Shelving Shrink

It’s one of the hardest merchandising decisions that retailers have to make.

When shoplifting is a major problem and shrink rates are high, should they lock up desirable, high-ticket products to minimize theft, accepting the risk of losing impulse sales and inconveniencing customers? Or should they keep those items in an open-shelf presentation at the cost of high shrink rates, lost sales and the out-of-stocks created when products are stolen?

Those are big problems with no clear answers in sight. In Denmark, however, Dansk Supermarked has found a solution that minimizes theft and reduces its exposure to shoplifters while keeping customers happy with accessible and available merchandise.

Dansk started with something of an advantage: More than a third of its 1,300 stores are in Denmark, the Scandinavian country with the lowest shrink levels according to the U.K.’s Centre for Retail Research. Still, says Liselotte Kristoffersen, cosmetics category management for Dansk, professional criminals often come into Denmark from other countries to commit organized retail crime (ORC). As they do in the U.S., they travel from region to region and store to store, sweeping targeted items off the shelf and reselling them on the black market for a fraction of their list price.

Nearly 100 of Dansk’s food stores had become frequent ORC targets: One popular item, Procter & Gamble’s Max Factor mascara, had a shrink rate of more than 20 percent. Kristoffersen and P&G had been looking for a solution, but, she said, “it eluded us until P&G came to me with a new type of fixture that they had discovered and liked.”

That fixture was the OPEN Merchandising System, developed by Berlin-based IMCo. When a single protected item is removed from the shelf, the system sounds a quiet beep — meaningless to ordinary shoppers, but alerting shoplifters to the fact that something unusual is happening with this fixture. That beep alone can deter a shoplifter from going any further, says Georg Hachmann, IMCo’s founder and owner. If a shoplifter should decide to sweep a shelf full of products empty, an alarm sounds, alerting store associates to a possible theft in progress.

Kristoffersen says this system is working very well for Dansk. “We want to have ways for consumers to take products off the shelves themselves. Closing the shelves, locking up product, would hurt sales. With our shrink [on the items in question] now down to 14 percent, we think this fixture is the way for us to merchandise in the way that we, and our customers, prefer.”

Dansk is currently the only retailer using the system in all its supermarket stores, but Hachmann says it is being tested in a variety of European supermarket and drug store chains.

Losing stock means losing sales
Intelligent Loss Prevention (ILP), the Rockford, Ill.-headquartered U.S. partner and distributor of IMCo’s technology, is launching the first U.S. test of the OPEN Merchandising System in January in a select number of chain food and drug stores. ILP has expanded the formatting of the OPEN System to include products that are pushed, pegged or gravity-fed.

Shrink declined 87 percent in a recent six-store test designed to protect Max Factor cosmetics in a German drug store chain, Hachmann says.

Losing stock to thieves means losing sales, both Kristoffersen and Hachmann point out. When products are stolen, chains that use a perpetual inventory replenishment system can’t quickly recognize that product has been taken out of the store’s inventory, creating holes where product should be. Sales are lost and customers are inconvenienced. If it happens too often, retailers lose customers as well as product.

Sales of Max Factor mascara and companion foundation products have increased dramatically since the fixtures were installed in 2009, Kristoffersen says.

Although there is an investment above and beyond the cost of a traditional fixture, Hachmann says an ROI is typically achievable between six weeks (in a high-theft store) and eight months; the average is “less than six months.” The benefits for manufacturers, adds Kristoffersen, come from increased sales, additional in-store merchandise space and increased market share.

Because product presentation is so important in driving sales in a fashion category like cosmetics, it’s critical that a fixture be appealing to customers. Kristoffersen says that’s the case with the OPEN Merchandising System.

It “looks even better than before,” she says. “There are more products in the fixture. Market share and sales are all up, and in some stores we have expanded space for Max Factor from three sq. ft. to six.

“It took some time to convince everyone that this was the right solution,” she says, “but everyone is very happy now.”