Retailers Control Inventory Shrinkage with Computer Technology Summary

  • Last updated on November 10, 2022

By using computers and other technical innovations, retailers were able to improve the security of their merchandise, identify types of shrinkage, and locate departments with the greatest shrinkage.

Summary of Event

Sophisticated accounting and control methods merged with technology during the 1970’s to alert retailers to the depth and breadth of inventory shrinkage. Inventory shrinkage The major causes of shrinkage were identified as employee theft, customer theft, and employee errors. Shrinkage is the difference between the retail value of all merchandise purchased by a retail store minus sales, markdowns, and the retail value of the merchandise in stock. Retailing;security technology Computing, applied;retail security [kw]Retailers Control Inventory Shrinkage with Computer Technology (1970’s) [kw]Inventory Shrinkage with Computer Technology, Retailers Control (1970’s) [kw]Shrinkage with Computer Technology, Retailers Control Inventory (1970’s) [kw]Computer Technology, Retailers Control Inventory Shrinkage with (1970’s) [kw]Technology, Retailers Control Inventory Shrinkage with Computer (1970’s) Retailing;security technology Computing, applied;retail security [g]North America;1970’s: Retailers Control Inventory Shrinkage with Computer Technology[00030] [g]United States;1970’s: Retailers Control Inventory Shrinkage with Computer Technology[00030] [c]Business and labor;1970’s: Retailers Control Inventory Shrinkage with Computer Technology[00030] [c]Computers and computer science;1970’s: Retailers Control Inventory Shrinkage with Computer Technology[00030] [c]Science and technology;1970’s: Retailers Control Inventory Shrinkage with Computer Technology[00030] Assaf, Ronald Clarke, Carter W. Minasy, Arthur Nicolette, Thomas A.

In 1972, the Federal Bureau of Investigation (FBI) conservatively estimated the annual value of retail shrinkage in the United States at $2.5 billion, more than twice the shrinkage in 1962. American retailers themselves estimated the value of shoplifting alone at $3.2 billion in 1972. In the early 1970’s, shrinkage was believed to average about 1 percent of sales, but by the mid-1970’s, shrinkage had leaped to nearly 2.5 percent. Many retailers experienced shrinkage as high as 3 to 4 percent of sales. One study conducted in the mid-1970’s reported that shoplifting alone siphoned off 4 percent of total retail sales in the United States. Retailers recognized that this meant a significant loss of profits in a business that averaged profits of only 2 to 3 percent of sales.

The primary focus of retail security until the mid-1970’s was on shoplifting, Shoplifting defined as a nonemployee entering a retail store without using force and stealing merchandise. The deterrents that had been used to stop shoplifting through the 1960’s included wide-angled mirrors, employees trained to reduce opportunities for theft, catwalk and other viewing areas that were disguised from the selling floor, store design and display of merchandise to discourage theft, and security guards. The introduction of electronic surveillance occurred in the 1950’s with the advent of closed-circuit television (CCTV) cameras; however, CCTV was in limited use to protect stock as late as the 1960’s.

An act of shoplifting that took place in the mid-1960’s in a Kroger grocery store resulted in an idea for a more reliable device for preventing nonemployee theft. The Kroger store manager, Ronald Assaf, returned to the store after unsuccessfully chasing a shoplifter for several blocks. Assaf’s cousin, John Welsh, was in the store, and Assaf remarked to Welsh, who was a tinkerer, that he could make a million dollars if he would invent something to prevent shoplifting. Welsh proceeded to do just that. In 1968, the first electronic article surveillance (EAS) system Electronic article surveillance systems was marketed by Sensormatic Electronics Corporation Sensormatic Electronics Corporation of Hollywood, Florida, a company founded by Ronald Assaf, John Welsh, and James Rogers. Sensormatic had difficulty marketing its product at first; the firm even had to pay the first store to use the system. It was five years before the corporation realized a profit.

The first Sensormatic EAS system used inconspicuous tags placed on the inside of apparel items and sensing devices at exits that would detect a tag carried out. After a few embarrassing incidents, such as when a commanding officer’s wife was caught shoplifting in a military PX, Sensormatic realized that store management wanted only to deter shoplifters, not to “catch” them. Retailers wanted to avoid embarrassing situations as well as the expense associated with the prosecution of offenders. To achieve the retailers’ goal of discouraging shoplifters, Sensormatic developed large and somewhat heavy white tags that were placed on garments where they could be seen clearly.

Other companies that began marketing electronic surveillance systems during the 1960’s included Knogo Corporation of Westbury, New York; Checkmate Systems of Lionville, Pennsylvania; D-Tektamatic Corporation of Atlanta, Georgia; Stop-Lifter International of Dallas, Texas; and I.D. Engineering of Peabody, Massachusetts. The technology was being developed, but the industry was initially slowed down by minimal marketing and distribution. Combined sales across the industry in 1972 were less than $5 million.

Retailers were also slow to adopt computers. Retailing experts identified fear, mistrust, and cost as reasons for the slow acceptance of computers. Consumers of the early 1970’s opposed the use of computer-based scanning checkout systems in supermarkets. National consumer organizations objected to the use of the Universal Product Code Universal Product Codes (UPC), the combination of bar code Bar codes and numbers placed on products, which enabled supermarkets to use computerized checkout systems. As of mid-1975, only about twenty-five supermarkets in North America had fully computerized checkout systems. Some bold experiments did take place, however. Woodward and Lothrop in Washington, D.C., with the help of International Business Machines (IBM), IBM installed a model computer system for a department store in 1966. Montgomery Ward opened a computer-operated store in Rockford, Illinois, in 1970; Ward claimed that half of the goods sold in the store would be merchandised by computer.

Retailers that did computerize gained a new and closer look at shrinkage. It was found that theft by employees typically accounted for about 50 to 60 percent of shrinkage. Errors by employees accounted for about 10 percent, and theft by nonemployees accounted for the rest. Computerization minimized shrinkage resulting from accounting and bookkeeping errors. The extent and methods of internal theft, known as pilferage, were recognized for the first time.

Retailers of the 1970’s continued to fight traditional shoplifting and pilferage while a new type of shrinkage, electronic theft, was evolving. As point of sale (POS) computers were linked with electronic credit systems, an environment was created that gave birth to electronic theft through its many methods of acquiring money illegally. Electronic theft often involved collusion between employees and nonemployees.


Computers and other technical innovations gave retailers a new look at who was stealing from them and how. With this knowledge, old attitudes toward store theft held by retail managers, law-enforcement officers, and judicial systems began to erode. Retailers demanded new and creative ways to curtail rising shrinkage.

An immediate reaction to the rise in retail shrinkage during the 1970’s was the creation and implementation of awareness programs. In Philadelphia, Bernard Kant, Kant, Bernard then president of Gimbels department stores, initiated a broad antishoplifting campaign known as STEM (Shoplifters Take Everybody’s Money). He rallied the Philadelphia Retail Merchants Association to set up an advisory board of civic-minded people and businesses to fight the problem, which was likened to a spreading disease in the city. STEM worked to prevent retail theft by increasing public awareness and by alerting both police officers and judges to the retail problem. The advisory board sought to speed up the legal process and to win tougher sentences. STEM is believed to have cut Philadelphia’s retail shrinkage by 20 percent. Civic groups in San Diego, California, and Tampa, Florida, started programs similar to STEM.

Retailers in Corry, Pennsylvania, organized a different type of awareness program called the Call Alert System. When a merchant was hit by a shoplifter, he or she called the police and the chamber of commerce. The chamber of commerce called two different merchants in the city, and they each placed calls to two others. The process continued until all eighty participating retailers were alerted; the chain of calls was completed in about fifteen minutes. The awareness generated by the calls resulted in smaller losses from shoplifting. Also in the 1970’s, the National Retail Merchants Association National Retail Merchants Association (NRMA) and the International Newspaper Advertising Executives (INAE) joined forces in an antishoplifting effort designed to make the public aware that shoplifting is a crime. More than two hundred newspapers ran ads developed by the NRMA.

Despite the awareness programs, research reported at the first national Shoplifting Prevention Conference Shoplifting Prevention Conference (1980) in 1980 revealed that shoplifting was costing American retailers $16 billion each year. Five cents of every shopping dollar was being expended on shoplifting thefts. As theft continued to rise during the 1980’s, retailers became more receptive to technical innovations, including improved EAS tag and label systems, POS surveillance cameras, and subliminal behavior modification packages. Companies specializing in equipment to prevent and detect theft were encouraged by increased profits to improve their systems and broaden their markets. The number of companies manufacturing EAS systems, components, or specialized software continued to grow.

Knogo, the first company to sell hard tags that must be removed by a cashier, announced in 1981 a line of adhesive-backed sensor strips that could be attached to items as varied as hammers and caviar. Supermarkets and hardware stores were Knogo’s new target market. Knogo also introduced the first tags filled with ink and electronics to the market, as well as a system that emitted sounds and activated lights if someone removed a tag or label in the fitting room. During the 1980’s, Checkpoint Systems and Avery’s Soabar Products Group collaborated to improve imprinting capabilities in order to expand their lines of tags and labels. Security Tag Systems developed a label that could be used directly on merchandise with metal and foil content, such as cans and cigarette packs. In 1986, Sensormatic announced a new EAS system of labels for use in discount stores, drugstores, and home improvement centers. Two other markets targeted in the late 1980’s by various manufacturers of EAS labels were libraries and bookstores.

During the 1980’s, Sensormatic also marketed a deterrent to internal theft known as POS/EM. POS/EM was the first system offering an interface between cash register and video, allowing stores to conduct real-time evaluation of cash register transactions. Others marketing closed circuit video systems during the 1980’s included Viacom Industry, Jensen Video Sonics, and Security Tag Systems.

Even with a variety of technical systems in place to control shrinkage, retailers and others recognized that more was required to prevent theft. Programs, seminars, courses, articles, and entire publications emphasizing protection of retail assets from shrinkage proliferated. Best Products of Richmond, Virginia, gave each new employee a pamphlet detailing security rules and outlining the employee’s role in reducing shrinkage. Best Products and many other retailers offered cash rewards for tips resulting in the apprehension of dishonest employees or shoplifters.

By the end of the twentieth century, college-level retailing textbooks almost universally dedicated a chapter or more to shrinkage, with greater emphasis than in the past placed on the detection and prevention of employee theft. The National Retail Federation National Retail Federation (formerly the National Retail Merchants Association and the American Retail Federation), through seminars, publications, and other means, began to provide retailers with detailed information concerning emerging technology for reducing shrinkage and the impacts on shrinkage of social problems such as the use of illegal narcotics.

Because retailers accepted and implemented the technology available during the 1980’s to assist in the prevention and detection of theft, the companies that developed these products continued to upgrade and expand their lines. Security systems came to be used not only in retail businesses but also in libraries, museums, and other establishments that needed to secure products and information. Retailing;security technology Computing, applied;retail security

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Bolen, William. Contemporary Retailing. 3d ed. Englewood Cliffs, N.J.: Prentice Hall, 1988. Provides in-depth coverage of methods of theft from retail stores and presents ten areas of concern that a store’s retail security program should address.
  • citation-type="booksimple"

    xlink:type="simple">Christman, John H., and Charles A. Sennewald. Shoplifting: Managing the Problem. Alexandria, Va.: Asis International, 2006. Comprehensive handbook designed for loss prevention personnel covers all aspects of the management of shoplifting in retail stores, including the use of EAS systems.
  • citation-type="booksimple"

    xlink:type="simple">Hodgetts, Richard. Effective Supervision: A Practical Approach. New York: McGraw-Hill, 1987. Topics covered include selection of employees; motivating, appraising, and rewarding employees; and dealing with discipline. Presents many suggestions for selecting employees.
  • citation-type="booksimple"

    xlink:type="simple">Klemke, Lloyd W. The Sociology of Shoplifting: Boosters and Snitches Today. Westport, Conn.: Praeger, 1992. Presents review and analysis of the research on shoplifting and shoplifters. Chapter 6 includes discussion of EAS systems.
  • citation-type="booksimple"

    xlink:type="simple">Mason, J. Barry, et al. Retailing. 3d ed. Boston: Irwin, 1988. Provides good coverage of EAS systems and discusses the use of civil recovery procedures.
  • citation-type="booksimple"

    xlink:type="simple">Morgenstein, Melvin, and Harriet Strongin. Modern Retailing: Management Principles and Practices. 3d ed. New York: John Wiley & Sons, 1992. Outlines features of store security that minimize retail crime. Covers procedures for handling merchandise.
  • citation-type="booksimple"

    xlink:type="simple">Segrave, Kerry. Shoplifting: A Social History. Jefferson, N.C.: McFarland, 2001. Examines shoplifting from the late nineteenth century onward, focusing on the social aspects of the crime. Includes discussion of the advent of high-technology devices to prevent theft.

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