Reduce Shrink with RFID Retail Inventory Management

Retail professionals are all too familiar with the concept of shrink. “Shrink” refers to the loss of physical inventory, usually as a result of theft and bad inventory information. While bad information is largely resolved by utilizing RFID, we want to focus today’s discussion on shrink due to theft. Shoplifting is a major cause of inventory shrinkage, but the sadder fact is that a surprising amount of theft happens internally. Known as “internal shrink,” theft by vendors and employees can have a considerably negative impact on retail businesses.

What some retailers may not know, however, is the full extent of financial consequences that shrink can cause. According to the National Retail Federation’s 2016 National Retail Security Survey, retail shrink averaged 1.38 percent of retail sales in the United States in 2015, equating to about $45.2 billion. Furthermore, 47 percent of surveyed retailers said that they experienced a rise in inventory shrinkage in 2015. Retailers cited shoplifting as the biggest cause of shrink, with the average shoplifting incident creating a loss of about $377.

With shoplifting cases on the rise, loss prevention is becoming more important for retailers every year. However, it’s also becoming more complicated and costly, as criminals’ methods are also getting more sophisticated. Fortunately, new advances in Radio Frequency Identification (RFID) retail inventory management technology are a great way to combat shrinkage, no matter if the shrinkage is the result of shoplifting by customers, the result of theft by employees or bad information.

How RFID Retail Inventory Management Systems Reduce Shrink

RFID tags work well to prevent a wide variety of shoplifting scenarios. Imagine a shoplifter who takes several items and tries to slip out of an exit. RFID readers at the door will detect the RFID tags on the stolen items and trigger alarms to notify employees. Even if security personnel are unable to detain the thief, managers will — at the very least — know exactly what products were stolen. Having this exact data helps in several ways: (1) The item can be quickly replaced so that the retailer doesn’t miss out on a future sale; and, (2) retailers can track statistics on which items are commonly stolen to increase security techniques and strategies applied to those items.

RFID can also prevent internal shrink by providing a new level of inventory accountability. By knowing when employees work and comparing inventory counts in intelligent software to capture “missing” items and correlating that to employees, a retailer can rapidly zero in on potential shrink patterns and individuals.

RFID Tags and Item-Level Visibility

An RFID deployment at the item level allows every unique piece of inventory to be managed with a high level of accuracy as it moves through the retailer’s supply chain, collecting all sorts of data as it progresses. When retailers know exactly where their products are at every step, they know where to start their investigations when products go missing. Not to mention, the simple knowledge that every item is being tracked can go a long way toward increasing employee accountability and reducing internal shrink. We have repeatedly seen that retailers deploying RFID in stores see internal shrink is greatly reduced because the accuracy of individual items becomes a deterrent for theft.

How SML’s RFID Deployment Reduced Shrink at American Apparel

SML’s RFID deployment at American Apparel made a huge splash in the industry when it helped the retailer reduce shrink by a whopping 50 percent. In fact, following the successful deployment of our Clarity™ item-level RFID software throughout its supply chain, the results were so stellar that American Apparel cited RFID in its 2012 10-K as one of the most important components of the company’s financial health. These days, more than 99 percent of the retail items in each American Apparel store have RFID tags.

To learn more about how RFID retail inventory management solutions can reduce shrink and give you a new level of inventory accountability, please feel free to contact us at any time. Also, to hear more about it directly from SML’s CTO & SVP RFID Solutions, Dean Frew, please join us for a free webinar on March 28 discussing the factors that make an RFID deployment successful. Learn more about the webinar and register for it here.