Fresh approach to curb shoplifting

New technology is chipping away at a retailers' nightmare, writes Michael Baker.

Like many produce retailers, my nearest Coles, at Maroubra in suburban Sydney, is generous to a fault with its giveaways. My weekly visit there invariably begins with a spectacle I watch with fascination: shoppers filing through the fruit and veg department plundering the merchandise. They paw it, lift it up and hold it to their noses, bite into it and, all-too-often, straight out gorge themselves on it.

All in the spirit of "try before you buy", of course.

One recent Saturday I decided to try to interest a couple of the Coles floor staff in how much shoplifting of produce was going on under their noses, and how little I felt like buying the stuff after it had been mauled by other shoppers. I received an indifferent, even frosty, response, as though it was un-Australian of me to be bothered what other customers were doing.

Staff are a large part of the shoplifting problem worldwide.

In many instances, they are the only problem.

According to the most recent Global Retail Theft Barometer (GRTB) put out by Britain's Centre for Retail Research, employee theft accounted for 35 per cent, or $41.7 billion, of global shrinkage at retail stores in 2011. Customer theft was responsible for 43 per cent, or $51.5 billion; the rest was attributable to internal error (for example, incorrect price-tagging) and vendor fraud.

The Centre for Retail Research estimates Australia's retail shrinkage amounted to just over $2 billion in 2011, equal to 1.4 per cent of retail sales. This placed Australia 18th internationally and fourth of developed countries behind the US, Canada and Belgium. Globally, department stores, sellers of auto parts and clothing retailers have the highest rates of shrinkage.

Grocery stores are not just a target for shoplifters; they are also particularly susceptible to spoilage in fresh-food departments. Coles has made inroads into the latter problem by better managing its inventory in recent years.

Other Australian retail chains have tackled shrinkage aggressively but, overall, it is a problem that is growing, according to Centre for Retail Research data.

How to combat shrinkage

In a small greengrocers, I've seen a little sign above the grapes bin informing consumers that trying one from the bunch will cost them 20¢ each. Good luck enforcing that. Larger retailers are combining human security and technology. Some of these solutions are very conspicuous, such as the security guards minding exits of JB Hi-Fi stores (a retailer that has been notably successful in keeping down shrinkage in a sector that is naturally predisposed to it).

Foremost among technological fixes is radio-frequency identification (RFID), which is being extensively trialled by global retailers such as Walmart and Macy's. It is used mainly for improving inventory management and accuracy. This also makes it a key enabler of omni-channel retailing, because when retailers know what their stores stock, they can systematically use it to fill online orders.

RFID involves attaching a small chip or "tag" to each item of merchandise that acts as its unique identifier. These tags are readable from hand-held or fixed scanners using radio frequencies.

The chips are analogous to barcodes but work better, because they can be read from a distance and do not need to be lined up precisely with the reading device. As stolen merchandise leaves the store, RFID can make the retailer aware of it in real time. This makes it useful to combat direct theft by employees as well as by customers.

The widespread deployment of RFID has been held back largely by of the cost of the chips, which have now come down below 10¢.

Until RFID becomes universal, more down-to-earth measures are necessary and staff training and personal integrity are key. The people on the selling floor have to be encouraged to take an interest. Yet with store employees currently ripping off about 80¢ worth of merchandise for every dollar's worth that customers grab, that isn't as straightforward as it seems.

Of course, if it's all just too hard, you could always try out the loyalty-building practices of Floyd Hall, former chief executive of US retailer Kmart, as cited in the satirical publication Economy of Errors. In the spoof, Hall institutes a policy to "tap the hidden value of the retailer-shoplifter relationship" by allowing shoplifters to return stolen goods in exchange for other merchandise or cash if they are dissatisfied.

"Many shoplifters are young or low-income individuals who at some point may be able to pay for merchandise. When they can, we want them to think Kmart," Mr Hall said.

Michael Baker is principal of Baker Consulting and can be reached at michael@mbaker-retail.com and mbaker-retail.com.