Manufacturer involvement in designing product protection is decades old, noted University of Florida research scientist Read Hayes, PhD, CPP. He remembers Walt Disney’s Buena Vista Pictures as being an early pioneer in coordinating with retailers to prevent theft. Video releases such as Beauty and the Beast were massive hits with kids—but also with shoplifters. “Maybe some executives at Disney saw it differently and thought it’s solely up to retailers to protect products, but the consensus for them was to see it as a mutual problem,” he recalled. “So we came up with portable fixtures and included some security features and were able to reduce theft by making it harder and less rewarding to steal and increasing the odds of being caught.”
He remembers, too, working with a lip balm company on display options to increase shoplifters’ effort and to prevent the small product from falling into cracks and getting lost—an early industry effort to address “total retail loss.” In the industry’s most celebrated example involving Gillette, the company mapped its entire process for handling product—from the time it’s made all the way through to the shelf—looking for opportunities to improve process and handling to reduce the risk of loss.
And, generally speaking, it’s not much different today, said Hayes. The roadmap and anti-theft menu is similar now as in these past examples. “Where you put it in the store, what types of display fixtures you use, employee positioning, prodding employees to pay particular attention to very high-loss SKUs, focused protective tech, what do you do, how often you do it—these are all options that are available for each solution.”
As director of the Loss Prevention Research Council (LPRC), which conducts research into crime and theft prevention technologies for the retail industry and includes manufacturers among its membership, Hayes has a unique seat from which to view the working relationship between retail LP and product manufacturers. He’s in the room when the two sides are discussing anti-theft solutions, both separately and when they are brainstorming solutions together. While the issue of theft prevention often divides the two sides, his job is in the middle-helping both.
“I’d say the relationship is not necessarily better or worse than in decades past. I think it tends to go up and down,” said Hayes. He said he’s fortunate to work with manufacturers that want to work with retailers, but he knows that’s not universal, that some manufacturers still see retail theft as retail’s problem. “They think, ‘I’m already making a great product. I’m doing promotion to create demand. I’m shipping the product, so you have it when you want it. And now you want me to do more? You’re running the store.'”
The Manufacturers’ Perspective
“One stole is one sold” is still the perspective that some manufacturers cling to according to some loss prevention executives we interviewed. And a willingness to work with retail loss prevention isn’t as strong in some sectors of goods as others, they said.
Manufacturers in the drug, food, and household goods sectors have tended to be more aggressive in pursuing product protection, according to industry experts. Several LP leaders specifically identified Procter & Gamble (P&G) as a model manufacturer partner, for example. Krista Marantos Monnin is a retail business leader at P&G and oversees the company’s on-shelf availability operation. “We see it as a collaborative role with our retailer partners; ultimately, it has to be a retailer solution because everybody addresses shrink differently on the retailer side,” she said.
Source tagging is certainly a primary part of product protection today, said Monnin, but even within that ubiquitous solution, retailers deviate on what frequency of tags they require. As such, she said manufacturers aren’t effectively positioned to forge across-the-board solutions on their own. Plus, even within the same product-Tide, for example- variation in packaging, size, and theft desirability often belies a single product protection strategy. “So if a customer comes to us and reports that it has a problem with Tide, we have to narrow it down to where and which SKUs, and then we can work together to find a solution that is effective, working off of a solutions matrix that we have built based on our experiences.”
Certain manufacturers operate under heightened requirements for product protection due to consumer health and safety concerns. For these companies, product diversion is more than a nuisance—supply-chain risks are material to the business. One generic drugmaker, for example, wrote in its annual mandatory 10-K filing with the US Securities and Exchange Commission, “Cargo thefts and/or diversions, and economically or maliciously motivated product tampering on store shelves may occur, causing unexpected shortages, which may have a material impact on our operations.” Because of the stakes involved, such companies have led the way in product serialization to increase supply-chain visibility.
Embedding security features into products as a selling point is also a possible trend as use cases for identification technology seeps into more product category niches. For example, manufacturers build technology by GearSecure, a mash-up of RFID and GPS, into musical instruments, which then allows end-users like touring bands to keep tabs on their gear. Collaboration between wireless companies and makers of cell phones has led to increasing adoption of kill-switch technology. There is an anti-counterfeiting sewing thread. There are apparel makers that mesh RFID, NFC, and QR codes together for tags that capitalize on the benefits of each.
And a few manufacturers are using anti-theft solutions to gain competitive advantage in high-shrink product categories, according to Hayes. By building in security measures, these companies can “go to a retailer and say, ‘Hey, I understand that this product category is a challenge for you, but what if I take these steps that will reduce the amount of loss?'” That can result in favorable treatment because they are helping the retailer solve a problem, said Hayes.
One prominent example is RCA, a maker of tablet computers. By tweaking firmware during manufacture, the company’s devices require a code for activation available only at point-of-sale. Without a legitimate purchase, they’re bricks. By denying thieves the ability to use the device if they steal it, and thus the motive to steal, the company was able to sell the prospect of fewer losses to forge a more favorable deal with a big-box retailer.
Adam Alford, senior director for loss prevention at GameStop, said his team has met with a few vendors in the last few months on the benefit-denial concept, with the goal of being able to put higher-value live products on the floor without increasing loss. Many merchants think such availability is vital to driving brick-and-mortar sales today as customers rely on stores as a place to touch and test products, rather than simply make purchases. Alford particularly likes the strategy’s potential in the mobile phone and tablet space.
According to some LP practitioners, it’s somewhat rare for manufacturers to take individual initiative on theft prevention. The booming connected-home market is an example—smart thermostats, smart plugs, and the like. While these vendors understand their products are in high demand and can be high theft—and will discuss the issue, ask for recommendations, and gladly take measures to prevent their product from being secured in a physical lock-up—it typically stops there. Vendors are not necessarily at the point where they go to retailers to say, “We know theft is an issue, so we’ve partnered with this solution or built in this technology to prevent theft, and how will this work for you?” That conversation remains rare.
The core obstacle is the same as it has always been, said several industry leaders. In some cases, manufacturers may not perceive that they have skin in the game and fail to see an impact on them if a retailer experiences high losses. Small brands may more easily recognize high losses as detrimental, recognizing the possibility that a store may choose to buy fewer of their products, move their products to online sales only, or discontinue altogether a product with high shrink.
But large vendors, ones that hold some leverage on retailers, can remain hesitant to implement solutions that are going to raise their costs. “It’s not adversarial; they’re willing to hear you out,” but they often fail to see enough value to drive them to take action, said one LP director. A requirement that high-shrink items must be source-tagged is fairly routine and well accepted by manufacturers, but working on new, innovative solutions can be more challenging, noted the LP executive.
While their particular bottom-line interests naturally divide manufacturers and retailers on the issue of retail theft, Hayes sees goodwill-and recognition of the legitimacy of each other’s viewpoint-as a viable building block to successful LP-manufacturer collaboration. Rather than a unique challenge, Hayes characterizes the divergence between the two camps as similar to many business relationships. “It’s just complicated,” said Hayes. “Everyone has positive intentions, but everyone also wants to make their numbers.” Cultivating those good intentions are thus an important part of creating effective LP partnerships with product manufacturers.
It may sound trite, but it’s nonetheless true, that it all comes down to relationships, agreed Richard E. Widup, Jr., CPP, CFE, global corporate security director at RB, which acquired Mead Johnson last year, the maker of Enfamil and other infant formulas. “We all have a part to play, and manufacturers especially,” he said. “We need to understand shrink at the policy level and at the store level. And we need to use that to help shape and enhance our partnerships and forge open and honest discussions about what are the best solutions.”
Ties That Bind
Data provide a helpful building block to successful joint projects, according to Hayes. “Shoplifting can be very tightly clustered to specific products, specific brands, and even specific SKUs for specific brands,” he said. Most retailers have pretty good information on the rate of loss, down to the category brand, and sharing that data with manufacturer partners can help enhance coordination on theft prevention, he continued. “It’s still the case that some manufacturers are blind to it, and they don’t know anything until the retailer reaches out and shows them numbers on theft.”
P&G’s Monnin sees data as a prerequisite to forging problem-specific solutions and is in the early stages of working on new protection strategies for the company’s Tide product. But to do it effectively, retailers need to partake. “We need our retailer partners to share data so that we can accurately assess the problem,” she said.
The quality of the data collected and shared could also be improved to forge more meaningful cooperation, suggested Nicole DeHoratius, a professor at University of Chicago’s Booth School of Business and an expert in retail operations management. “Retailers shouldn’t just share their shrink lists. They need to conduct additional analyses and examine the underlying characteristics driving the shrink problem,” she advised. “LP needs to be far more analytical and examine what’s common about shrink across products, locations, retailers, and so on.
“For example, do we observe commonalities across vendors, distribution channels, stores, and products with the same packaging? What are the underlying attributes of the shrink that might give an indication of the root cause?” This is particularly true given the pace of churn among SKUs and vendors, she added. “So on the retailer side, the problem isn’t generally a particular unwillingness to share but rather the existing skill set of the traditional LP professional,” she said, noting that to successfully move the industry forward, LP needs to adopt a more robust analytical skill set.
Data sharing is key, and so is robust evidence of the effectiveness of solutions, according to Hayes. Manufacturers may be willing to bear the cost of a theft prevention solution, but they want evidence it works, and year-over-year data doesn’t necessarily provide it. “Hundreds of things can happen during the year that can alter the results,” said Hayes. As such, controlled experiments play an important role in providing both sides with confidence in a solution’s worthiness and to forecast results, he advised.
Without testing a range of solutions—multitudes of hard tags, spider wraps, and the like—and without data on how they impact shrink and sales, “then we can’t understand what works,” said Monnin. “We test them and then share the solutions to build a more robust solutions matrix.”
Stakeholder Involvement
A successful product protection partnership with a manufacturer can occasionally hinge on luck—right time, right ask. But as for elements that LP can influence, making sure merchant teams aren’t blind to inventory shrink and gaining their support is critical.
“The key to success is when our merchants rally behind an effort,” said John Doggette, LPC, director of LP merchandise shrink solutions and analytics at Lowe’s, in discussing a recent success story in which a large manufacturer stepped up to fund a new product protection solution. “For LP, if you don’t have a robust relationship with buyers, if you’re not training them and have a program for that, then you can’t expect things to get done. You need the buyer to be an advocate for the proposed solution.”
At Lowe’s, Doggette said his team has worked hard to impress upon merchants that LP’s goal is to increase on-shelf availability, overall sales, and ultimately profit-and not act as a roadblock. “It starts with relationship building and having a dedicated person or a team of people whose sole purpose is to work with merchants,” advised Doggette. “A large retailer may have hundreds of buyers, so you need a retail LP organization that has someone on staff, if not a team, that is directly responsible for interfacing with buyers and for providing them with the data and analytics they need.”
Lowe’s has dedicated staff members whose role is to interface with buyers from an LP lens, and their responsibilities include attending high-shrink merchandise division merchant meetings. In this way, the LP organization has insight into emerging developments. The LP-merchant liaisons also participate when merchants conduct product line reviews, playing an advisory role as the subject-matter experts around shrinkage and returns for the product category.
Finally, the LP team members worked alongside the LPRC to create a training module on inventory shrink for merchants that is hosted on the company’s online learning center. “So now if you are hired into Lowe’s as a buyer, or need occasional refresher training, the course work is part of your training so that you learn fundamentals about inventory shrink and, more importantly, what you can do to reduce it.”
The merchant relationship has also been a focus for the AP team at Walgreens. “One of the things we’ve done effectively to work with merchant teams is to integrate shrink and waste metrics into the process for analyzing performance and for which products to carry,” explained Bill Inzeo, director of asset protection solutions. “So it’s no longer just looking at sales and gross. Shrink and waste are now included in that decision-making process.”
To arrive at the right merchandising strategy—one that is both driving sales and reducing loss—information sharing between merchants and asset protection should be a two-way street, advised Erik Buttlar, vice president of asset protection at Best Buy. Just as merchants need to understand protection strategies, AP needs to appreciate the sales imperative. “You don’t want to unnecessarily slow down transactions or make them more complex,” he said. “It’s not doing things to the customer but for the customer.”
Efforts by LP to strengthen relationships with merchant teams surely please Professor DeHoratius. She coauthored a report for the Retail Industry Leaders Association (RILA) on the subject, Opportunities & Challenges for Engaging Merchants in the Protection of Retail Assets. [For an excellent summary of the study, see Chris Trlica’s article in the September-October 2015 issue of LP Magazine.]
Among other important lessons, DeHoratius said that her research has shown that an LP approach strictly focused on getting manufacturers to put tags on high-theft items can miss larger issues at play. “Our research has shown that many discrepancies in the inventory record are not solely attributable to theft. Instead, it’s about transaction errors, errors in delivery orders, and other operational issues that arise,” she said. Broadly, her research has led her to believe that LP discounts nonmalicious causes of shrink, while shrink caused by theft is overemphasized. “It’s not all about locking up products,” she advised. “Solutions should be focused on ‘how do I prevent the discrepancies that are impacting operations and sales?'”
The issue is also broader than LP and buyers. That relationship is critical, but it is just one aspect of a larger ecosystem on the retailer’s side that requires proper alignment. LP, merchants, store operations, sales incentives—they all need to work together for retailers to work effectively with vendors, according to DeHoratius.
After a challenging shrink year at GameStop in 2017, and with the company transitioning into collectibles and other merchandise, the company saw value in meeting more frequently and proactively on shrink issues. The internal partnering and communication has been very successful, according to GameStop’s Adam Alford. For more than six months, the company has held biweekly committee meetings to talk about shrink issues, testing, ideas, and high-risk product launches. The meetings include key department heads and representatives from inventory control; loss prevention; head merchants from collectibles, video games, and other key product categories; general counsel; and vice presidents of store operations, IT, and business planning and analytics. “The goal is to drive awareness around shrink and to bring up issues and discuss solutions,” said Alford. “It also reinforces the issue of shrink for merchants so that they can go to a vendor for new packaging or new fixtures and know that everyone is really behind it.”
Monnin sees the same imperative for inclusiveness on the manufacturer’s side of the aisle, with operations leaders engaging with sales people. That team can then engage in collaboration with a retailer’s team, including buyers and LP. “There have to be bridges across all these different groups for effective collaboration,” she said. Specifically, Monnin thinks multifunctional meetings are critical when theft problems arise, where retailers bring in their team, including LP experts, and manufacturers include asset protection, operations leaders, analysts, and product supply people. “You need to have more people than just the category buyer and the sales person. There needs to be a more expansive meeting of many stakeholders in order to build the trust that leads to data sharing and collaborative solutions that fit a retailer’s LP strategy, and for store operations to be effective.”
External forums also play a useful role in facilitating solution sharing, according to industry leaders, such as Checkpoint Systems’ annual National Source Tagging Symposium (May 22) and the RILA annual conference. RB’s Rich Widup sat on the steering committee for RILA’s 2018 Retail Asset Protection Conference and said the involvement has been invaluable to his effort to work with retail partners. “Not only to hear where their pain points are but also to have open and honest discussions about solutions and to come up with creative ideas,” he said. “That has been really key from our perspective.”
The LPRC boasts fifty-five major retail chain members, sixty-five solutions companies, and a half-dozen manufacturer members, including P&G. “Being involved in LPRC is valuable for building relationships, and in identifying what works, and for research that I can take back to my company and make people aware of,” said Monnin. LP directors said they see similar benefits on their end-learning about solutions that their peers are coordinating on with manufacturers and passing those ideas onto to their merchant teams.
Doggette sees similar value—Lowe’s is also an LPRC member—and he hopes that the LPRC can provide a successful venue for addressing the traditional ad hoc approach to product protection. He believes that the LPRC is the key to bridge the gap between retailers, “so we can work with manufacturers on solutions that will work for everyone.”
It’s a common sentiment that retailers don’t align with respect to the product protection they ask for from vendors—with one retailer asking for one thing and another for something else. Bill Inzeo expressed similar sympathy for manufacturers’ need to serve many of their retail partners and thinks joint data collection/sharing provides another way for retailers to broaden cooperation. The company participated in a data collection effort lead by Checkpoint Systems to provide manufacturers with anonymized, item-level theft data from a group of retailers, a fresh take at cooperation that he thought worked pretty well. “Retailers need to work together to enable the manufacturers to be more supportive,” he said. “And this allowed us to approach them with a more uniformed ask for support.”
Together into the Future
No one seems to believe truly universal product protection solutions are viable today, but there is yearning on both the manufacturer and retailer side for additional uniformity, answers that can be applied more widely across retail channels. There seems to be, on both sides, certain weariness to product-by-product protection solutions.
There is also a sense that while relationships are the central component of effective collaboration between manufacturers and LP organizations, mechanisms to encourage it could improve. Widup, for example, is a passionate advocate for current avenues of partnership but also wishes it were easier to share alert-type information between the two groups, to provide a heads-up on emerging theft issues and problems, for example. “I do wish we had more tools available for that kind of thing. What we have now is not really fast enough to keep pace with the accelerating timeline of threats,” he said.
There is an idea, too, that while current deliberate processes are effective, LP and manufacturer partners might benefit from faster, more experimental approaches. “We’ve got to improve our comfort level with working with more leading-edge, start-up like service providers, and provide them the opportunity to test their products in a live environment and to be willing to create partnerships with them,” said Inzeo. “It is critical because the environment is changing so quickly that we don’t always have the time to go through the traditional phases of test, deploy, and roll out and to wait for scalable solutions. I think we have to identify and implement solutions much more rapidly.”
As an efficient, cost-saving process, one that provides benefits to both retailers and product manufacturers, source tagging remains a dominant force in product protection. But even in the tried-and-true, there is change. Keith McUmber, director of source tagging at Checkpoint Systems, said a developing trend is to move source tags from inside product boxes to outside, where they are visible to potential thieves, as belief is waning in the “halo effect,” the idea that hidden tags on some products make thieves fear tags on all products and thus prevent theft more generally. Tests of visible source tagging “has showed some dramatic shrink results and lift in sales for chain drug stores,” said McUmber.
Renee Micek, a sales specialist at Avery Dennison, said she’s seen manufacturers increasingly sourcing UHF RFID because more retailers are mandating it to be put onto their products to help with traceability throughout their supply chains.
DeHoratius also sees opportunity in going after mistakes, rather than crooks. “A reason why we see a lot of discrepancies is because there are not sufficient visual cues on packaging, cues that simplify and make it easy to distinguish, easy to count, track, and reorder.” A solution, then, is getting vendors to think about imposing visual cues to prevent problems. For example, Columbia Sportswear ships shirts in a colored container to match the color of the shirts inside it. Or perhaps a maker of deodorant can make a different color cap for each different fragrance. These are simple ideas that can help to reduce costly errors. More broadly, DeHoratius said her research points to a few keys to reducing shrink: reduce product variety; reduce inventory density; increase the frequency of audits, particularly smart audits, to utilize an inventory record that is not simply a point estimate but rather a distribution that can shift and adjust based on transactions over time.
Inzeo, like many LP leaders, is anxiously awaiting solutions providers to embrace the “huge opportunity” that exists to deliver the next breakthrough solution—the one that carries manufacturers and LP forward. He suggested that hard solutions, such as boxes around products, aren’t really a great fit for how retail is rapidly transforming generally, that benefit denial is a terrific concept but that it can’t be applied to a tube of lipstick, and that there is less sense today in the industry that tags are the answer. “I don’t really see the EAS pedestal as being the solution that carries us all into the future,” Inzeo said. The extent to which tags are relied upon in the future could depend on retail’s perception of organized retail crime. In a 2016 survey by Colin Peacock of 107 global retailers, 72 percent of respondents said hard tags are “very/extremely effective” against opportunistic thieves, but only 16 percent felt that way about the technology’s effectiveness with respect to organized thieves.
While Inzeo isn’t sure what the answer is, he knows what he needs: a solution that improves on-shelf availability, can scale to 20,000 items, and doesn’t demand additional work from the store team, or better yet, removes some. As a priority for Walgreens AP, product availability is supplanting theft prevention-a consequence of the online effect. “In many cases today, that’s the whole reason people come into a physical store—it’s because they need ‘it’ now. And if we don’t have the product on the shelf, then we have missed the opportunity to meet that customer’s immediate need.”
To fit that objective, he wondered if the next leap forward is a theft deterrent or something more aimed at on-shelf availability. “Cosmetics is a great example. There isn’t a fixture for a tube of lipstick, so the solution may be about, first, how do we leverage store team presence to deter theft and then to make sure we’re laser-focused on inventory accuracy, so we have product for the customer when they need it. By virtue of that accuracy, we’ll also have accurate insights into what we’re losing. The loss is undesirable, but if we at least know it occurred, we can get product back on the shelf for the customer, quickly.”
Inzeo is intrigued by the idea of shelf pads that could automatically identify and count whatever product sits on it, and he is “cautiously optimistic” about blockchain technology. The tracking capabilities that blockchain promises “seems fantastic,” but he wondered if it could face hurdles similar to RFID in terms of scalability and implementation. There’s no end to the power of the insights retailer data has within it, and Walgreens is constantly exploring new ways to leverage those insights, expose them to their merchant, operations, and LP teams, and drive actions that improve product availability for the customer, according to Inzeo. “From a product standpoint, nothing’s more important than making sure we have it when that customer walks into our store. That’s why they’re there. They need it now.”
Where, exactly, LP should place its bet is elusive. “We’re engaging with merchant teams and working directly with manufacturers. We’re at the table with the category manager having those exact conversations-can you put an EAS tag on it, or fund a fixture, or should we be talking about some other funding mechanism to help us with loss?” he asked. But what it all comes down to-and what still seems unclear to Inzeo and many others-is, “If I had a blank check from P&G, what’s the next disruptive solution I would spend it on?”
