Europe’s retail industry is facing a number of challenges. Consumer demand for cheaper prices contrast with manufacturer and shareholder desires for greater financial returns, while the rising cost of fuel and other raw materials is driving up product costs. Planning restrictions and rising land costs are also limiting the opportunities for retailers to expand their businesses, particularly in Western Europe. Nonetheless, retailers are investing in new markets and experimenting with new formats to meet local demands and consumer preferences.
To stay profitable against this backdrop, product protection remains a major priority for manufacturers and retailers. According to the European Retail Theft Barometer, the total cost of retail crime in Europe last year was estimated at around 32 billion euros, which equated to a staggering 70 euros per head for every person in Europe.
The four main sources of retail shrinkage – customer theft, staff theft, internal error and supplier theft – all present challenges to management seeking to monitor and reduce each of them. While customer theft continues to be the largest source of shrinkage – defined as loss of stock caused by crime, administrative error or wastage – theft by staff has been on a steady climb in recent years. Indeed, last year, staff theft was estimated to account for almost 30% of total retail shrinkage in Europe, at an approximate value of 8.7 billion euros.
The reality is that no one solution will be a panacea to the problem, but a number of product protection strategies and tactics should be deployed to create a total loss-prevention solution. In 2005, European retailers spent around 7.6 billion euros on security, with the two most common methods being the use of manned security guards and the deployment of electronic security equipment. In reality, a mix of these methods will continue to be adopted for the foreseeable future. Electronic security is, however, emerging as the critical player in the future of product protection.
EAS and source tagging
Often thought of as the cornerstone of retail security management, electronic article surveillance (EAS) systems are based on either acoustic-magnetic (AM), electro-magnetic (EM) or radio frequency (RF) technology. They consist of a set of pedestals located at the retail entrance/exit points and a label or tag affixed to each item within the store. A label/tag deactivator or detacher at the point of sale provides a smooth and efficient checkout process. Any attempt to remove a secured product from the store will activate an alarm as it passes through the pedestal.
Source tagging is the application of concealed EAS labels into or onto merchandise during the manufacturing or packaging process – in other words, at the source. This means that articles arrive ready-protected at the point of sale. Source tagging allows manufacturers to protect their products and provide floor-ready merchandise to their retail customers. For retailers, it can help to maximise merchandising techniques, product assortments and general store operations. Some of the benefits of source tagging include:
- reduced in-store labour costs
- improved accuracy of inventory management
- increased focus on customer service
- improved open merchandising opportunities
- the option of hidden tagging solutions
- improved accuracy of electronic data input and
- packaging reductions.
SmartEAS
Providing retailers with enhanced inventory protection and intelligence about how and why shrinkage is occurring, SmartEAS is the next generation of EAS technology.
Functions, such as intelligent alarm management, alert staff of EAS alarm activity and can record all of the details of alarm events, via digital CCTV. In this way, data can be used to identify not only what happened, but when, where and who responded. Information captured by SmartEAS solutions can be downloaded at any time or e-mailed to any nominated party as an incident occurs. It can also provide remote diagnostics to ensure systems are fully operational and online.
Other functionality, such as people counting, allows retailers to set benchmarks for consistently high performance across their stores, by gathering information on traffic patterns as people enter and leave their stores. This data can help store management to optimise staffing, gauge responses to promotions and determine sales conversion rates.
Otherwise known as data mining, exception based reporting (XBR) is a commercial data analysis tool that identifies trends and patterns in high-risk transactions, such as voids, refunds, credit card payments and discounts. It can also be connected to the in-store CCTV system for immediate image playback to ascertain exactly what happened during a suspicious transaction. The tool tracks exceptions using simple graphs and reports, facilitating the identification and control of potentially fraudulent transactions, and helping to manage each problem from occurrence through to resolution.
Radio frequency identification
One of the biggest technological developments to impact on the retail supply chain over the past ten years is radio frequency identification (RFID). Its full benefits are yet to be realised, but the key role of RFID in enhancing supply chain visibility will become more apparent over the next few years.
RFID identifies and tracks objects using radio waves. It communicates information to a reader from a tag that is placed on a product – via an antenna installed around a warehouse delivery point. The tag is effectively a small radio signal transmitter and it consists of a chip that contains unique information about the object it is attached to. The reader creates a radio frequency field that detects radio waves; so when a tag passes through this field, it transmits the unique information about the product back to the reader.
Currently, RFID is being used at the case and pallet level to track products through the supply chain, from manufacture to arrival at the retailer’s dock door. As the technology develops, this will inevitably progress to item-level RFID deployment, which will give manufacturers and retailers complete visibility right through the supply chain, from the point of manufacture to the point of sale. The potential benefits of this are obvious in terms of improvements in inventory management and operational efficiencies.
CCTV and integration
And let us not forget CCTV, which has been used in retail environments for many years, both overtly and covertly. The advent of IP-based surveillance devices allows the transmission of video over an IP network, making it possible to monitor premises both locally and remotely, in real time. Such capability offers a host of benefits from incident verification to response management and improved operational efficiencies.
Each of the technologies outlined above has a role to play in product protection and loss prevention, but it is important to understand that they should not operate in isolation. Technology integration is critical if the tactics deployed by retailers are to be successful. EAS has traditionally been used as a front-of-store solution to deter and prevent customer theft. Source tagging builds on this to help improve customer service and inventory management. SmartEAS brings valuable business intelligence to the party, while XBR software tracks exceptional transactions.
Although primarily used for monitoring, CCTV can play an even greater role when integrated with such intelligent tools. Finally, RFID, which provides the most efficient counting and tracking technology, can complement EAS, which is most effective as an anti-theft device. Together, these technologies can address each major source of retail shrinkage.
The future
Convergence is a word that is often used to describe the impact that technology development and deployment is having on various industries around the world. In industries such as utilities, telephony and electronics, new technologies are breaking down barriers and challenging how things have traditionally been done. The world of electronic security (or ‘physical security’ to those in the IT sector) is no different. In this market, convergence is already happening and will continue to accelerate. For example, marrying theft prevention technology with supply chain management technology has obvious advantages. Combination AM EAS/RFID products will be readily available in the next five to seven years. When this time comes, RFID will help get the right products to the right locations at the right time, and EAS and source tagging will help keep them where they should be for the customer to purchase.