Industry Insights

Preventing Retail Shrinkage with IoT

From tracking customer movements to automating inventory, IoT can reduce theft and lower operating costs for retail stores.

Fumiko Shinkawa

From improved tracking of customer purchases and returns to increased visibility into product status on the way to the store, the Internet of Things (IoT) has created powerful new opportunities to improve both customer experience and operational efficiency in the retail industry. IoT can also prevent inventory shrinkage and theft, especially in brick-and-mortar stores.

Retail shrinkage accounts for all goods that enter inventory, but are never sold. Although shrinkage can be the result of administrative error, the most prevalent cause of shrinkage is theft: products that are stolen by shoplifters, by employees, or in organized retail crime incidents.

Shrinkage is inherent to all retail businesses, but minimizing it can have a huge effect on overall revenue. In 2018, shrinkage cost retailers more than $46.8 billion, according to a survey by the National Retail Federation. While that’s only 1.33 percent of sales, right now 90 percent of all sales are still happening in brick and mortar stores so there’s a big incentive to deter and prevent theft.

Traditional means of theft prevention aren’t working. Up to 41 percent of retailers experienced an overall increase in shrinkage over previous years. In addition, the average cost per shoplifting incident increased to $559, with most repeat offenders returning to stores in the same chain. If they’re not caught, shoplifters are likely to return and cost business owners and managers even more in shrinkage.

Traditional Theft Prevention Isn’t Effective

Traditional theft prevention is focused less on prevention and more about deterrence. For the most part, traditional solutions provide no way for retailers to recover lost goods and may not alert managers that there has been a theft until the next inventory cycle, meaning that the only way to stop a theft is to catch them in the act.

Besides being somewhat ineffective, traditional methods of theft prevention are highly manual, can be extremely costly, and are prone to human error. According to a theft prevention article by Houston Chronicle, store managers are advised to spend 80 percent of their time observing the sales floor for suspicious behavior or missing inventory. If a manager is working 40 hours per week, that leaves only 8 hours in their weekly schedule to commit to other duties.

Even automated theft prevention devices, like security tags pinned on clothing or accessories, have significant drawbacks. Electronic article surveillance (EAS), used by 73 percent of retailers worldwide, attach security tags to individual items. These tags use either radio frequency or acousto magnetic signals to communicate with sensors at the front door. If an item passes through the front door without the removal of the tag, an alarm will go off.

While these tags can be an effective deterrent, they aren’t a perfect solution. Tags can be removed by especially stubborn shoplifters, the pin used to affix the security tag can be damaging to the product, and tags can have a negative effect on the customer experience as a whole. Luxury brands tend to forego traditional approaches to avoid the negative association, leaving them an even more vulnerable target to theft.

Theft Prevention Can Be Made Better With IoT

Here’s where the Internet of Things comes in. IoT-enabled theft prevention solutions are automated, so you don’t have to hire additional staff to operate them, and your existing staff is freed up to focus on actually helping customers. Not only will your customers notice the difference, eliminating some of the repetitive tasking will improve staff morale and reduce turnover.

Although IoT solutions can have a higher upfront cost, they’re easier to scale. Because IoT devices are built to create interconnected webs of services and analytics, expanding your retail location simply means integrating more sensors or adding additional services.

Here are a few examples:

RFID Asset Tracking

RFID asset tracking can automate the inventory management process, enabling staff to instantly know which items are on the shelves and which items are missing. If tied to a smart POS and surveillance solution (see below), the asset tracking solution could flag items that leave the geofenced area unexpectedly, and mark video records with the exact time and location the item left the area.

Unlike traditional security tags, RFID tags allow staff to retrieve data about the individual items to which they’re connected. Staff can quickly find and identify items and  store owners can have better insight into inventory and sales trends. Additionally, because RFID tags are small and flexible, shoplifters are much less likely to attempt to remove them before exiting the store.

Video Surveillance Powered by ML

Video surveillance powered by machine learning  not only records what happened in the store, it also analyzes customer behavior in real-time to flag suspicious behavior and identify repeat offenders.

Used by 83 percent of retailers in the U.S., video surveillance is a good starting point when upgrading retail systems with IoT-enabled technology. Smarter video surveillance takes the onus off of managers to watch extended periods of footage. IoT turns a traditional fall-back security system into a proactive way to identify and prevent theft in real-time.

Smart Shelving and Smart POS

Smart shelving and smart POS systems can work together to completely automate inventory count. Smart shelving units monitor the weight of inventory in real-time to flag the removal of items and alert staff that an item is in transit. By looping in a smart POS system, a shelf can flag the POS system to watch for an item as it leaves the store and alert staff that an item has been stolen if the item isn’t rung up with the rest of a purchase.

Smart POS systems give staff visibility over inventory and the ability to check out items from anywhere in the store. They also enable retailers to track particular customers to understand buying trends and flag repeat offenders. No longer will staff have to remember to pin up a picture or pass the word around about a repeat shoplifter.

Fumiko Shinkawa

Marketing & Operations Manager

Fumiko is the Marketing & Operations Manager of Leverege and IoT For All. Fumiko is passionate about rallying communities and inciting action through storytelling and, in her role, seeks to develop content worth engaging. In her free time, she's an avid gamer and voracious reader.

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