NEW YORK — The mass beauty industry is looking for a better way to handle the thorny problem of pilferage, especially of high-ticket prestige fragrances and skin care.
The search is on for a universal technology that will take the pressure off retailers and place it on manufacturers. The goal is for manufacturers to “source tag” merchandise — or insert security devices at the point where the goods are made.
Currently there are several technologies at different chains that use magnetic fields, radio waves and microwaves from a bevy of suppliers.
Most of the technologies are not compatible. Therefore, manufacturers have not been able to integrate one type of theft deterrent into the product during production.
To deal with that problem, the National Association of Chain Drug Stores has set up a task force comprising retailers and suppliers to study electronic article surveillance systems.
One of its goals will be to make recommendations about the kind of system that can be universally adopted by the industry, said Steve Perlowski, director of industry relations for NACDS in Alexandria, Va.
The task force got under way Nov. 1. No deadline has been set for its report.
“Right now, there are different technologies. We are trying to find what is most effective. We don’t want to detract from ingredient labeling or from the packaging integrity,” Perlowski said.
NACDS members, he said, have noticed an increase in shoplifting, and “they wanted us to do something about it.”
According to the association, shrinkage costs the chain drug industry $1 billion a year in lost revenue.
NACDS is following moves by groups such as the National Association of Recording Merchandisers, who approved a single technology last March — acousto-magnetic — for all products sold in its members’ stores.
It isn’t just the chain drug industry that’s paying dearly for theft. U.S. Justice Department statistics reveal that shoplifting increased 5 percent in 1992 over the prior year to $9 billion.
Thefts in supermarkets, drugstores and discount stores were up an estimated 7 percent over the prior year, according to sources, and beauty is a popular department to pilfer — one of the top five, in fact.
“Cosmetics represent a big portion of pilferage because they are small and high-priced items,” said Michael Cooper, corporate vice president of engineering and source protection at Knogo Corp. in Hauppauge, N.Y., a manufacturer of security systems.
He said mass marketers’ efforts to sell higher-priced merchandise has also led to a surge in shoplifting in the beauty department.
During the last three years, the advent of scanning at cash register checkout counters has allowed discount and drugstore chains to have a better handle on just how much of their beauty inventories are not passing through the cash register.
Discount retailers estimate beauty items account for 5 percent of their total shrinkage, while drugstore operators put it closer to 15 percent.
Sources say those percentages are double what they had expected prior to having concrete numbers from scan data.
The average theft of all types of merchandise in a discount store amounts to $73, according to the Retail Theft Trends Report, an annual study put together by Read Hayes, a loss prevention specialist in Winter Park, Fla. The average for a drugstore is $25.
Experts estimate that shrinkage accounts for 1 to 2 percent of total sales in mass market stores.
Although upscale designer fragrances are still kept in display cases at chains such as Thrifty Drug Stores in Los Angeles and the Jack Eckerd Corp. in Clearwater, Fla., retailers agree that cosmetics volume jumps when customers are able to touch and feel the merchandise.
“Cosmetics sell better when they are out from under glass,” said David Shoemaker, director of business development at Checkpoint Systems. “Manufacturers want to get their merchandise into the hands of shoppers.”
To keep the goods out in the open, chains have turned to electronic article surveillance (EAS) systems as a replacement for security guards or two-way mirrors, which made shoppers uncomfortable.
Even the tags, however, can turn customers off.
“You don’t want to put them on every item in every store because they can be a deterrent to sales,” said Judy Wray, senior buyer for Revco Drugs in Twinsburg, Ohio, referring to the theory that security labels can tarnish the allure of the packaging.
At this point, mass marketers such as Revco, Happy Harry’s in Newark, Del., and Harco Drug in Tuscaloosa, Ala., are purchasing security devices from suppliers and applying them at store level.
Revco, for example, tags products that cost more than $5 in stores it has identified as high pilferage locations, according to Wray.
Harco uses three different security systems, according to James Harrison 3rd, president of sales. Instead of tagging every item in a department, the chain randomly affixes a security device. Every fifth item on the cosmetics peg wall, for example, might be tagged.
But retailers are starting to complain that pricing at the store or warehouse level is too expensive. It can cost about 3 to 5 cents in labor and equipment charges per item. That can add up to $10,000 a store, according to chain sources.
Compliance is another problem.
“You have to make sure people in the store are putting them on,” said Harrison.
Just as chains such as Wal-Mart Stores are demanding that all products carry Universal Product Codes applied by vendors, retailers and manufacturers believe source labels will determine what brands are carried.
According to Dennis Gillette, senior vice president for Sensormatic Electronic Corporation in Deerfield Beach, Fla., chains will not include items in their mix that don’t have the source tags.
Sensormatic is already working with some third-party suppliers to perform the labeling, and chains such as Happy Harry’s and Wal-Mart are stocking the already-labeled goods.
Revlon’s licensed jewelry line is also being shipped to all accounts with anti-theft devices affixed to the earrings.
The majority of manufacturers said they aren’t ready to commit to source labeling until industry standards are devised, especially because the technologies are not compatible.
Maybelline, Revlon and Procter & Gamble said they are not currently installing their own devices on cosmetics.
Many industry experts said the major firms are waiting for a decision on what type of technology will win out. Another choice vendors will have to make is how to tag merchandise.
Most devices now affix to packaging — in the case of cosmetics onto the box or blister card.
However, the trend in the industry is to reduce excess packaging while upgrading the look of the merchandise by eliminating the back cards. A new technology from Knogo uses a tiny strip that can be imbedded into the product itself. The strip could be inserted, for example, into the case that holds mascara.
Additionally, arming the product instead of the package prevents shoplifters from merely ripping away the package, said Cooper at Knogo.
“Mass merchants are familiar with what we call snowflaking — the heap of ripped cartons around the display where the shoplifter has merely taken the merchandise,” he noted. “This would prevent that,” he said.
At the National Retail Federation convention, which will start here Sunday, Checkpoint executives will unveil a system designed to allow manufacturers to serve retailers who don’t have the EAS system in each store.
It can be a problem to put tags in all merchandise when all stores don’t have a system. Checkpoint says it will introduce a way to activate the security devices while the products are still packed in bulk before being shipped, so that only the sensitized products are sent to stores with security systems.