Tyco's Pernice on shrinking shrink

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11/27/2012

In the spirit of the shopping season that is now upon us, I spoke today to Tyco Integrated Security’s Lee Pernice about trends in retail security. What's TycoIS's approach to shrinking shrink?

We talked about TycoIS's work on “shrink visibility.” TycoIS has been heavily involved with retail security for years, but it’s promoting a combination of existing technologies [RFID, EAS, video surveillance and POS systems] as a way for retail LP/security professionals to be less reactionary.

Inventory is a time-consuming process that major retailers do once or twice a year, Pernice said. By combining the four technologies above, however, LP can do inventory “more frequently and more accurately, about 20 to 30 times faster … what you would do in eight hours can be done in about 30 minutes,” she said. “And it’s much more accurate, down to the SKU [item] level versus the category level.”

Combining these systems can shed light on “what’s an LP problem and what’s an inventory-distortion problem,” she said. Typically when inventory goes missing, it’s labeled as shrink, even though it could be a receiving error or a vendor problem.

Integrating these systems also means sharing the cost among departments. Pernice notes that the cost of video surveillance, EAS tags [typically those plastic tags attached to clothing] and POS systems [point of sale] are in the LP/security budget, while RFID technology is typically paid for by logistics, or whomever is in charge of inventory.

“The benefit is this approach is trends analysis … you can look at shrink sorted by time, day, and season, you can compare patterns and adjust the LP program accordingly,” she said.

Integration of RFID with the other systems is driven by the benefits of this approach and the fact that RFID tags have come down a lot in price from a ball park of 30 or 40 cents a few years ago to about 10 cents per tag today.

That may sound like a lot of cash for tags, but when you consider that retailers lose more than $35 billion in shrink [shop lifting and employee theft] and about $100 billion because of out-of stock cost, ten cents a tag doesn’t sound so expensive.

So how much business is TycoIS doing integrating these systems for retailers? “We’re crossing that threshold from pilot to implementation,” Pernice said.

Large enterprise retailers and specialty retailers will be the early adopters, she said.
“It’s gaining traction fast in department stores with tens of thousands or hundreds of thousands of SKUs,” she said.

Importantly, TycoIS has spent a lot of time in the past couple of years developing a software platform with a common user interface and reporting systems “so at the store level … there’s less of a learning curve.”