Tag: pilferage

OM in the News: Ditching Self-Checkouts?

“Retailers Scale Back Self-Checkouts to Curb Irritation—and Theft” is The Wall Street Journal  (May 5, 2024) headline.  Self-checkout was introduced to reduce the cost needed to staff registers adequately, with companies such as CVS Health deploying them 20 years ago. With self-checkout, one worker can monitor and help shoppers at several registers.

Shoppers using self-checkout machines at a Kroger store in Louisville, Ky.

It seems that problems with technology are prompting companies including Target and Walmart to change operations or ditch the stations. Dollar General, Five Below, and grocery chain Schnucks, have limited how many items customers can bring to self-checkouts to avoid bottlenecks and alleviate headaches for staff. Walmart pulled self-checkout lanes from a handful of stores in recent months based on feedback from associates and customers.

While the primary intention is to improve customer service and checkout efficiency, companies expect some reduction of theft as well. Self-checkout accelerated during the pandemic, when human-to-human contact lessened. But self-checkouts have contributed to increased “shrink”—a Chapter 12 term used to describe losses from theft, lost inventory or damaged goods—because shoppers make mistakes or steal. Retailers, hesitant to spend more on staffing, are deciding if they prefer to reduce labor costs or combat shrink.

About a fifth of people who used self-checkouts said they accidentally took an item without paying for it, according to a survey of 2,000 shoppers last year. Some 15% of self-checkout users admitted to stealing an item on purpose. On social media, some users have posted videos of shoppers scanning a lower-price item instead of the higher-price item that should have been scanned.

“Shoplifting used to be mostly invisible,” said a trade group exec. “What we are seeing today are methods that are open and brazen.” Some Walmart stores are designating self-checkout lanes for Walmart+ customers, who pay a membership fee of $98 a year. Walmart added more self-checkouts to stores years ago but quickly found that they came with challenges including higher levels of theft and consumers’ fumbling with the technology. In response, it quietly disabled the weight sensors at self-checkout scanners because they triggered too many “wait for assistance” messages that annoyed shoppers and staff.

Classroom discussion questions:

  1. If theft is an issue, what can retailers do to minimize it?
  2. Do students prefer self-checkout? Why?

OM in the News: Shrinkage, Pilferage, and Store Closures

Target’s CEO said that theft was trending ‘in the wrong direction.’

Chapter 8 in our text discusses the key success factors that affect location decisions. But what about decisions relating to closing those locations?

The Wall Street Journal (Sep. 27, 2023) notes that Target  plans to close nine locations across four states, citing elevated levels of theft and safety concerns for its shoppers and employees.    The retailer announced that stores in the New York City, Seattle, San Francisco and Portland markets would close next month. The decision is the latest sign of actions executives are taking to protect their businesses.

Retailers have said they have faced a growing wave of theft in recent years that has led to responses such as locking up more merchandise on shelves (see the photo), hiring off-duty police officers, and closing hard-hit stores. The average inventory “shrink rate” (see Chapter 12, page 496) reported by retailers increased to 1.6% of sales.

Walmart recently closed a number of stores in urban areas, including Chicago, Washington, D.C., and Portland. Nike temporarily closed one of its Portland stores last year amid issues with theft, but just announced the location would close permanently. Three of the stores that Target said it would close are in the San Francisco, a place that has had a number of high-profile retail defections of late. Department-store chain  Nordstrom closed two stores near San Francisco’s downtown this year, including one in a shopping mall.
For the closing stores, Target said theft was “threatening the safety of our team and guests, and contributing to unsustainable business performance.” It also said investments made to prevent theft, such as adding security guards and using theft-deterrent tools, have been ineffective in curbing retail crime. Target has seen a 120% increase in theft incidents which involve violence or threats in the first five months of this year, leading to a $500 million loss from shrink.
Target’s announcement follows a string of violent incidents at other retailers. A CVS store manager in Mesa, Ariz. was fatally shot earlier this month after suspecting a man was stealing from the store. This week, mobs hit Apple, Lululemon and Foot Locker stores in Philadelphia. Retail theft in that city increased by 30%, to 13,330 this past year.
Classroom discussion questions:
1. What can store managers do in this situation?
2. How might Figure  8.1’s (page 337) site decision factors change given this dangerous urban  trend?

OM in the News: J.C. Penny Loses Control of its Inventory

pennyShoppers are buying more at J.C.Penny after a disastrous overhaul under former CEO Ron Johnson, who drove customers away when he did away with promotions and eliminated in-house brands. But the problem is that customers are also stealing more, reports The Wall Street Journal (Nov.21, 2013). As the chain is learning, its extensive inventory makes inventory management crucial. We note in Chapter 12 the importance of controlling pilferage through RFID and bar codes.

Theft spiked last quarter after Penny removed sensor security tags from merchandise while it shifted to a new inventory-tracking system that uses radio tags. Shoplifting took a full percentage point off  Penny’s profit margins. That was just one more weight that dragged the 1,100-store chain down to a loss of half a billion dollars. The need to liquidate old inventory did further damage to profits.

The shoplifting. Penney unveiled plans in 2012 to add RFID tags to every item in its stores. The tags are more expensive than traditional bar codes, but they promise to make it easier to manage inventory. Sensor tags designed to prevent theft were removed from merchandise, because they would have interfered with the radio frequency. At the same time, Penney had switched to a friendlier return policy that did not require customers to present a receipt. The combination gave people the opportunity to grab armloads of merchandise off store shelves, walk over to a cash register and return the goods on the spot. New CEO Mike Ullman says “the move away from sensors actually encouraged thieves to come to Penney. Competitors were still using the devices, so most of the theft comes to our place.”

The company is now retagging items on the sales floors with sensors, as well as tagging those that it is bringing in. It also recently tightened its return policy by giving store credit, rather than a refund, to customers who return goods without a receipt and are unable to produce the credit card used for purchase.

Classroom discussion questions:

1. What else can Penny do to eliminate pilferage?

2. Why is inventory control crucial is service industries like retailers?