Major Retailers Report Increased Theft During Shrinkage Epidemic
The general public was outraged last week when Lululemon (NASDAQ: LULU) fired several employees who attempted to stop thieves who were stealing merchandise from the retail giant by simply telling them to stop. The employees then called the police on the robbers and were subsequently fired for taking too much action, even though they did not physically intervene or engage. Understandably, the retailer giants do not want employees to put themselves in harm’s way by interacting with these potentially aggressive and violent criminals, as some have seen employees lose their lives. However, the drawback is that word gets out that thieves can easily rob stores and experience little-to-no resistance, only having to avoid law enforcement after exiting the retail store. Undoubtedly stand-up employees who have courage to discourage or even make a citizen’s arrest on thieves should be a prized asset for any retail company, but these large retailers will never cave. Perhaps it has less to do with caring about employees and more to do with commercial crime insurance premiums. Regardless, this thievery has contributed significantly to retail shrinkage over the last few years, and for Lululemon is just one example following other large robberies witnessed over the past several months.
When it comes to shrinkage, there are no winners, only losers. Shrinkage is the term retailers use to refer to the disparity between the inventory recorded on paper and the actual inventory sold. In the process of putting a product on the shelf, items simply disappear, causing the retailer to lose a portion of profits to the point where the retailer is unable to pass on the benefit of their wholesale pricing. This ultimately means that customers miss out on the overall value proposition—attractive pricing—as retailers inevitably increase prices or stop carrying certain items. Unfortunately, the problem of shrinkage has been exacerbated by the pandemic and reduced law enforcement in major markets, leading to a consistent year-over-year increase in the shrink rate, according to industry sources. Lululemon is just one example.
Shrinkage is a multi-faceted problem that encompasses more than meets the eye. While shoplifting remains the top contributor, other factors such as administrative errors, supplier fraud, and internal theft also quietly chip away at retailers' profits. When combined with inflationary pressures faced by both small and large retailers, shrinkage can often be the proverbial straw breaking the camel’s back. With razor thin margins and intense competition from online retailers, reducing shrinkage is necessary for most retailers, especially beloved regional chains that have existed for generations.
According to the 2022 National Retail Security Survey released by the National Retail Federation (NRF), retail shrinkage accounted for $94.5 billion in losses last year, up from $90.8 billion in 2020. This alarming increase underscores the urgent need for effective solutions to combat shrinkage and protect retailers' bottom lines. In fact, recent earnings reports from industry giants Walmart (NYSE: WMT), Target (NYSE: TGT), and Kroger (NYSE: KR) show even they are suffering from shrinkage losses.
Historically, retailers have employed very conventional strategies like surveillance systems, license plate scanners, increased security personnel, and staff training to combat shrinkage. However, as the retail landscape evolves and criminals become more sophisticated, these traditional methods are proving insufficient. Retailers find themselves locked in an eternal cat-and-mouse game with those determined to exploit vulnerabilities for personal gain.
Retailers continue to search for new solutions to the shrinkage problem, but they have had to wait for technology to catch up with the problem. In the meantime, they have heavily invested in those ineffective solutions, hoping for technology to mature. Surprisingly, the answer to reducing shrinkage may have been right in front of most retailers all along—the shopping cart.
At first glance, shopping carts may appear to be nothing more than tools for carrying a large number of products from the shelves to the checkout. If you view the shopping cart merely as a means of transporting groceries and other goods to the front of the store, this perception would be accurate. However, the shopping cart has the potential to be so much more than a simple means of transportation.
An ideal solution would be a shopping cart that streamlines the retail shopping experience by scanning purchased products and enabling in-cart payment, allowing customers to simply "pick & go" and bypass long cashier checkout lines. This would result in a more efficient shopping experience for customers, reduce unused shelf space and manpower requirements, and provide advanced command and control capabilities for store managers. While thieves could still steal merchandise by carrying it straight out of a store, they would be suspected and apprehended immediately upon entering by not using this ideal shopping cart.
One emerging company, A2Z Smart Technologies Corp (NASDAQ:AZ) (TSXV:AZ), based in Israel, has come close to developing a complete solution. The company offers a smart cart for retailers called Cust2Mate, which leverages advanced, user-friendly technologies to streamline shopping for consumers while boosting store management efficiency.
Data suggests that Cust2Mate reduces shrinkage, keeps track of store stocks, and boosts sales through on-cart promotions that encourage shoppers to take advantage of special offers and sale items. By integrating cutting-edge technologies into the shopping cart, A2Z Smart Technologies Corp has created a solution that addresses the underlying causes of shrinkage and provides tangible benefits to retailers and consumers alike. It’s also easy to see the Cust2Mate cart allowing retailers to reduce employee headcount at the checkout line.
Sometimes the best answer is the simplest, and in this case, the shopping cart armed with modern technology may be the difference between profitability for large retailers and survival for small retailers. As the retail industry continues to evolve and face new challenges, innovative solutions like Cust2Mate offer a glimpse into a future where shrinkage is effectively managed, and profits are protected.
