers, and also on the vigilance of store security personnel to reduce shoplifting losses,” says Bill Jackstat, senior director of Far East Operations and Quality Administration. “We soon realized that external sensors were not the answer, because those things were being taken off.”

Like so many other companies, Footstar found that approach had only limited success at best. They needed a better approach, particularly for their more expensive lines of shoes. To protect its inventory, Footstar began sealing security tags within the material of the shoe during the manufacturing process.

Big operation

Footstar has plenty of inventory to protect. Each year the company imports more than 100 million pairs of shoes — many from factories in mainland China. The company operates the Just for Feet superstores and Footaction USA stores — both major providers of athletic footwear. In addition, its Meldsico line is a major player in the discount footwear market, with more than 6,500 locations and a 17.4 percent market share nationwide.

Footstar discount shoe sections can be found in Kmart, Federated Department Stores, Rite-Aid and Ames stores. The company also has a fast-growing operation in Puerto Rico called Shoe Zone.

Three years ago the company began a source-tagging program employing Ultra-Strip III EAS (Electronic Article Surveillance) security labels supplied by Greensboro, N.C.-based Avery Dennison Retail Information Services. The effort was first implemented in men's footwear products retailing at $29.95 and above, including work boots and Thom McAn shoes in Kmart and Shoe Zone stores.

The tags were selected because they are compatible with the Sensormatic anti-theft devices already used by the stores. It also helped that Avery Dennison, which operates in more than 30 countries and manufacturing zones around the world, is able to deliver the tags to two dozen selected factories throughout China.

“We don't charge our factories for these sensors so our factories can contact Avery direct,” Jackstat says. “Avery will ship the sensors to these factories.”

In addition to providing security labels, Avery Dennison also supplies more than 500 million price labels, tickets and hand-tags to Footstar each year.

The security labels, which measure about two inches by four inches, are inserted into footwear during the manufacturing process in a secret location in the mid-sole or insole areas. At the retail stores, the embedded labels are invisible to customers and, owing to their design, cannot be removed. Instead, a store clerk deactivates the labels at the time of purchase. A customer trying to leave the store without having the labels deactivated will trigger an alarm at the entrance to alert security personnel.

To discourage would-be thieves from trying to make off with merchandise, the back of each price label carries a message stating that all shoes are sensored, and signs posted in the department warn customers they can't leave the store without first getting the shoe tags deactivated.

If a culprit leaves without passing through a security gate, he's not out of the woods. Many stores use these same Sensormatic gates, and a still-activated tag will trigger the alarm every time the shoes pass through.

Footstar works closely with Kmart to ensure cashiers are trained properly to deactivate the sensors while customers are at the register. The company developed a training film for employees to ensure they know how to deal with the tags and that customers are not called back after inadvertently setting off an alarm.

In fact, during the first three years of the program, the inclusion of internal sensor labels has reduced losses due to theft by more than $1 million in men's work boots alone. Jackstat estimates that during the course of the effort, more than $4 million in shrinkage has been eliminated from the men's shoe line.

An expanding program

Since the successful introduction of the internal sensors to the men's line, the company also plans to expand the use of sensors to its infant and children's shoes, which are some of the most frequently stolen items.

“We have to look at a different tag,” Jackstat says. “Using embedded labels for children's shoes is more difficult from a source-tagging perspective. The security labels used for men's shoes are too large, but we've managed to overcome the technical challenge and believe we have developed an alternative method that is just as effective.”

For the Record

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