European Retail Supply Chain Faces up to the 24 Billion Shrinkage Challenge

Total shrinkage amongst European retailers and manufacturers is worth 24 billion equivalent to the annual GDP of Luxembourg.

This was one of the thought-provoking insights offered at the 2006 European Source Tagging Conference, held in Madrid on 1-2 March, where some of the biggest names in retail such as Inditex, ASDA, Tesco, Cortefiel, Virgin and Wal*Mart discussed the key security challenges facing their industry.
 
Adrian Casey, Interim Managing Director of ADT Europe, opened the conference by identifying key drivers behind the fast changing global retail environment. He emphasised that stringent supply chain management and targeted technology investment are key strategic pillars for retailers looking to protect vital profit margins.
 
French multinational retailer Bata operates with an open merchandising environment, which in turn presents new risks and Karim Bairi, Logistics Director for Bata, said technology was needed to secure items and protect profits in the new Bata store concept, which targets increased customer comfort and answers consumer needs. To help achieve this, Bata has standardised its electronic article surveillance (EAS) systems with acousto-magnetic (AM) technology and implemented a source tagging programme involving manufacturers.
 
Phil Weeks, Head of Total Loss at ASDA Stores, explained how the company had benefited from experience gained by parent company Wal*Mart, who have run a successful source tagging initiative involving alcoholic beverages in Mexico. A similar six-month source tagging trial on selected products across all ASDA stores in the UK has achieved startling results in this category, with sales increasing by over 40%, shrinkage reducing by over 35% and gross profit increasing by over 50%.
 
Adrian Beck, a criminology expert from the University of Leicester, valued the total cost of shrinkage in Europe at just over 24 billion, which equates to 66 million per day. He challenged retailers to examine the causes of shrinkage more closely, suggesting this was the last free money on the table. He argued that shrinkage should be viewed not only as a problem, but also as a profit opportunity, with average retailer margins having the potential to grow by 62% from effective shrink management.
 
220 delegates from 19 countries attended the conference, including approximately 60 retail companies, over half of whom operate internationally. There was also great interest shown in the technology demonstrations at the event added Mr Casey. This included a new concept that we are currently working on with our parent company Tyco to develop a suite of combination AM EAS/radio frequency identification (RFID) products. Although this project is in its infancy, there are a number of advantages of EAS and RFID co-existence.