Magazines Archives - 2008 August

India’s population of 1.1 billion draws modern retailers the way a newly-opened mall brings in
the crowds. But the market also grapples with having the highest incidence of retail theft
in the world. How do retailers and mall owners respond? Shirish Nadkarni finds out.

Indians appear to be the world’s most prolific shoplifters. The rapid growth of modern retail formats in
a country boasting the world’s second-largest population has made India a market with the world’s highest shrink rate.

This was revealed in the Global Theft Barometer, a study jointly conducted last year by the Centre for Retail Research in Nottingham, UK, and security-technology provider Checkpoint Systems. The findings determined that the Indian retail industry had suffered a staggering loss of Rs96.91 billion
(US$2.25 billion) due to shoplifting and wastage in 2007.

Interestingly, this amount, which seems huge, had shrunk in proportion, from 3.2% of sales in 2006 to 2.9%, aftermall-owners and retailers in the country  took action to inhibit shoplifting.

Results from the survey of 32 countries showed that global retail shrinkage had cost retailers a whopping Rs4.02 trillion — Indian retailers registered Rs81.60 billion — as a result of theft by
customers, disloyal employees, and suppliers and vendors, along with the cost of preventive measures.

Of the six million store thieves apprehended worldwide during the period, 87.5% were customers — and of the 74,540 apprehended in the subcontinent, 93.3% were customers.

“I am really not surprised at this quantum of shrinkage in ... stores, as customers in India, even the affluent, take great enjoyment in robbing a store of some goods,” says N Krishnan Iyer,
operations manager of Atria Mall at Worli, Mumbai.

“Individual shops have pilferage limits that vary. The bigger stores, with larger floor space and relatively smaller staff-to-merchandise ratio, tend to have about 1.5% shrinkage, whereas smaller
stores may [record] 1%,” he notes. Employee theft more rampant Untold incidents of larceny adding up to billions of rupees of losses are not listed in crime reports, except for cases
where arrests have been made. Although shoplifting is more often publicised than employee theft, security experts maintain that the in-house thief is responsible for at least 50% of
the shrinkage.

According to the National Retail Security Survey, the top source of shrinkage for a retail business is internal theft, which does not receive as much monitoring as customer theft. Staff fraud includes discount, refund and creditcard abuses.

Coming in second is shoplifting — via merchandise concealment, price-tag swap or alteration, or transfer of goods from one container to another — which still costs retailers heavily every year.

Other causes accounting for approximately 15% of inventory loss are administrative and paperwork errors, including simple pricing mistakes, and vendor fraud, which occurs mostly when external vendors are given the task of stocking up the store.

Mangesh Mehra, head of security at Infiniti Mall in Andheri in Mumbai’s western suburbs, says employee theft is rampant because “the retail industry attracts many unskilled people who work
for minimum wages”.

He maintains: “Many of these employees can be persuaded or prevented from stealing. Positive programmes of employee relations built around fair compensation, proper surroundings and
employer-sponsored activities can improve morale and concern for the success of a company.”
However, some mall managers believe that the only way to reach some employees is through a highly visible security programme and a rigid company policy of prosecuting those caught
stealing. The country has, as a result, become a huge potential market for purveyors of loss-prevention systems in retail.

Modern tools “Prevention of theft requires simple [yet] sophisticated systems for handling erchandise and currency which not only deter but also leave a trail of documents when any stealing takes place,” says John Davies, president of Checkpoint Systems, Asia-Pacific and Latin America.

“In general, shrinkage varies among retailers. Except for the [best-established] retail giants in India, most independent players may not understand their major source of shrinkage,” Davies
notes. Checkpoint Systems is one company that manufactures and markets technology-driven
solutions for retail security, goods labelling and merchandising. It provides the retail industry,
including over half of the top 200 global retailers, with shrink-management solutions, based on radio frequency (RF).

Wipro Technologies, whose lossprevention systems have been implemented by leading retailers in the US and the UK, also offers its ware in India. Its framework consists of preventive components like point-of-sale (POS) exception reports and case management. “We adopt our proprietary package-evaluation methodology, based on the industry best practice of analytical hierarchy process (AHP), to help customers in multi-criteria decisionmaking, and choosing the right vendor and product,”
says Jessie Paul, CMO of Wipro Technologies. “An outdated loss-prevention system can thwart
your ability to respond quickly to changing market conditions. Our functional consultants team up with technology experts to develop and maintain customised applications to run accurate cashier-transaction systems and lossprevention tracking systems.”

Meanwhile, Accenture’s fourpronged precautionary approach applies proprietary tools to deter, detect and control shrinkage. The approach focuses on predictive modelling, identifying high-risk products and high-risk transactions, and building a loss-prevention dashboard. The company says the resultant shrink control is proactive rather than reactive.

Recently, Dynamic Vertical Solutions (DVS) launched Store-Ctrl, a digital video auditing-and-surveillance software system intended to help retailers in loss prevention, operations, risk
management and merchandising.

“The Store-Ctrl combines state-ofthe- art technology in software development and DVR/video compression hardware with over 30 years of domain expertise in retail-transaction auditing,”
says DVS managing director Rakhee Nagpal.

“One main advantage of this newgeneration solution is that it is based entirely on open standards and takes advantage of leading-edge DVR hardware, rather than proprietary hardware.

The ... system allows management to more efficiently supervise POS activity, and identify and reduce shrinkage due to theft, poor training, cashier errors and other [weak areas].”

Some more vulnerable than others In a successful retail chain like Pantaloons, which understands the importance of shrinkage management, loss as a proportion of sales can be as low as
0.2%-0.8%. Retailers lacking in organised counter systems may suffer shrinkage as high as 30% of sales.

And then there are malls that report no shrinkage at all such as the Tata industrial group’s Westside, which combines the use of security guards and loss-prevention equipment like Sensormatic
gadgets to reduce shrinkage to almost nothing.

“That is why investment in shrinkage-management solutions is minimal, compared with the return [from] reducing shrinkage,” says Davies.

Iyer says the nature of the merchandise also makes a difference. In a shoe shop, for example, pilferage is nil. Where items are of lesser value, the losses are not accounted for at all, he explains. Prabhakar Chowdhary, security consultant from Tops Security, which supplies security personnel to malls and stores and has Westside on its list of customers, also finds certain items more
vulnerable than others to shrinkage. He identifies clothing items, for example, as more prone to pilferage. As privacy laws dictate that a clothing store’s changing rooms are out of bounds to closed-circuit TV (CCTV), “we can only use Sensormatic electronic anti-theft devices on the more expensive
garments to prevent their pilferage”, Chowdhary says.

Iyer also observes higher shrinkage in garments, as it is easier for thieves who pretend to try on the apparel to “walk out” wearing the merchandise, leaving behind their own “used clothes on the pegs”.

“There is also a greater degree of pilferage in impulse items like small powder tins or lipstick,” he says. And while theft prevention is of more concern to retailers whose bottom unusual patterns in each store, Kong adds.

A loss-prevention system that is gaining popularity is source tagging, which places the anti-theft label or tag inside the merchandise at the manufacturing or packaging stage. This solution uses
acousto-magnetic (AM) technology, which is believed to render a higher detection rate than radio frequency.

ADT’s Sensormatic Ultra-Max products incorporating AM technology allow items that are source-tagged to be merchandised almost immediately upon arrival at the store, as no manual labellines
are directly hit by the crime, mall operators are not taking shrinkage sitting down. Atria, for one, has taken several countermeasures with a number of security systems, including Sensormatic’s
beeping device on expensive garments.

“When the device emits a beep at the exit gates, the customer is called in to have his items checked,” Iyer says. There have been cases where the cashier forgets to remove the tag from a paid
item and the beep goes off when the customer leaves the store, and “all hell breaks loose ... with the “customer rightly furious”, he admits.

In jewellery and other sections, where goods are more costly, the mall implements CCTV monitoring. While the thief is not immediately caught using this method, the recording allows the security personnel to determine the manner of theft and get familiarised with physical features of the trespasser, who is likely to return to the store. “We also have a security-guard system,” adds Iyer.

To view other stories, get a copy of Retail Asia. To subscribe, please download the subscription form from http://www.retailasiaonline.com/subscription.html