Once all reporting comes through for 2023, analysts predict inventory shrinkage will account for around 2 percent of retail sales—the highest level in eight years.
While there are mixed reports and views on what precisely is responsible for the reported rise in shrink—some say numbers might be normalizing post-pandemic, for instance—many retailers continue to experience theft, and sometimes the violent kind, as a cause.
To help retailers better understand strategies to stop shrink at their higher-risk and extreme-risk stores this year, Loss Prevention Magazine hosted the webinar “Defining and Impacting High-Risk/ Extreme Stores” in partnership with LiveView Technologies, Salient Systems, CAP Index, and Genetec. Panelists included David Lund, vice president of loss prevention at DICK’s Sporting Goods; Dave Rogers, senior director of market asset protection leadership at Macy’s; and Chris Harris, director of asset protection and safety at Kroger.
DICK’S Layered Approach to Protection
DICK’S approach to preventing shrink in its stores starts with how it reviews its physical inventories, which the retailer is making changes to this year. Instead of the usual annual count it previously conducted, DICK’s will now conduct one each quarter to stay aware of trends across the company.
“Those counts, along with our weekly cycle counting, are going to give us regular monitoring of shrink trends in our stores all year long,” Lund said.
His team plans to pair inventory performance with incident count, type, and severity to help classify its stores into one of four risk grades. DICK’S typically looks at data over three years, focusing on its tier-three and tier-four stores—high-risk and highest-risk stores, respectively. There’s a difference, Lund said, between the severity of an incident and the severity of the loss.
“We certainly realize there’s a difference between protecting stuff and protecting people. And, of course, people are our priority,” he said. “The incidents are something that we really consider very carefully . . . even though the losses might not be that severe, some of the incidents might be.”
Crime statistics also inform DICK’s decision-making, mainly when opening up stores in new locations. That immediate retail node is often unknown to the retailer, and it doesn’t have visibility into the greater community and incidents that might be happening. The DICK’s real estate team also conducts local site surveys to determine any special needs they might need to consider to create a safe and profitable environment. Even for established stores, a lot can change throughout a long-term store lease period, Lund said, so Dick’s will look at adjacent retailers to see strategies they’re deploying if specific incident trends are occurring.
“We’re looking for things like mobile security deployments, security officers, off-duty police, special or extreme merchandise-protection strategies, things of that nature to help inform us about what we might be doing or should be doing in our location,” he said.
Depending on their expected or actual experience at a given store location, DICK’s takes the approach of adding more layers of protection. Lund said incident and shrink numbers can’t sufficiently inform a holistic decision strategy. So, the retailer applies some measures to all its stores regardless of risk tier, such as basic merchandise exposure standards, including tagging and protection requirements. DICK’s reviews and recalibrates these standards at least once a year based on what the category might be, the brands inside of that category, and then the price points inside of those brands.
Stores can also apply for exceptions if encountering a particular problem with a product or category. For instance, one sport might be more prevalent in a specific region and, therefore, be more at risk for theft. Exceptions typically have an expiration date because they can be tied to certain products that are hot at a given moment, and there are cost and labor factors to consider for adding tags or devices to items.
“We’re always working with our operations and merchant partners to carefully test and reduce tagging whenever we can as long as we can satisfy the needs of the business and our customers,” Lund said. “We want to reduce friction as much as we can.”
Additional components of DICK’s layering approach include security and surveillance tools and building perimeter protection, merchandising and staffing, and security or off-duty police officers. Store associates receive communications digitally, primarily via handheld devices, and often attend micro-strainings to stay informed. For their most extreme stores, they turn to a heavier deployment of security: off-duty police officers in addition to LiveView units outside the store and public view monitors inside the store to create an environment that not only is but feels safer.
“It’s worked in those spaces,” Lund said. “But it’s really important that you’re cognizant of your community.”
Macy’s Invests in RFID and Innovation
Dave Rogers said that one game-changer for Macy’s loss prevention strategy has been radio frequency identification (RFID) technology, which they’ve leveraged for over 10 years.
Most of the retailer’s goods have RFID on them, and they’re transitioning from barcode transitional scans to RFID for financial results. From an operational standpoint, this increases efficiency during the take, allows for more regular cycle counts, and saves on expenses.
It’s also spurred innovation. Using its learnings from switching to RFID and feedback from stores, Macy’s has developed a new scan tool for 2024 that allows colleagues to bring their own device, scan an item, and then see whether it’s being inventoried.
“It allows us to get better accuracy in making sure every unit on the day it’s supposed to be inventoried is as well as the mode it’s supposed to be,” Rogers said.
Macy’s has also innovated when it comes to reconciliation. Once Rogers’ team has the results from their scan tool, its built-in logic tells them where specifically they might be missing inventory down to the Universal Product Code (UPC) level and the missing quantity. This helps stores understand when they last received the merchandise in question, how to submit for reconciliation, and how to clean up the number as best they can to reduce the shrink and have an accurate inventory and assortment for the customer.
Beyond that, Macy’s looks at new vendor trends and takes a monthly RFID cycle count for most of its stock-keeping units (SKUs) to understand monthly shortages. The retailer can click on a link that shows a picture of the merchandise and where it is on the floor to get ahead of trends. Macy’s also conducts audits to understand shortages from operational reasons and other internal or external scenarios. Shortage controllers then review all facets of their audit program to gauge the store’s health.
“We don’t have to wait six months. We don’t have to wait four quarters. We don’t have to wait for a full year,” Rogers said. “We have a report card every single month of how we’re doing so we can monitor the trends and monitor the impact of our actions that are having on an annual basis as well.”
In terms of incident tiering, Macy’s takes a similar approach to DICK’s, where they have three categories that look at severity, complexity, and quantity as well as how they’re clustered across the stores’ enterprise. They rank their stores based on this data in addition to shortage results, apprehension metrics, and violence indexes from their proprietary algorithm. Customer and colleague feedback also comes into play. The totality of this intel enables the retailer to understand where it needs to adjust or continue reinforcing and promoting.
Macy’s has minimum protection standards and exceptions like Dick’s but also empowers individual stores to craft and improve their goods’ processes, protection, and placement to reduce shortages. Each store is responsible for executing the plan, the results against which are tracked. The retailer also monitors performance at a divisional and regional level so it knows how to develop and shift talent to address issues happening in specific stores.
“What’s important is that everybody understands what their role is, where and why, how we’re going after things,” Rogers said.
Smart exit technology, which Macy’s implemented back in 2015 with Tyco and now has in over 100 stores, married with serialized RFID tags, helps the retailer understand which items are leaving their stores unpaid or their trend issues, such as stores with a high without-sale rate. This includes tracking ORC activity using RFID geofences to see which stores suspects are hitting with specific merchandise to connect the dots with a few clicks. When integrated with Macy’s exception reporting, the retailer can see merchandise left after being voided.
“You get a variety of different benefits from it,” Rogers said. “To be able to understand what went out of your store, by what quantities, by what department, and to be able to understand who with a couple of clicks is extremely valuable for us.”
Kroger Categorizes Stores—And Offenders
Like the other retailers, Kroger leverages crime statistics, historical shrink, and incident trends and types to bucket its stores into four risk levels, from low to extreme. Something it does a bit differently, however, is categorize the shoplifters themselves into three classifications. The first describes more amateur offenders with a low risk of both potential violence and shrink. The second is more organized and habitual, with a medium to high risk of potential violence and a high risk of shrink. The third is the most brazen type of criminal that may struggle with addiction or mental illness and presents an extreme potential for violence and a medium chance of shrink.
“We found in the last two years there’s a piece of violence that needed to be added to that,” Chris Harris said. “Because it certainly is a factor to consider how you use your resources to prevent loss, to prevent shoplifting, and to keep your associates and your customers safe.”
So then, what happens in one of Kroger’s extreme stores? They step up security with a mix of personnel and technology. This includes armed guards, who typically act as a deterrent but will respond to specific scenarios in extreme-risk stores, such as a locked cart, EAS tower, and receipt-checking. Technology Kroger employs includes LiveView towers, cart containment systems, receipt checks, and body-worn cameras, among other tools and tactics.
And while stores with this much protection can be prone to negative perceptions by employees and customers, it’s been the opposite case for Kroger.
“We thought the risk was greater to not do anything . . . and we’ve seen improvement,” Harris said. “We’ve had customer comments from a positive standpoint.”
Because it’s a grocer, Kroger splits its inventory into two categories. The first, fresh, is taken every period by their associates at the commodity level with a Zebra or TC-52 device similar to an RF handheld. Store inventory, any non-fresh goods such as general merchandise, health, beauty and cosmetics, and pharmacy, is taken every six to 12 months using a third party. Kroger’s inventory process otherwise follows that of the other two retailers.
“We get a benefit of knowing what our shrink is when we do these inventories,” Harris said. “But I think the most important part is the replenishment of the goods. If you have a store that has high shrink and high loss, then your shelves likely are going to be empty and you’re on-hands are going to be low.”
However, using a set of key performance indicators, Kroger can determine whether they will have a problem with shrink in a store even before or without taking inventory. For fresh inventory, these metrics include sell-throughs, markdowns, scan-outs, and warehouse days of supply. For center store inventory, metrics include known loss scans, on-hand inventory adjustments, direct store delivery credits, and reclamation credits.
“We are a total loss model,” Harris said. “So if it doesn’t go through the register, it’s our shrink. It doesn’t matter if it’s scanned out, doesn’t matter if it’s donated. It doesn’t matter what you do with it. If it doesn’t go through the register, it’s our shrink.”
Working With Local Government and the Community
During the live Q&A segment of the webinar, all the loss prevention leaders spoke about how partnering with the local communities in which their high-risk and extreme stores are located has made a difference.
Kroger first partnered with the local government, from the mayor to the police force, on a plan for extreme stores in 26 of their 2,800 locations. They also share information and solutions with other retailers. One of the benefits of having a comprehensive toolkit for tackling loss prevention plus collaboration with the government and community is the ability to capture evidence for authorities to put together a case. Harris shared the example of using face matching technology and a cart-locking system to send a signal to the parking lot towers and a license plate reader.
“So now, without necessarily boots on the ground watching the incident, you’ve just now captured everything that occurred and bundled it up for a prosecution,” he said.
Lund of DICK’s said that while the retailer is not at as sophisticated of a level as Kroger, it’s learned the value of combining the layers of the various technologies—and collaborating with other retailers to consolidate cases.
“If you don’t meet the minimum standards, you’re probably going to be at risk,” he said. “And at the end of the day, we’re all responsible and accountable to our shareholders and our customers. And we want to make sure we’re creating that safe environment for them to shop in.”
However, he added that it’s not always easy to get other retailers to share the cost of the various technology solutions. For instance, if DICK’s wants to put a security tower in the parking lot, it’s helpful for adjacent retailers to share the cost, which also benefits their stores. DICK’s has had more success with shared security officers.
There’s also the component of collaborating that can influence legislation to combat retail theft and hand down tougher sentences to shoplifters.
“To be able to come together in critical mass, that we can influence if we’re all together with that same voice and to be able to influence legislation going forward, that’s, I think, the biggest piece that we can tackle going forward in the next several years,” said Rogers.
Tips for Protecting High-Risk and Extreme Stores
Not all retailers can implement all the technology the panelists have to protect high-risk and extreme stores. But they can start somewhere—typically with buy-in from legal teams and key stakeholders to chart a course toward a proof of concept. There’s also the data and analytics that these technologies generate, which can help stop or even prevent crime before it happens.
Harris said all the solutions Kroger uses are extremely valuable, but each retailer has to do what’s right for them without going overboard.
“There is some saturation where, if you do too many of them, some of the value might be diminished on each individual one,” he said. “So choose them carefully. If you have a leadership team that buys into one over another and is passionate about one, use that momentum and invest in it because you’re going to get a return.”
Another consideration for retailers is that certain technologies, such as face matching, also come with swift-changing state and municipal laws, Lund noted.
“So it’s a difficult investment to make when, A, public sentiment might not be ready for it and, B, it might become illegal after you’ve installed it,” he said.
Then there’s the personnel piece of the equation. Employee feedback from each store can also help inform technology decisions. In Macy’s case, once they have this input, the loss prevention team brings in senior leadership to decide where to focus staff and technology across the portfolio so they’re most efficient to get the most significant ROI.
“We want people’s creativity,” Rogers said. “We want our partnerships. We want to be able to tailor where we’re having a specific issue of a shortage related to a particular department so we can attack it in a different way versus having to legislate it across the entire company.”
Focusing on the employee piece also involves ramping up training and information sharing to keep stores operating optimally and safely—something that can come at a lower cost and lift to implement versus a lengthy, multi-department technology evaluation process.
“I think the biggest positive difference that we can make and have made is keeping our teammates informed so they can support our athletes best and keep each other safe,” Lund added.
