Introduction

The fact that both customers and employees steal is a persistent – and costly – headache for retailers of every size, from megastores like Wal-Mart and Target to your “Mom and Pop” local drug or grocery store. Indeed, large retail chains spend great sums in the area of loss prevention to counteract both internal and external thieves. And overall, the impact is substantial – and far greater than most people realize. The theft losses experienced by retailers are driving consumer prices higher, hurting our economy, and even forcing some retailers to close stores or go out of business.” In the U.S., studies consistently show that retail theft causes losses of between and billion annually. Yet, retail theft is in all actuality a global problem on a massive scale. In fact, according to a recent study from the Center for Retail Research, the world’s retailers lose almost 0 billion annually to theft!

Shoplifting 101

            The “five finger discount” has become an all-too accepted part of the American lexicon. In recent years, we’ve seen celebrities, politicians, sports stars caught in the act of shoplifting items of little real value, but with embarrassing and grainy store surveillance footage showing-up on the cable networks and YouTube – often with career-devastating consequences. All too often however, shoplifting is an all too pedestrian crime, being the outward manifestation of a person’s deeper demons. In fact, the vast majority of “traditional” shoplifting is carried out either by those with psychological problems (typically kleptomania issues, as well as depression and low self-esteem) and/or those with need for money (drug, alcohol, and gambling addiction being a prime motivator).  Research from the anti-shoplifting education group, Shoplifters Alternative (SA), shows that such habitual, non-professional shoplifters make-up approximately a quarter of all shoplifters. However, their impact is quite significant, due to the sheer frequency of their stealing. In fact, the SA study showed that such “frequent stealers” may account for as much as 85% of the dollar losses from shoplifting!  

            Shoplifting problems are not uniform across the retail sector.  Indeed, as can be seen in Table 1, while the overall retail theft rate is approximately 1.5% of retail sales, the actual loss rates vary greatly across retail segments.

Table 1 – Shrinkage Levels Across Various Product/Store Categories

Item/Store Type

Percentage

Cards, gifts, floral, and novelty

4.70%

Books and magazines

3.71%

Accessories

3.36%

Crafts and hobbies

2.25%

Supermarket and grocery

2.24%

Men’s and women’s apparel

1.92%

Women’s apparel

1.84%

Auto parts and accessories

1.81%

Discount merchandise chains

1.65%

Drug stores

1.58%

Average shrinkage rate in retail

1.57%

Home center, hardware, lumber, and garden  

 1.54 %

Department stores

1.45%

Children’s apparel

1.44%

Sporting goods and recreation products

1.34%

Convenience stores

1.17%

Entertainment, media, games, video, and music

1.15%

Shoes

1.05%

Liquor, wine, and beer

1.00%

Warehouse clubs

0.78%

Office supply and stationery

0.69%

Household furnishings and housewares

0.68%

Optical

0.54%

Consumer electronics, computers, and appliances

0.53%

Jewelry and watches

0.28%

Furniture

0.22%

Source Data: Hollinger, Workplace Dishonesty, Loss Prevention, December 2007, pp. 16-17.

The Economics of Shoplifting

            At present, there are two major developments that are poised to significantly raise the profile of the shoplifting problem for retailers. First, shoplifting is fast-shifting from being predominantly a crime of opportunity carried-out by individuals to the focus of criminal enterprises with the rise of what is being called Organized Retail Crime (ORC). According to the Federal Bureau of Investigation, organized retail crime accounts for as much as billion in retail losses annually. And these organized shopping gangs exact far more economic damage on retailers than traditional shoplifters (swiping a CD or a dress) or an economically-motivated shoplifter (stealing food or drug items for personal or family use). In fact, while the typical shoplifting case perpetrated by an individual averages a loss to the retailer of just over a hundred dollars, the average loss from each ORC shoplifting case is over ,000!  There have been numerous crackdowns on ORC rings that have been caught with millions of dollars worth of goods. A raid earlier this year in Florida of a storage facility used by a single ORC enterprise uncovered a stash of stolen retail items valued at between and 0 million! ORC enterprises commonly make use of teams of trained shoplifters that steal large quantities of items – often hitting several stores in a single day – that can be sold both offline (through street sales, flea markets, pawn shops, swap meets, and even through nefarious wholesalers reselling stolen goods to other retailers) and online (through eBay and other auction sites, as well as specialty websites) for quick returns that are often used to fund further organized crime or even terrorist activities. In addition to targeting easily resold name-brand clothing and personal consumer electronics items, ORC gangs frequently hit pharmacies and supermarkets for high-demand items, such as over-the-counter medications, pain relievers, teeth whiteners, diabetic test strips, infant formula, hair restoration formulas and shaving products, where some retailers targeted by ORC operations report loss rates as high as 25 percent of sales on specific product categories! This has led public health officials to become quite concerned that ORC could lead to significant health issues, as items that can easily spoil if not maintained in a temperature-controlled environment, such as baby formula and over-the-counter medicines, are being resold to often unsuspecting consumers who think they have found a “good deal.” The second cause for shoplifting to be on the rise is the fact that people are struggling to cope with rising prices and a sluggish economy. This means that not only are retailers reporting a rise in so-called economically-motivated shoplifting of “staples” (food, drug, and clothing items), there is a growing market ready to buy the ill-gotten goods being sold by ORC enterprises. Thus, the criminal and economic trends are intertwining, making leading retailers quite concerned that we may see an accelerating shoplifting problem across the retail landscape.

The “Arms Race” in Loss Prevention

Preventing shoplifting is clearly an unfortunate, but very real “arms race” between retailers and the people – customers, employees and pure thieves – who enter their premises. Over the years, the addition of anti-theft technologies, including closed-circuit television cameras, electronic article surveillance (EAS), and point-of-sale monitoring systems has aided retailers in not just preventing thefts from occurring, but establishing an evidentiary record that makes it easier for them to recoup restitution and effect successful prosecutions. One of the leading academic experts on shoplifting, Dr. Richard Hollinger, a criminologist at the University of Florida, believes quite simply that the firms that are willing to commit the most resources to combating shoplifting “will be those that have the best chance to win the growing war against retail crime.” Yet, with retailers suffering substantial economic pain as a consequence of the slowing economy and lowered consumer spending, chains have been cutting back in many ways. Planned store expansions and capital spending on various items – including technology – have been slashed, as well as personnel, leading to less sales staff on the retail floor. With fewer clerks walking the store, there are more “dead zones” – unobserved areas – providing even greater opportunities for individual and conspiratorial shoplifting to occur. Preference Research, an independent research firm, recently issued its Loss Prevention Budget Trends Report, which showed that cutting loss prevention budgets could be an especially troublesome strategic move in a down economy. This is because their research showed a significant correlation between reduced spending on loss prevention efforts and increased levels of retail theft.

Certainly, most elements of loss prevention spending – such as security cameras, monitoring, EAS tagging, and personnel – are readily identifiable as expenditures specifically tied to preventing the occurrence of retail theft. The ROI of such investments can only be judged by their effectiveness in curbing both external and internal theft. However, this is not the case with an emerging application of RFID technology as a supplement to – or even replacement for – traditional electronic article surveillance, due to the myriad benefits and possibilities brought about by RFID.

Today, there is already excitement about the prospects for RFID to be applied at the item level in retailing. In both Europe and the United States, we are seeing exciting in-store applications in bookstores, electronics retailing, and grocery stores, bringing about new possibilities in customer service, business intelligence and inventory management. Now, RFID is poised to become the latest weapon for retailers to deploy in this arms race against shoplifting, especially in light of the increasingly aggressive and sophisticated threat coming from the organized retail crime element. In essence, while electronic article surveillance has become the retail industry standard for anti-theft technology, RFID presents a new weapon – perhaps the nuclear option – to both provide retailers with better business intelligence on what is in store – and what has left the store through shoplifting – and to perhaps help deter retail theft in the first place. With RFID poised to become an anti-theft device as well, this presents retailers with an important additional business benefit from item-level tagging that will help bolster the ROI equation for RFID deployment in the retail enterprise. In time, if RFID can replicate the function served by EAS on retail items, this could eliminate any need for items to be tagged with both types of tags, further aiding the push for RFID tagging. 

RFID as an Item Surveillance Tool

There are already pilots and experiments underway to test the effectiveness of so-called “dual function” RFID tags that simultaneously serve both as item-level identifiers anti-theft devices. The latter capabilities utilize bits of memory on specially designed RFID tags to replicate the function of EAS tags that can be turned “on” or “off” to indicate if an item has been purchased or not, and as such, can be properly removed from the store. Last year, both Checkpoint and UPM Raflatac announced they would both be offering EPC Gen 2 tags incorporating traditional EAS functionality. UPM Raflatac’s tags have been field tested by Northland, an Austrian retailer of outdoor sports apparel and equipment. Northland recently conducted a pilot at its store in Graz, Austria, tagging approximately 1600 items – comprising the entire stock of items available at the store, with the exception of low-value accessories items – with the combination tags from UPM Raflatac. Likewise, the Information Technology Research Center (ITRC) at the University of Arkansas recently released the results of tests it conducted on the effectiveness of such RFID dual function tags in simulated shoplifting scenarios. While conducted in the laboratory facility of the ITRC’s RFID Research Center, the tests closely mimicked “real world” shoplifting, gauging whether or not RFID tags could approach the read rates of traditional EAS tags when a shoplifter wore an item, shielded the item with their body, or went running past the surveillance point.  The Arkansas researchers also tested the ability of as many as fifty RFID tags to be accurately read on a variety of apparel items, both in standard shopping bags and in “booster bags” (bags used by shoplifters that are lined with aluminum foil to make the items held inside undetectable by anti-theft surveillance systems at store exits). Each of the various scenarios was run thirty times, using both traditional, hard-form EAS tags and RFID labels. In many instances, the ITRC tests found that RFID labels performed as well as EAS tags. Even in ostensibly the most challenging test, when a tester placed 50 RFID-tagged items in the booster bag, RFID tags were read 77% of the time.

Both the applied and academic study of RFID functioning as EAS acknowledged that while some retailers may want to continue EAS tagging, feeling the need for 100% accuracy, RFID brings item-level surveillance to a new level. This is because unlike traditional EAS, which only alerts store personnel that shoplifting has occurred, RFID gives retailers the ability to know exactly when a theft took place and what items were taken. The specificity of theft information can enable retailers to use this improved visibility to not only update their inventory more accurately to replace stolen items more quickly (lessening out-of-stocks and potential lost sales and customer ill-will), but to perhaps spot trends in both internal and external theft more rapidly to enable better and more effective loss prevention strategies. The specificity afforded by RFID-based item surveillance data can also be used to enable law enforcement to better prosecute shoplifting cases, as specific items stolen on specific days can be more easily tied to specific perpetrators. Both studies point to the fact that challenges remain to the effective use of RFID in this capacity, such as designing RFID interrogators in narrow read ranges so as to not capture tags on items in the store that are not being stolen and taken through the exit doors, where EAS surveillance is typically stationed. However, with RFID surveillance in place, potential shoplifters could be spotted more easily in the store itself, when activities take place that are indicative of preceding an actual theft, such as attempting to remove a tag or gathering too many of one item, as is commonly done by the ORC theft rings as they seek out mass quantities of easily sold goods.

Thus, we may see a whole new direction in the fight against shrinkage in retail as RFID begins to be used more at the item level for improved visibility, inventory control – and electronic article surveillance. As Bill Hardgrave, Director of the University of Arkansas’ RFID Research Center recently observed: “If retailers got visibility into even just 75 percent of stolen items—that is, knowing what was stolen, where and when—that would make the cost of deploying the technology worth it.” In doing so, RFID could serve as significant deterrent to the “growth industry” that shoplifting has become today. 

Biography

David C. Wyld (dwyld.kwu@gmail.com) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/. He also serves as the Director of the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/), a hub of research and news in the expanding world of competitive bidding. Dr. Wyld also maintains compilations of works he has helped his students to turn into editorially-reviewed publications at the following sites:

Management Concepts (http://toptenmanagement.blogspot.com/)

Book Reviews (http://wyld-about-books.blogspot.com/) and

Travel and International Foods (http://wyld-about-food.blogspot.com/).                

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