Inditex SA is racing to iron bugs out of a new anti-shoplifting system for its Zara stores, slightly delaying its rollout partly because the security tags were easy to identify and remove in initial tests, according to people familiar with the matter.
Chief Executive Officer Oscar García Maceiras unveiled the new technology in March and pledged to roll it out for tests in all Zara stores worldwide over the summer. The system relies on tiny chips known as RFID, doing away with the hard plastic tags on garments that require checkout clerks to remove them.
The new technology has run into teething issues. Staff in several countries have raised concerns to management that the technology may actually make theft easier, according to the people, who asked not to be identified.
The problems come as retailers need to boost their defenses against an increase in shoplifting. The British Retail Consortium recently found that incidents of store theft increased by 27% last year across the UK’s 10 largest cities amid the surge in inflation. Primark is adding security guards and cameras to counter the phenomenon, the discount retailer said Tuesday.
Inditex had said it would get the technology into all its shops for testing by July, and that has yet to happen. The plan was that the chain would test the system over the autumn-winter season. Delays are in part due to supply bottlenecks, according to several of the people. The retailer downplayed the issues.
“The in-store implementation process of the new soft-alarm system, which uses several technologies, is going according to plan, without any significant incidents,” Inditex said. The retailer added that the new system hasn’t resulted in any detectable change in garment theft.
The new method, in which the tiny chips are placed on labels or inside the clothing fabric, is a key part of Inditex’s strategy to seek all the synergies it can between its e-commerce business and its brick-and-mortar store network.
Inditex’s new security system is supposed to reduce theft by 60%, according to a report by Bank of America that cited Associated Security.
Shares of Inditex were little changed in Madrid trading Tuesday. The stock has gained 45% this year as the retailer has been reporting its gross margin at record levels. Inditex is expected to report an increase of about 28% in first-half operating profit when it reports Wednesday.
Hard security tags, which require extremely strong magnets to remove, will eventually become obsolete, according to Arkansas-based retail strategist Carol Spieckerman. Still, retailers have yet to come up with a system that can fully replace them, she said.
“Theft-thwarting technology is very much in test-and-learn mode currently and everything is on the table,” she said. “Unfortunately, any solution that relies on physical tags or sewn-in chips is vulnerable to sabotage as removal techniques are discovered and promoted online.”
Inditex started testing the technology this year in some stores in Spain. Shoplifters quickly figured out how to remove the small chips, which were initially implanted into labels. Another problem is with alarms ringing when customers walked into the store to return items purchased online.
As Inditex works to integrate its online business and physical stores, it’s adding collect points for internet customers in Zara shops. Some e-commerce orders are also delivered from big shops rather than warehouses.
The new system would make those processes even more efficient, because a clerk wouldn’t need to remove the hard security tag. Plus, checkout time in brick-and-mortar shops would be reduced, and it’d become easier for Inditex to expand self-checkout.
The company said in June that it aimed to eliminate all hard tags and eventually deploy the technology across its brands.
After months of experimenting with placing tags in different places on the garment, one possible alternative is a special type of thread made of a miniature RFID tag that’s wrapped in textile yarn and sewn into garment seams, the people said.
While the new technology will add to Inditex’s rising costs, over the long-term it should help boost profit. Theft resulted in about $66 billion in lost sales for retailers in the US in 2021, according to the National Retail Federation.