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Introducing Total Retail Loss: Can It Offer a More Meaningful ROI for RFID?

New research explores what shrinkage and other known losses mean for radio frequency identification—and for measuring the technology's impact on the industry.
By Adrian Beck

Given these challenges, the Retail Industry Leaders Association (RILA)'s Asset Protection Leaders Council (APLC), together with the ECR Community Shrinkage and On-shelf Availability Group, commissioned research to begin to develop a more meaningful and forward-looking definition and typology of retail loss. The recently published research puts forward a much broader organization-wide approach to thinking about loss, taking it beyond just the loss of stock and encompassing other elements, such as the loss of cash and retail margin. It also reaches far beyond the confines of the physical store itself, recognizing that losses occur in supply chains, the virtual retail space of e-commerce and across the corporate components of the business as well.

In addition, the research makes a crucial distinction between what should be considered a loss and what should be regarded as margin eroders—events that impact upon overall business profitability, but are viewed as part of the costs of doing business. The Total Retail Loss Typology puts forward 35 categories of loss, the majority of which fall under the heading of known losses, and eschews any attempts to categorize unknown losses.

So what might this mean for RFID and measuring its impact? To date, developing any form of ROI that relies upon having an impact on store shrinkage is likely to be problematic. The complete lack of transparency in this number makes mapping any form of intervention mechanisms that RFID may trigger almost impossible, particularly when personal prejudices are used to make assumptions about the supposed causes of the loss. What the Total Retail Loss Typology can begin to offer is a range of much more identifiable and discrete categories of loss that could be used to track RFID's impact—it would move away from trying to measure its impact upon a bucket of unknown loss to one much more focussed on a series of known and measurable losses.

It also worth reflecting on how the greater transparency and data visibility that come from tracking stock via RFID might be used to populate the known categories in the Total Retail Loss Typology. Introducing the capacity to know the location of stock at any given time is likely to reduce the amount of loss that would have traditionally been dumped in the shrinkage (unknown loss) bucket. This, in turn, will enable the business to better understand where losses are actually happening and, therefore, make more informed decisions about how to utilize available resources to manage them more effectively.

During the next few years, it will be interesting to see not only how retailers that start embracing the Total Retail Loss Typology use it to develop more overarching RFID ROI cases, but also how they utilize the ensuing data to better understand their overall retail loss landscape. It could finally be time for RFID to begin delivering on those early assumptions and start to measurably make a difference in reducing retail losses.

Adrian Beck is currently a professor of criminology at the University of Leicester, where until recently he was the head of the Department of Criminology. He is also the academic advisor to the influential ECR Community Shrinkage and On-shelf Availability Group, and recently completed a major research project for the Retail Industry Leaders Association in the United States. He can be contacted at bna@le.ac.uk.

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