Why Retailers Are Turning To RFID For Loss Prevention

US retailers lose an estimated $60 billion per year from shoplifting, employee or vendor theft, and administrative error, according to the National Retail Federation (NRF). These losses, collectively known as “inventory shrink” average at 1.4% of retail sales but can exceed 2% in some apparel and cosmetics categories. However, the industry is fighting back with the use of radio frequency identification (RFID), which is revolutionizing loss prevention throughout the supply chain.

“A common misperception about shoplifting is that retailers can ‘afford’ the loss of a candy bar or a pair of jeans, but the truth is that the industry loses billions of dollars each year at the hands of callous criminals that could be put towards human capital, promotions and other necessary business operations,” says NRF Vice President of Loss Prevention Bob Moraca.

The survey of retailers estimates that shoplifting accounts for 38% of all inventory shrink, but perhaps more surprisingly as much as 35% of losses come from employee theft. A further 16% come from administrative and paperwork errors, 6% from vender fraud and error, while only 5% result from unknown reasons.

“As retail issues like shrink and security become more complex, retailers should continue to work together as an industry to ensure continued partnerships, with the end goal of finding the most effective asset protection solutions possible,” suggests Dr. Richard Hollinger, criminology professor at the University of Florida and lead author of the NRSS for the past 24 years.

That is exactly what’s happening as the retail sector increasingly embraces RFID technology. At one major retailer, who initially introduced RFID to improve inventory accuracy, shrink has been reduced by an average of 55% and theft by as much as 75% in some locations. Across the industry item level RFID solutions are providing useful data on every missing item, allowing retailers and supply chain managers to identify and tackle sources of loss.

“When we started with RFID, shrink was not our focus,” said a retail executive. “Shrink was an unexpected benefit. It takes the ROI issue right away.” The executive also highlighted that employees are much less likely to consider stealing when their store conducts daily stock takes, knowing that missing items will be identified and investigated without delay.

RFID tags attached to garments at the manufacturing phase are not only setting off alarms as shoplifters and employees attempt to leave a store with stolen items. They provide actionable data for lost items from factory to sale. Considering that items may begin their journey in manufacturing hubs like Bangladesh, then pass through several ports, customs checks, and logistical channels before reaching a store floor in the US, RFID is proving to be an invaluable supply chain loss prevention technology.

“In tracking what happens to an item at each and every point in the supply chain — from the manufacturing source to the customer — RFID wraps a tight security blanket around the entire retail supply chain,” says another retail industry executive. “RFID immediately impacts the bottom line by covering the retail operation with unprecedented visibility,” he added. “Store owners are able to see shrink happening. This means retailers can respond quickly to the causes of shrink in order to replenish, capture, correct and prosecute.”

Currently more than half of all US retail chains have installed RFID access control and tracking systems within their stores, and it is expected that almost all retailers will invest in the technology in the next few years. RFID for loss prevention, in addition to its numerous other benefits, has proven to be a vastly significant competitive differentiator.