How can RFID reduce losses and improve loss prevention?

One of the great challenges of managing retail loss is the lack of precise data on its causes, making the development of ameliorative actions more akin to guesswork than calculated intervention. The reason why the causes of most losses remain unknown is due to the way in which loss or ‘shrink’ data is often generated.

Typically, a retailer’s shrink number will be calculated when periodic physical stock audits are undertaken, which reveal the difference between the amount of stock (either in terms of value or number of items) the system thinks the business should have on hand (based upon the difference between the amount of stock acquired versus the amount sold through checkouts), and what is actually present. The discrepancy is ‘shrink’, often expressed as a percentage of the total amount. So, a company that buys 100 units and sells 80, with 10 remaining in stock has a shrink rate of 10% – 10 items have gone missing. Because there is very often a time lag between when an item has gone missing and when a physical audit takes place that recognises the loss (for those undertaking annual audits, it could be up to a year), it can be very difficult to know why it happened. Did the item ever arrive at the store? Was it returned to the supply chain but the transfer not recorded? Did a customer steal it? Did a member of staff steal it? There are many reasons why losses may occur but very often because of the data time lag, ascertaining the root cause is almost impossible. Given this, the potential for RFID systems to generate stock level data much more frequently and potentially enable awareness of product location, could mean that those responsible for loss prevention should have better quality data to understand how losses are affecting a retail business and build better strategies accordingly.

In addition, some retailers are now beginning to use their RFID systems to identify when a Returns Fraud is occurring. This happens when a thief returns an item that was originally stolen for a refund. Because existing barcode technologies do not record whether any given product has been sold or not (it simply identifies it as a particular type of product), then thieves can exploit the refund process and request cash or credit for items they did not originally purchase. The benefit of RFID is that because each product is uniquely identified, and its status potentially recorded in a database, then a member of staff working on a refund desk can be in a much clearer position to decide as to whether it is appropriate or not to issue a refund.

In a similar vein, some retailers have been using their RFID systems to generate an alert when an unpurchased product leaves a store (operating in a similar way to EAS tags, described elsewhere in this FAQ). Again, the big advantage of RFID in this scenario is that there is the potential for the alarm responder to be made aware of which particular product has triggered the alarm, something that most existing EAS systems cannot achieve. This then makes the stop and enquire process much quicker and more focussed. However, some retailers that have tried using this functionality of RFID have run into difficulties around read accuracy for certain types of tag, and of course, where the tag is merely a paper label, then the thief can simply remove the tag before exiting the store.

Finally, some retailers have argued that they purposefully do not want their RFID tags to be viewed as a security tag – the primary benefit of RFID to them is to improve stock accuracy and so this could be compromised if thieves begin to actively remove tags in order to evade detection. This can of course be dealt with to a certain extent by the application of hard tag RFID technologies, but this brings with it additional tag application and management costs that could undermine the ROI business case for introducing RFID in the first place.