Reducing shrinkage in retail: How RFID is making a difference

Managing inventory shrinkage is a persistent challenge, with losses from theft, administrative errors, and supplier fraud taking a big bite out of profits.

Radio Frequency Identification (RFID) technology (also known as RAIN RFID) which leverages GS1 standards is gaining ground as an effective solution for retailers seeking to minimize these types of losses. 

Here are five ways RFID can help retailers reduce inventory shrinkage and product loss:

1. Boosting inventory visibility and accuracy

RFID technology enhances inventory visibility in real-time. Unlike traditional barcodes that require line-of-sight scanning, RFID tags can be read automatically and simultaneously, enabling more frequent and accurate inventory counts. 

RFID's longer read range and faster data capture improve tracking, allowing retailers to quickly identify and resolve discrepancies. Individual items can be accurately located and tracked using their unique product identifier (e.g., GS1 serialized global trade item numbers, or sGTINs). 

This improved visibility helps maintain accurate inventory levels and reduces the chances of loss due to errors. Because RFID can detect high-shrink items and organized retail crime patterns, it is helpful in driving actions to mitigate risk, such as moving items to a more visible location or adding anti-theft measures.

By offering a "data fingerprint," correlations can be drawn to other circumstances and events that may be causing the losses, helping retailers track down the problem (or culprit).

2. Thwarting theft with enhanced security

According a study from checkout-free technology provider Grabandgo, two-thirds of the $100 billion in retail shrink per year is attributed to shoplifting and employee theft, with most of the rest ascribed to internal errors. 

Preventing theft is becoming one of retailers’ most urgent priorities as lost inventory erodes bottom lines. RFID technology can provide detailed information about stolen items, including sGTINs, descriptions and times of theft. 

Integrating RFID with surveillance and POS systems allows retailers to monitor items throughout the store. RFID readers placed at strategic locations can detect unusual patterns or items in unauthorized areas, enabling quick and effective security responses. 

RFID-based electronic article surveillance (EAS) systems at store exits can even alarm and identify precisely what is being stolen in real time. This integration helps ensure potential thefts can be identified and addressed promptly.

3. Cutting down on administrative errors and fraud

Manual processes can lead to errors, but RFID technology enables retail associates to very quickly locate target items for markdowns, seasonal changes, etc.  It also helps retailers hone in on finding and selling the last remaining items, reducing the need for markdowns in the first place. 

And with significantly higher inventory accuracy levels via RFID, retailers can merchandise more items online, as they can lower their safety stock or inventory buffer.

RFID based on GS1 standards allows seamless communication between products and inventory systems, ensuring consistency and accuracy; and it provides a detailed, auditable trail from supplier to retailer, making it easier to identify and address discrepancies. 

4. Streamlining return processes and reducing return fraud

Return fraud is a major concern for many retailers. RFID technology improves the return process by providing accurate and detailed information about each product. With RFID tags, each item has a unique sGTIN  that can be tracked from the point of sale to the return process. 

When a customer returns an item, the RFID system verifies the product's authenticity and purchase history, reducing the risk of fraudulent returns. The use of GS1’s system of standards in RFID tagging ensures consistency and reliability in the return verification process.

5. Optimizing supply chain management

Effective supply chain management is crucial for smooth operations, including the reduction of shrinkage as products move through distribution. By enhancing supply chain visibility, RFID enables retailers to track products from the manufacturer to the store shelf. 

This end-to-end tracking helps identify and address potential shrinkage points within the supply chain. RFID allows for automated inventory checks at various stages, ensuring products are accurately accounted for and reducing the chances of loss during transit. Theft occurring during transit, especially via rail, has become more prominent and continues to negatively impact the supply chain.

The data collected through RFID can be analyzed to identify patterns and anomalies, helping retailers optimize supply chain operations and mitigate risks. GS1’s electronic product code information services (EPCIS) provides a standardized, interoperable means of communicating key visibility data to detect supply chain shrink.

As the retail industry continues to evolve, adopting advanced technologies like RFID will be crucial for maintaining competitive advantage and ensuring long-term profitability. GS1 standards support this technological integration, providing a consistent and reliable framework for tracking and managing products across the supply chain. 

RFID identifiers are also compatible for alignment with new two-dimensional (2D) barcodes as a complementary data carrier. This will be important as retailers shift from using linear UPC barcodes to 2D, which offers significant new capabilities for data capture and retrieval and will be accepted at retail checkouts by 2027, also known as "Sunrise 2027."

By enhancing inventory visibility, identifying theft, minimizing administrative errors, streamlining return processes, and improving supply chain management, RFID can help safeguard assets and optimize operational efficiency. 

[READ MORE: Exclusive Q&A: GS1 U.S. highlights the path to digital maturity]

Jon Gregory is director of global standards, GS1 US.