The Infosys Labs research blog tracks trends in technology with a focus on applied research in Information and Communication Technology (ICT)

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The Retail Shrink Problem

The next time you are in a retail store and you hear a loud beep at the exit, only to see somebody being stopped and their bags/ bills being checked, you can be sure that the retail outlet is relying on some form of 'anti shrink' solution. You would be surprised to know that retailers in the US, lost about $41 Billion (source: Global Retail Theft Barometer 2011) last year to some form of shrinkage or the other. So what is this shrinkage problem all about? Simply put, it's the discrepancy between physical inventory and the recorded inventory through its movement in the supply chain (from the manufacturer through Point of Sale). Shrink can be attributed to multiple reasons, major reason being theft by employees and shoppers (shoplifting), and in a majority of instances, theft is committed in connivance with each other. According to the 'Global Retail Theft Barometer 2011', the main causes for 'shrinkage' was Shoplifting (35.8%), Employee Theft (44.1%), Suppliers/ vendors (4.2%) and internal error (15.9%).

Almost all the retailers have been focusing on 'theft management', using multiple solutions, these include - Electronic Article Surveillance (EAS) systems, RFID tagging, Point of Sale (POS) exceptions tracking solutions , video surveillance etc. Other solutions include - hiring people and training them on theft prevention, routine audits to track exceptions between various points of entry and exit in the sales process, physical security of high value SKUs, pre-employment checks etc. Despite these measures the shrink rate is still a cause of concern, mainly because these reasons

      - Solutions are designed to address symptoms (theft prevention) and are not comprehensive solutions focused on integrity of the inventory

- Reactive and event based solutions - shrinkage is recognized post the 'shrink event', and not in real-time or as a pre-emptive measure

- Data of Physical inventory is based on non-periodic physical counts, which are not helpful in any real-time visibility of inventory, thereby making any predictive analysis impossible

- Key decisions for loss prevention are based on analysis of historic data and there are no data points available to analyze the effect of any remedial measures implemented

- Shrink management is largely dependent on the people stationed on the retail shopfloor to spot potential shrink events

- Unclear ROI matrix for investment in new technologies for managing 'shrink'

I believe we need to address the problem of shrink with an integrated approach, which looks at bringing integrity to the physical inventory cycle, rather than focusing only on theft. This is possible by increasing the number of data points within this cycle to analyze, especially between the entry and exit of inventory from the retail shopfloor. A potential solution is envisaged as below,

- Comprehensive solution which gathers data at multiple points in real-time

- Avanced Electronic Article Surveillance (EAS)/ RFID tags at an SKU level

- Smart shelf and Smart cart (Infosys products) solutions which tracks inventory on retail shelf and its movement thereafter in real-time

-  Image recognition/ video analytics at POS terminal, to address potential employee/ shopper connivance, matched with POS data

- EAS/ RFID sensors at exit matched with POS data

-  An analytics engine which uses the above data to provide exception management in real-time

- Predictive/ Preventive analysis based on patterns/ trends that will enable management to 'heat map' incidence of shrink events, which could be at a SKU level, store level, geography, time of the year and other significant metrics 


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