History repeats itself until history is rewritten. For decades, prerecorded music and video products have been prone to high shrinkage. Whether it was the vinyl album of yesteryear or the digital video disc of today, these products represented the hot trend of the day. As a result, prerecorded entertainment products have always been popular and coveted by both the amateur and professional shoplifter.
From a customer demographic standpoint, music retailers have traditionally attracted a younger male clientele. Studies have identified this type of individual more frequently involved in casual or peer pressure-induced shoplifting. On the other end of the spectrum, the professional retail thief has historically targeted entertainment products because they are small, easy to conceal, they are in high demand by the consumer, and they can be easily fenced for up to 40 cents on the dollar.
Early Experiments with EAS
In the early eighties in an effort to combat excessive losses, prerecorded entertainment retailers began to experiment with electronic article surveillance (EAS) systems in high-shrink stores. When an EAS program was properly implemented, the results were nothing less than dramatic. Shrinkage rates were typically reduced by 40 to 50 percent in less than a year.
The ability of EAS to reduce shrinkage at prerecorded music retailers resulted in the explosive growth of EAS installations. By the mid-eighties EAS had begun to be perceived as the de facto standard by entertainment retailers intheir battle against shoplifting.
It wasn’t too long after EAS became more common at music retailers that the professional shoplifter discovered how easy it was to defeat the system by removing the tag from the merchandise. It was not uncommon to find 30 or 40 EAS tags that had been cut off with a razor blade and stashed in the back of the store. All too often this was the only evidence left behind indicating a team of pros had hit the store.
The potential of utilizing EAS source tagging to reduce the excessive shrinkage typical of prerecorded music products was first proposed during a National Association of Recording Merchandisers (NARM) meeting in 1985. While EAS was having an impact on reducing shrinkage, the removal of the EAS tags from merchandise by shoplifters had become a serious problem. There was a growing consensus that EAS could be made even more effective by having the manufacturers apply the tags. This would allow for automated application of tags, avoid expensive store labor costs, create industrywide purchasing power, and prevent the removal of tags by hiding them from the would-be shoplifter.
A joint NARM and Video Software Dealers committee comprised of retailers and supplier representatives from the major music and video companies was formed and met to hear presentations from various EAS vendors. All the major manufacturers voiced their support for the concept, but indicated to the retailers that a single EAS technology must be selected before they would proceed. The manufacturers stated they would not be willing to carry multiple inventories necessary if more than onetechnology was to be used.
One of the factors that makes the prerecorded music and video retail sector so unique and caused for significant challenges regarding the implementation of EAS source tagging is the relationship that entertainment retailers have with their product suppliers. The major manufacturers of music and movies maintain a complete monopoly over the products that they sell. All of these products are considered intellectual properties and are solely owned by the copyright holder. If a retailer wants to buy an artist’s new release or a studio’s new movie, they have to buy it from the distributor that owns the copyrights to the product. As a result, the suppliers have what you would call a captive audience. It’s not like batteries or razor blades where the retailer has an option of purchasing another brand to help motivate the manufacturer to provide EAS source tagging. This unique manufacturer-buyer relationship was the primary reason why the issue of EAS source tagging was taken on by the music retailers’ trade association and not by the individual retail companies. In this way, the retailers could at least be speaking to the manufacturers with one voice and letting them know how important achieving EAS source tagging was to reducing shrinkage.
How EAS Source Tagging Rewrote Shrinkage History in the Music and Video Sector
In 1987, the original NARM source tagging committee was poised to recommend electromagnetic technology as the standard. Upto this point, no loss prevention professional had been serving on the source tagging committee. In 1987 retailers located in malls were selling approximately 50 percent of all prerecorded music products. Before this recommendation was adopted, the committee was made aware that the maximum width between pedestals using electromagnetic technology was 34 inches and that most mall landlords would prohibit the installation of multiple pedestals at a store front.
This near faux pas caused NARM to form a new loss prevention committee and EAS subcommittee whose charter was to evaluate the feasibility of selecting a single EAS technology. It was at this point that I began my 12-year odyssey and participation in working to achieve the source tagging of prerecorded entertainment products.
How EAS Source Tagging Rewrote Shrinkage History in the Music and Video Sector
Between 1987 and 1989, the NARM EAS committee sponsored several lab tests and numerous meetings for the purpose of identifying an appropriate technology. After three years, the committee concluded there was, in fact, no single technology that satisfied the needs of the entire entertainment retail community. The committee also deemed microwave technology as being unacceptable because the tag required touch deactivation and could not be concealed from the consumer.
- The EAS tag must be able to be deactivated and reactivated.
- The tag must be readable at a distance between pedestals of 12 feet and preferable up to 20 feet.
- Application of the tag must be compatible with an automated production line.
- Deactivation must have no impact on product quality.
- The tag must be hidden or inaccessible.
- The EAS system must be cost effective.
The EAS subcommittee was disbanded and NARM incorporated the monitoring of advancements into the responsibilities of the loss prevention committee.
In 1992, the Recording Industry Association of America (RIAA) announced that for environmental reasons their member companies had decided to eliminate the use of the 5×11-inch cardboard box that had been the packaging standard for compact discs since the product was first introduced in 1982. The shrinkage rate for compact discs was already the highest of any of the products sold by music retailers and the elimination of this packaging createdthe potential for even greater losses.
As a result of RIAA’s decision, the loss prevention committee was asked to reinitiate the source tagging initiative. After getting technology updates from the major EAS vendors, the committee reevaluated the 1989 EAS source tagging criteria. After much debate and negotiations, two of the original criteria were changed. One, the panel distance requirement was reduced to a minimum of six feet and, two, the tag reactivation requirement was reduced to a preference. In addition, the committee added a seventh criteria that required the owner of the selected technology to enter into reasonable cross-licensing agreements with other companies, in order to prevent one company from establishing exclusivity over the technology ultimately selected.
The committee initiated lab testing in order to verify the performance claims made by EAS vendors. Some of the performance standards that were evaluated included the technology’s pick rate, false alarm rates, reactivation rates,interference from radio frequencies, the tolerance to heat, bending, and pressure, the effects of foil-lined bags, neon, TV monitors, POS systems, polarity, and metal shopping carts. The lab was also asked to evaluate the potential impact ofthe magnetic deactivation technology on magnetic recorded media such as cassettes and VHS movies.
Initial Recommendation of Acusto-Magnetic Technology
In February 1993, the results of lab tests on technologies from four EAS companies were presented to the committee. The tests indicated that the acousto-magnetic technology had the highest pick rate, the least amount of false alarms, and was the least susceptible to being defeated by foil- or metallic-lined shoplifting devices.
That same month the major music manufacturers began to conduct a six-month investigation of acousto-magnetic technology. Their initial research focused exclusively on the impact of the acustomagnetic EAS deactivation on tapesound quality. While their test results varied, the majority of the member companies instructed the RIAA to informNARM that they were unwilling to apply the acusto-magnetic tag to audiotape.
When presented with the various test data, NARM asked the lab that had performed the original EAS testing toreview the results. None of the reviews conducted were able to substantiate the conclusions drawn by the RIAA membercompanies. In January of 1994, NARM asked the major music manufacturers to standardize their test procedures or hirean independent lab. The member companies refused both requests.
NARM then conducted a series of private meetings with the six major music distribution executives in order to determine the specific concerns of each company. Headway was made, but all of the negative publicity and campaigninginitiated by the EAS companies whose technologies had not been recommended by NARM continued to play a roll in preventing source tagging from becoming a reality. By this time the source tagging initiative had already encountered more twists and turns then a daytime soap opera. In fact, among insiders this initiative was beginning to be referred to “As the Tag Turns.”
In early 1995, the loss prevention committee met once again to determine a course of action. After reviewing the current state of the various technologies, current statistics regarding cassette sales, and shrinkage trends, the committee once again voted to support acousto-magnetic EAS technology.
After the NARM board endorsed the committee’s recommendation, music manufacturers were asked to begin source tagging CDs immediately and make efforts to have other configurations of prerecorded music and other home entertainment productssource tagged with acousto-magnetic technology as soon as possible.
This time the manufacturers listened and by October 1995 all six major music distribution companies had successfullytested the source tagging of CDs. In January of 1996, the Video Software Dealers’ Association digital videodisctask force also recommended that all DVD manufacturers source tag all DVD product manufactured in North Americawith the acusto-magnetic technology.
To help highlight the excessive shrinkage that music and video retailers were continuing to experience duringthis process, one need look no further than published statistics. In 1996, of the 27 retail sectors studied as part of the National Retail Security Survey, prerecorded music and video retailers were ranked number one in both shoplifting incidents and in reported removal of EAS tags from packages.
Legal Action Stops Implementation
Just when it seemed that EAS source tagging was finally going to be achieved, another unfortunate circumstance occurred. In January 1996, a competing EAS company that manufactured a radio frequency technology filed a lawsuit against NARM. The lawsuit alleged NARM violated antitrust laws and unlawfully interfered with existing and prospective contractual relations by selecting a single EAS technology. This company claimed that the acousto-magnetic technology was selected because of existing investments in and ongoing commitment of certain NARM members to Sensormatic products. They additionally claimed that NARM had altered its criteria to favor Sensormatic.
Having served on the loss prevention committee, I can attest that the claims made in the lawsuit were untrue. In fact,when the committee first recommended the use of acusto-magnetic technology, it was the newest and least used of any ofthe available technologies. The majority of the EAS investment that had been made by music retailers was inmicrowave, electromagnetic, and radio frequency. When the committee voted to endorse acusto-magnetic technologyback in 1993, only 8 percent of music retailers were even using this technology.
In June 1996, having discounted the lawsuit filed against NARM, Polygram Records made a bold move andannounced that they would begin source tagging all CDs with the acusto-magnetic technology. The other five major musicdistributors followed Polygram’s lead shortly thereafter. With their announcement, Polygram also indicatedthat to offset the initial expense of source tagging, the cost for all CD’s would increase by eight cents.
The same competing EAS company and the owners of a chain of discount stores that had installed radio frequencyEAS systems in all their locations, responded by filing a lawsuit against Polygram. The suit claimed that it wasunfair to charge retailers for a technology that they could not use, and that by offering one technology, theretailers using acusto-magnetic EAS systems would have an unfair advantage over their competitors.
In late August 1996, the competing EAS company, the discount chain, and Polygram Records reached an out-of-court settlement that resulted in Polygram agreeing to temporarily suspend source tagging of CDs with a single technology. As a result of the settlement, all other music manufacturers also suspended their source tagging efforts, and the manufacturers of DVDs put source tagging on hold.
Finally, in April 1997, NARM reached an out-of-court settlement with the EAS company and discount chain wherebyNARM agreed to send a letter to the heads of the six major music distribution companies clarifying that theassociation’s recommendation was in no way intended to preclude suppliers from working with individual retailers tosource tag with technologies other than the one recommended by NARM.
Of course, it should be pointed out that the recommendation for a single technology drafted and made by NARMwas originally done in response to demands by the music manufacturers that they would not proceed untilretailers choose a single technology.
The settlement of the lawsuit against NARM did not mean NARM waswithdrawing its recommendation for the acusto-magnetic technology. In fact, our position was that the music distribution companies still needed to begin tagging with the ac0usto-magnetic technology immediately, and that they needed to work with other NARM members who did not use acousto-magnetic to obtain source tagging with the technology of their choice.
The 12-Year Ordeal Pays Off
This finally opened the flood gates to source tagging in the industry. By 1998 the top mall music and video retailers hadalready installed or had committed to installing the acustomagnetic technology in all of their stores. By early 1999, the retailers that account for 75 percent of all prerecorded music and DVD product sold in the U.S. had installed or had committed to install acusto-magnetic EAS systems in all of their stores.
As a result of having hit this critical mass of retailers that use the acusto-magnetic technology, the tide finally turned. The acceptance and commitment by entertainment product manufacturers to source tag their products has grownexponentially. All major music manufacturers are fractionally source tagging all CDs with the acusto-magnetic technology. All movie studios are source tagging 100 percent of all new DVDs. EAS source tagging has become the standard for all newprerecorded entertainment products. For example, the newest prerecorded music product now beginning to appear in stores,called audio DVDs, are 100 percent source tagged by their manufacturers.
How EAS Source Tagging Rewrote Shrinkage History in the Music and Video Sector
After this 12-year struggle to achieve EAS source tagging, what impact has it had?
To put it simply, the results have been nothing less than phenomenal. In the five years prior to EAS source tagging, the average shrinkage for prerecorded music and video retailers was 38 percent higher than the shrinkage for all retailers combined, or 2.53 percent versus 1.83 percent, based on statistics from the National Retail Security Survey.
According to this same survey, shrinkage results for this sector dropped to 1.63 percent in 1999, the year that EAS source tagging had been substantially implemented. This was the first time that shrinkage has ever come in below the average for all retailers combined.
Even more interesting are the recently released results of the 2001 survey. These latest statistics indicate that in 2000 overall retail shrinkage increased to an average of 1.75 percent of sales, up from 1.69 percent in 1999. This is the first time since 1994 that the average shrinkage for retailers has not shown a decrease over the prior year’s results. However, results for the prerecorded music and video sector were quite a different story. The survey indicated that shrinkage for prerecorded music and video retailers dropped to an average of 1.13 percent of sales in 2000. This is also the lowest shrinkage result ever posted by the prerecorded music and video sector.
Since achieving the source tagging of CDs, DVDs, and other entertainment products, shrinkage has already been reduced bytens of millions of dollars. The savings will continue to grow. Entertainment retailers have been able to substantially reduce the amount of EAS tags they purchase resulting in significant expense savings. Store labor once spent on applying EAS tags to merchandise is now being spent on value-added tasks and customer service. The success of source tagging has also prompted many retailers to begin to take CDs and DVDs out of the bulky plastic security trays, which for decades had been used as a necessary deterrent to the removal of EAS tags. The progressive elimination of the plastic security trays will not only save retailers millions of dollars in capital expenditures, but will allow for more merchandise to be displayed in the same amount of space which should translate into increased sales. And most importantly, those products no longer being shoplifted remain on the shelf to be sold and help to ensure a satisfied customer.
AUTHOR’S NOTE: Special thanks goes out to Pam Horovitz, the president of NARM, whose never-ending fortitude and commitment was instrumental in achieving the source tagging of prerecorded entertainment products.