The pressing issue of retail shrink continues to plague the industry, resulting in substantial financial losses for many retailers. The National Retail Federation (NRF) found that retailers lost over $112 billion to shrink in 2022, up $18.2 billion from the previous year. With the organization projecting the annual price tag on shrink will top $140 billion by the end of next year, retailers are continuing to firm up their LP programs to try to curb the impact on their operations and revenue.
For many, that has meant investing in smart LP systems that give insight into how organized retail crime groups and sticky-fingered individuals exploit blind spots in stores and the best ways to stop them—and for good reason. Though estimates of the impact of theft vary, the NRF 2023 National Retail Security Survey notes that crime (internal or external) is the most expensive single contributor to shrink, accounting for about two-thirds of all losses. What about the other third?
Retailers who leave the impacts of damage, human error, spoilage, and other operational drivers of shrink out of their plans are leaving money on the table—more than $27 billion industry‑wide in 2022 if NRF’s estimates are correct.
The fact that one-third of losses might be a result of operational inefficiencies can be a hard pill to swallow, but it’s also a powerful realization. Retailers have the control and the opportunity to improve their operations. You can’t always control bad actors, but you can control how you do business.
The key to success in this process will likely be shifting our understanding of the issue of shrink. It’s not just about theft but a complex interplay of various factors. LP programs have, for some time, focused on addressing different drivers in isolation from one another, with an emphasis on theft above all else. The reality is much more complicated, and that’s where retail analytics systems can help.
RFID Boosting LP
End-to-end intelligence systems help retailers get a holistic view of shrink—one that acknowledges it as the multifaceted and interconnected issue that it is. Many retailers are already using these systems, which often leverage cloud-based analytics, electronic surveillance, artificial intelligence, and RFID tools to illustrate the tactics thieves use to execute ORC or individual theft events.
These systems change the game for retailers by giving them an accurate picture of what’s in the store, how products move, and how shoppers interact with merchandise. Item‑level RFID inventory tracking is at the heart of the system, automating the tedious task of inventory management to reduce labor spending and improve accuracy.
The item-journey data collected through the RFID system paints a vivid picture of theft incidents, empowering retailers to broaden their understanding of the issue of theft in their stores and home in on the specifics of individual incidents. It can show retailers exactly how a thief moved around the store and—critically—what they took, something that businesses have traditionally determined through retroactive estimation.
When paired with other intelligent retail tools, retailers can get even more detail, which they can often turn into proactive LP programs. For example, computer vision technology—an AI application used to monitor video feeds—can learn the signs that a theft might be happening and alert teams to incidents in progress. Similarly, these video packages can highlight the way floor elements contribute to risk, identify at-risk items that are not protected, and potentially help law enforcement with prosecution efforts.
However, the scope of these systems stretches far beyond theft and crime prevention when it comes to shrink.
More Than Theft
Just as gaining visibility into the events that lead up to retail crimes can help retailers protect high-risk merchandise from theft, getting insight into how inventory moves around the store can help teams identify patterns related to spoilage, damage, or errors. Item‑level inventory systems—which many retailers use to improve omnichannel experiences—are designed to ensure staff knows exactly what’s in stock, where it is, and how it got there. Using RFID tags and sensors, retailers can log merchandise’s movement as data, allowing them to analyze operations for anomalies and notify workers.
Abstractly, this can be hard to picture, but let’s zoom in on an example. Let’s say a customer picks up a bottle of cold medicine but decides not to buy it, opting to leave the product elsewhere in the store. This can throw off inventory counts, leading retailers to assume the item has been stolen. If the store uses RFID labels for item-level inventory, staff can reference checkout and exit logs to see if the medication was purchased or stolen. If not, they can assume it’s still in the store and is not yet a true loss.
Over time, this kind of analysis can reveal drivers of internal losses, helping teams to make larger changes to their floor design, processes, or policies that might avoid the situation altogether. For example, RFID data might show that cold medicine keeps leaving shelves but not the store. By correlating that knowledge with computer‑vision‑enabled video monitoring and other data streams, the retailer might realize that something about their floor design is leading to this phenomenon, guiding solutions that might fix it
Of course, medication is just one example. This concept applies across retail operations in nearly unlimited ways, allowing retailers to analyze shrink, recognize patterns, identify previously unknown operational issues, and address them.
Given RFID-based capabilities, it’s not hard to see why ORC and theft prevention are two of its most popular retail applications. Because each RFID label is unique to a specific unit, these systems uncover previously unknown information about operations. The ongoing and integrated data analysis reveals if a fix has made a difference—or if it has inadvertently exacerbated losses in another area. It’s this last step that allows retailers to see how shrink from all sources affects their businesses and how those events interact with one another, empowering them to stop treating symptoms and start finding cures.
