Apparel Retailers Turn to Tech to Battle Shrinkage
Advancements in software and telecommunications technology is helping retailers and manufacturers like DKNY, Gadzooks, Ann Taylor and others to combat the age-old problem of employee-based shrinkage, which ironically has been rising along with these advancements.
Employee theft is up about 2 percent, accounting for 45 percent of overall shrinkage, according to a National Retail Federation/University of Florida report. That’s more than $13 billion annually and accounting for as much as 25 percent of profits. At the same time, apparel retailers have seen shrinkage decline from 1 to 2 percent, which means they’re making headway in areas such as shoplifting but not so much in the area of internal theft. The report found that a retailer’s average loss due to dishonest employees is $1,058, while the average loss from shoplifting is $212.
The problem with employee theft, according to Kim Warne, director of business development for the electronics firm Sensormatic Corp., is that not enough retailers have installed adequate security systems. A tight labor market isn’t helping either as retailers have been complaining about the quality level in the job market. Consequently, retailers are relying more on technology to help fight shrinkage.
“Technology is getting more affordable,” said Andrew Smith, executive vice president of Downers Grove, Ill.-based LP Software Inc., a software maker that specializes in loss prevention. “Now, there’s more hardware out there to support software like ours.”
Companies like LP and Columbus, Ohio-based STS Systems have been bringing new data tracking programs to the market to help retailers track bad employees and subsequently recoup thousands of lost dollars. Sensormatic and others are making advancements in products like digital surveillance systems and radio-frequency tags and readers to help fight employee theft. STS’s loss prevention software has worked for companies like DKNY, which recouped more than $25,000 last year. STS’s, like many programs coming to the market, are based on case management analysis of retailers’ loss prevention personnel data. Ittracks incidents and abnormalties and alerts employers about applicants with a past as well as those with credit or check fraud backgrounds.
These programs are ideal for companies with lots of units since these programs can track incidents and abnormalities throughout an entire chain in minutes as opposed to hours and days. At DKNY for example, investigation times have been cut from several weeks to a matter of hours using STS’s system, which is point-of-sale based. In one case, the software tracked an inordinate amount of cash refunds one store employee was issuing, as it turned out, fraudulently. DKNY was able to recover $10,000 as a result. Gadzooks and Simply Fashions have recently signed on with the company.
Other companies like LP Software are mining the affordable niche by offering packages at $499 each, with each program customized to the client. The company offers a suite of programs addressing internal theft, shoplifting, civil litigation, background checks and other areas. Its clients include Indianapolis-based Finish Line and Roots Canada.
Smith concurs that retailers are looking to companies like LP to hone their time management and general operations. Incident reports using the company’s software can be cut from 20 minutes to two minutes, he says. Usually, Smith said, the return on investment is being realized in a short period. The company will be releasing the latest version of its loss management prevention software in about a month.
On the logistics front, Sensormatic, based in Boca Raton, Fla. has developed radio frequency identification systems aimed at the retail market. These incorporate tags and readers with software allowing users to track merchandise throughout the supply chain using hand held reader systems. The product also improved inventory control, five to eight times faster, said President Per-Olof Loof, who added that J. Crew is among the accounts testing the new program.
While technical advancements continue, retailers are counting on these products to help prevent theft and detect dishonest workers faster than those employees learn about the products’ effectiveness.
