LOSS PREVENTION BEGINS AT THE SOURCE

Jun 1, 2002 12:00 PM, By KATE HENRY

With a hum to rival that of any hive, consumers swarm to retail stores every day, slapping down billions of dollars worth of bills and daring credit card processing machines to dance their digital jig in exchange for goods. Consumers want everything from food, apparel and appliances to decorative items and electronics, and when they expect to find those goods and are greeted with an empty shelf? Not pretty.

Why is the shelf empty? Perhaps, to the delight of the floor manager, the stock has sold out and can be swiftly restocked to meet continuing demand — or perhaps, to the certain chagrin of the store's loss prevention manager and security team, it is the result of “shrinkage” because of theft, fraud or error committed by patrons, employees or associates along the supply chain.

Since the late 1990s, retailers have depended on electronic article surveillance (EAS) systems as part of a layered defense against the $33.21 billion annual hit they take from inventory shrinkage, according to the 2001 National Retail Security Survey. EAS systems come in all shapes, sizes and configurations, but expecting retailers to shoulder the entire EAS burden — procuring hardware, affixing tags to the product and assuming costs — has proven illogical given the financial benefits to both retailer and manufacturer. More and more, the answer is source tagging — asking vendors to tag their goods at the point of production. Although many manufacturers are on board, tagging at the source has stirred up a new hornet's nest — stemming from the need to produce multiple inventories of products, tagged according to the EAS technology in place at the destination store. And just as retailers sit back to count the savings source tagging has delivered, new radio frequency identification (RFID) systems are demanding their attention, promising to extend the tracking benefits of source tagging to supply chain management.

STATISTICS DON'T LIE

Terry Hennessee, manager of merchandising shrink control for Lowe's home improvement stores nationwide, has first-hand experience with the profits and operational efficiency that effective source tagging delivers.

He says that for a source tagging program to be successful, support has to come from the top: “Your foundation has to begin with senior management — we have the support of our president and CEO — and you have to get the buy-in of your merchandising teams, your buyers and logistics folks before you go to the vendors and ask them to tag,” he says. “We do our homework and determine on a company-wide, regional or store level what's driving a product shortage. If we can prove it's a paperwork or administrative error, we don't need to tag, but if we can show our folks that an item is high-theft with the data to prove it, they can then show the vendor why to source tag. Without that support, we could be calling vendors all day asking them to tag with no success.”

Ed Wolfe is vice president of loss prevention for Polo Ralph Lauren, which will begin source tagging this year with Sensormatic's acoustomagnetic technology for its factory outlet and factory jeans stores. According to Wolfe, source tagging will reduce labor costs associated with tag application and increase efficiency. He notes that although source tagging is certainly the future, “the problem has been that retailers have not been concise in the type of request they're making of vendors. If you ask us to source tag, the question is how? And if you, as a retailer, don't know, it's hard for the vendor to do it consistently among its range of retail clients,” he says.

Historically, manufacturers have been reluctant to tag because they perceive shrink to be solely the retailer's problem.

Hennessee says that when Lowe's asks its vendor partners to tag, it expects them to pick up that cost and points out to them the benefit of doing so: “We're investing millions of dollars into the hardware in the store to help protect their inventory,” he explains. “Having a [tagged] product out of a locked area and out on the sales floor so customers can see it and touch it increases sales, as well as customer and brand loyalty. If they want a product that's displayed on the shelf only to find it's out of stock, you risk losing not only that sale, but also that brand loyalty as they choose another product,” he explains.

And numbers don't lie: “Our data showed an inventory control issue with the faucet product group,” Hennessee says. “In stores with EAS, there was a 77 (basis point) reduction in shrink; for stores without EAS, there was a 29 (basis point) increase in shrink — and company-wide, since we took faucets out of lockup in EAS stores, there was a 25 percent increase in sales for that product group. Certainly there are a variety of reasons for that increase, but we would like to believe source tagging helped,” he says.

He notes, though, that in a home improvement center, shoplifting is not limited to “pocketable” items. “We've had shoplifting recoveries on 1,500 pieces of tile,” he points out. “Or say we ask a vendor of big, bulky items to source tag, their first comment may be, ‘How would someone walk out with a generator or a pushmower?’ Well, the answer is, they put it on a flat cart and walk out the door. Like any other shoplifting attempt, they simply take possession and walk out,” Hennessee says.

He explains that Lowe's loss prevention strategies are tailored to the needs of individual stores — not all existing stores have an EAS program in place, but all new stores will.

Lowe's began testing its first EAS system in 1998 and implemented Sensormatic's acoustomagnetic EAS system the following year. Hennessee says a key criteria was being able to measure system response on the front end. “If an employee doesn't respond to bells and whistles at the front door, you can source tag every item in the building and it won't make any difference,” he says. “Having the ability to track deactivations is crucial.” He adds that at its EAS stores, Lowe's uses integrated CCTV to record all activation activity.

Wolfe also believes deactivation is one of three critical steps to any good EAS program and, he says, all three steps deserve equal energy and attention:

• putting the tag on in the same place 100 percent of the time;
• deactivating or removing the tag; and
• stopping the customer at the door and recovering the merchandise.

“If the tag is not in the same place every time,” he says, “it makes deactivation more difficult — and if you add difficulty to the selling floor, you add mistakes and inefficiency. Source tagging ensures a tag is in the right place, making deactivation rote, and that solidifies your ability to be successful.” He adds that not deactivating or removing tags properly creates more stops at the door that are not theft-related, which is embarrassing for store employees and ultimately deters them from checking alarms.

Major EAS manufacturers Sensormatic and Checkpoint, Wolfe notes, have in some instances incorporated deactivation devices into scanners at the registers. “If you can design something so that in one motion it has to happen every time, you'll have a higher ratio of merchandise recoveries to stops. If you make the process seamless, employees are happy to stop customers and recover merchandise, because they know they're protecting the assets of the company.

THE DREAM OF A COMMON STANDARD

Another potential cause for an errant alarm is a source tagging mix-up called “tag pollution” — when an active EAS label leaves a store without an EAS system and enters another store with a system, causing an unwarranted alarm.

That problem stems from the variety of EAS technologies on the market and manufacturers' having to ship products tagged one way to some stores, tagged differently to others and tagged not at all to others still — called multiple inventories.

Hennessee believes that although it may not be realistic to expect various retailers to use the same EAS technology, common ground can be found concerning deactivation at the point of sale: “Vendors can't afford dual or triple inventories [of differently tagged merchandise],” he points out. Although the need for more common EAS technology is long overdue.

Hennessee believes that a “nonpartisan” advisory board such as one recently created by the Source Tagging Council and staffed by retailers, manufacturers and tagging suppliers alike, can objectively drive those standards.

Hennessee notes that if the EAS industry can develop a well-functioning, affordable means for cashiers in any given retailer to scan a bar code and simultaneously deactivate any type of EAS tag within the product or its primary packaging, the issue would be well on its way to resolution.

The Consumer Products Manufacturers Association, which was founded in 1999 by Eastman Kodak, Johnson and Johnson, The Gillette Company and Procter & Gamble in part to examine the standards issue, reportedly advocates a [deactivation] “tower-centric” driven EAS model rather than the current “tag-centric” model.

Loss prevention professional Keith Wanke, former loss prevention director for Musicland, says that for the prerecorded music and video sector, source tagging “helped rewrite shrink history. Five years prior to [source tagging] being achieved, the shrink rate [for that sector alone] was 38 percent higher than all other retail sectors combined at 2.53 percent. In 1999 [after source tagging] the sector reduced shrink to 1.63 percent,” he says.

Wanke adds that in his career he has used many of the major EAS technologies and that considerations in choosing a system include:

• the ease with which it can be defeated by obscuring tags;
• detection rates and physical detection range;
• encumbrances to a storefront caused by detection pedestals;
• cost;
• the size or footprint of the EAS tag; and
• deactivation and reactivation capability.

While some retail channels do seem to favor one technology over another — hardware favoring acoustomagnetic, for instance, according to Hennessee, because the amount of metal at Lowe's makes it difficult for other technologies to function properly — not all channels have standardized on a technology. In the drug store channel, Eckerd and Walgreens use Checkpoint's RF EAS technology, while CVS uses acoustomagnetic. In the mass channel, WalMart uses acoustomagnetic whereas Target uses RF EAS; Kohls department store uses RF EAS whereas Lord & Taylor uses acoustomagnetic.

Wanke notes that the advantage to a sector committing to one EAS technology is the leverage it gives the retailer with manufacturers: “They won't [source tag] unless it clearly adds value,” he points out.

“Needing three separate inventories is a deal breaker from our standpoint,” Wolfe says. “It's like saying to a manufacturer, ‘I want bilingual packaging for different stores — for this store, send me English and French; for that store, send me English and Spanish.’ Now if you want trilingual packaging [for all stores], we can do that… but if we're going to source tag, separate inventories would change a number of things within our environment that would make it prohibitive.”

Retail marketing manager for ADT/Sensormatic Lee Pernice says the company has been working on products that can be used at the point of distribution to automatically deactivate either Sensormatic or other EAS tags to assist manufacturers with inventory management.

Dave Shoemaker, vice president for strategic marketing for Checkpoint, says the company has devised its own way to help manufacturers with multiple inventories — tags applied to product in the “off” mode that can be activated at any point in the supply chain, en route to an RF-EAS-equipped retailer. Shipments with the tags can be activated in bulk containers, regardless of tag alignment or orientation, according to the company.

AND ALONG CAME RFID

“The wave of the future will be RFID,” Wolfe says, “and when that tag becomes cost-effective, you'll see a dramatic change in the way we handle our merchandise. There are tremendous benefits to RFID that EAS doesn't present.”

Says Shoemaker, “Many of our consumer product companies want the source tagging circuit to evolve with greater value into RFID. We're looking at trials with products that perform classic source tagging functions — to make the supply chain more efficient. As we add more intelligence to our tags, the two roads will come together and move into RFID,” he says.

Shoemaker adds that libraries currently using Checkpoint's RFID technology for inventory and self-checkout — scanning tall stacks of books at once — serve as a model of a store of the future, and that it's where source tagging will go as well. He notes also that businesses are asking for variations on the technology to track products, files, computers and other assets.

Pernice says that ADT/Sensormatic believes that RFID will eventually be used for inventory management and as it advances, perhaps more for security applications. “We still see from the cash register to the front door as EAS for security — from the cash register back to the manufacturer as RFID for inventory management,” she says, in part because RFID cannot cover wide exits.

Wenke points out the different types of RFID: read only and read/write, and that the more functions it features, the greater the cost. Today, he says, the technology is down to about $1 per tag, and with new microchips, it will soon come down to about 50 cents each.

A difference between EAS and RFID development, however, appears to be consideration of uniform standards at the outset. Wenke likens RFID standards — which have been established — to UPC barcoding: The frequency they are transmitted on and other manufacturing characteristics have been determined.

As the call for standard EAS technology remains unanswered, RFID technology may prove to be the solution, turning asset management and shrink reduction into an item-by-item science, and keeping retail security operations humming smoothly and seamlessly along.

FOR THE RECORD

ABOUT THE AUTHOR

Kate Henry is an Annapolis, Md.-based writer and regular contributor to Access Control & Security Systems.

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HOW EAS SYSTEMS WORK

All EAS systems work in essentially the same way: Tags or labels with certain characteristics are affixed to product and activated; at store exit areas, a transmitter sends a signal to a receiver, creating a zone that detects tags that have not been deactivated at a register; when an active tag enters the zone, it sets off an alarm. But the systems use varying methods and levels of detection:

Acoustomagnetic systems use a transmitter that sends a signal at 58 kHz in pulses. The tag responds to the pulse. If certain characteristics are present, it creates an alarm.

Swept-RF systems use a transmitter that sends an RF signal at between 7.4 and 8.8 MHz, “sweeping” over a range of frequencies. In detection zones at store exit areas, the signal energizes the tag, connecting the components in a loop and passing energy back and forth or “resonating.” The tag then emits a signal detectable by the receiver. The receiver detects a phase difference between the two signals and if certain characteristics are present, creates an alarm.

Electromagnetic systems use a transmitter that creates a low frequency (typically between 70 Hz and 1kHz) electromagnetic field between two pedestals at exit areas that perpetually varies in polarity and positivity/negativity. The tag responds to the polarity, “switching” its magnetic state. Using electronic signal processing, the system verifies the harmonics, and if certain characteristics are met, creates an alarm.

Microwave systems comprise a transmitter, a synchronous receiver, a detector and alarm. The transmitter creates two signals — one a high frequency carrier “hopped” over a distinct signal band to avoid interference, the other a low frequency electrostatic signal. The tag includes a microwave diode and an antenna for receipt of high and low frequency. The tag mixes the two fields and re-radiates it to the receiver. If certain characteristics are met, an alarm is initiated.

SOURCE: AIM, a global trade association concerned with information management systems, www.aimglobal.org

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