EAS Tag Recirculation™ — Apparel Source Tagging for Today’s Retailers

 

Executive Summary

Electronic Article Surveillance (EAS) Source Tagging and EAS Tag Recirculation™ are playing a large role in the evolution of retail logistics and loss prevention.

Retailers realize that in-store tagging is very expensive, time consuming, and highly inefficient, and they are looking toward solutions that move EAS tagging to the most economical place in the logistics chain – out of the store, and back toward where the merchandise is manufactured.

Enterprising early adopters, such as Kohl’s, Gap, Inc., Zara and bebe have proven that EAS Tag Recirculation™ provides important benefits, including:

  • Predictable cost of operating an EAS program.
  • No capital requirements for additional EAS tags.
  • Merchandise arrives at stores source tagged, secure and floor ready.
  • More tagging consistency, less apparel damage.
  • Maximum tagging protection during peak inventory periods.
  • No customer issues with tag pollution, when un-deactivated EAS sewn-in labels set off alarms.
  • No environmental issues caused by the non-degradable components of disposable labels
  • More security and better shortage reduction results than with sewn-in or disposable EAS
  • Cash rebates for the return of tags and pins.

By implementing EAS Tag Recirculation, retailers achieve higher levels of efficiency and customer satisfaction through this sustainable, innovative growth program spearheaded by their loss prevention department.

 

Overview of EAS Tag Recirculation

Since Electronic Article Surveillance (EAS) was invented in the late 1960s, apparel retailers have spent millions of dollars buying plastic tags and millions more in labor costs to affix them on garments the “old fashioned” way—piece by piece—using labor supplied by store associates.

Based upon the model successfully implemented for reusable clothes hangers, apparel manufactures can also affix reusable plastic EAS tags and ship the merchandise source tagged, secure and floor ready.

E-Tag is a joint venture between an EAS tag manufacturer and a global retail logistics company.  E-Tag supplies reusable EAS tags to apparel manufacturers anywhere in the world, and they affix the tags to the garments. Tags are removed at the point-of-sale, collected and recovered.  Cash rebates are paid for the recoveries. The tags are then sent to a processing center where they are inspected, repackaged and recirculated to the apparel manufacturers.

 

E-Tag Sourcing Methodology

EAS

 

 

Supplies:  Retailer contracts with E-Tag to supply tags, instructs apparel manufacturer to order from E-Tag and to affix tags.

Ships:  Apparel manufacturer establishes a business relationship with E-Tag and orders the appropriate tags. Tags are affixed at source and shipped to stores “secure and floor-ready.”

Removes & Boxes:  Merchandise is sold at POS; tags/pins are removed and boxed at the store.  Cartons are picked up directly from stores or back hauled to distribution centers for future pick-up.

Collects:  E-Tag collects and ships tags/pins to the sorting operation.

Pays: Retailer receives a quarterly cash rebate based on tag/pin returns.

Sorts: Tags are sorted, inspected, prepared for recirculation, and stocked for subsequent orders from apparel manufacturers.

Re-Supplies:  Process repeats.

 

Combating Current Issues Retailers Face

Merchandising Issues

Source tagging eliminates lag time for apparel reaching the selling floor. It adds consistency in tag positioning, assures tagging compliance, and minimizes damaged merchandise.

Tag placement standards must be provided to the apparel manufacturers. In addition, “use fee” and tagging labor costs (if added) may become part of the cost-of-goods.

 

Environmental Issues

The world is beginning to recognize the need to be more careful in the reliance upon disposable products that require carbon fuel energy to produce. A number of retailers are engaging in “environmental sustainability” initiatives that would “meet the needs of the present without compromising the ability of future generations to meet their own needs” (World Commission on Environment and Development).

Like all products made from plastic, the production of EAS tags requires the use of energy. Manufacturing disposable tags and then re-grinding them for recycling is a tremendous waste of global energy resources. If you think about it, a reusable plastic tag has a useful life of at least 7 years—with the capacity for multiple inventory turnovers per year (assume 4 per year, or 28 lifetime).

Suppose a single tag requires a single unit of energy to manufacture? If the tag is reusable, a single unit of energy is all that is required to make a tag that can be used indefinitely. Suppose a disposable tag requires the same single unit of energy to manufacture, and an additional 1/4 unit to recycle (regrind, melt into ABS)?

Manufacturing 7 years’ worth of disposable tags using virgin plastic and regrind requires 28-35 units of energy. Which method is better for the environment?

There are also additional landfill restrictions. Plastic products take a long time to biodegrade. While a banana peel biodegrades in 2-10 days, it takes about 5 years for a milk carton; 10-20 years for plastic shopping bags; up to 100 years for a Styrofoam cup; and an astounding 450 years for a six-pack holder ring.

A number of municipalities and foreign countries have already restricted the disposal of plastic products into landfills.

 

Operations Issues

Source tagging drastically reduces in-store or in-distribution center tagging labor costs. The current tag removal process at the point-of-sale remains unchanged. Efficient recovery of tags results in the maximum cash rebate.

Please note that the Receiving Department should insure tagging compliance through periodic checking of orders as they are processed.

 

Asset Protection Issues

Reusable EAS tags offer a higher level of security than sewn-ins or disposable EAS tags. Source tagging provides for maximum tagging during peak inventory periods—maximizing shoplifting deterrent.

Current EAS tag inventory could be included in the Recirculation program to reduce the costs.

So, why are companies like Kohl’s turning to ALL-TAG to assist them in Source Tagging and Recirculation?

 

By the Numbers – EAS Tagging Cost Comparison

Implementing EAS Tag Recirculation™ lowers direct and indirect costs compared to any other EAS tagging method:

  • Cost Per Item – The cost of buying, affixing and removing a tag is lower in the EAS Tag Recirculation™ model than with any other EAS tagging method.
  • Labor Cost – EAS Tag Recirculation™ requires fewer in-store tagging payroll hours, resulting in more available time to focus on selling and customer service.
  • Lower Inventory Shortage – EAS Tag Recirculation™ ensures a higher level of tagging compliance and consistency – resulting in less shortage and merchandise damages.
  • More Sales – Unlike the in-store tagging model, there is no lag time for merchandise to reach the selling floor – providing more opportunities for incremental sales.

 

EAS Tagging Cost Comparison

The chart above compares estimated per unit tag acquisition and usage costs among three EAS tagging methods— Tag Recirculation, Disposable and Tag In-Store. For the sake of clarity, let’s define each method:

 

Tag Acquisition Costs:

Historically, retailers have spent money to buy tags, and even more money to use them. Tag acquisition costs include the price of the tag itself, applicable taxes, freight charges, the cost of obtaining capital to make the purchase, and the opportunity cost associated with forgoing another investment.

The manufacturing cost of the tags is directly affected by the cost of the raw materials used to make them. During the late 90s and early into the new millennium, the cost of ABS plastic, copper, stainless steel, and aluminum was dropping.

Since 9/11, however, the world has experienced the end of a downward slope of the commodity cost curve.

Commodity prices are rising precipitously. For example, in 2004, the cost of ABS plastic (the primary component of EAS tags) in China was about $850 per ton. In August 2007, the cost has risen to about $2,350—an astronomical increase!

 

Tag Usage Costs:

The primary usage cost is the labor required to affix and remove tags. As in the case of commodities, labor costs are rising. According to salary.com, the median total compensation (salary plus benefits) of a full-time retail stock clerk in the U.S. is almost $30,000 per year, or about $14.70 per hour.

Labor rates in distribution centers are higher—particularly in a unionized environment.

Time and motion studies confirm that about 125 EAS tags can be affixed in one hour and about 300 can be removed in the same time frame. At that tagging rate, with a wage rate of $14.70, it costs about 12 cents to tag a garment (median) and about 5 cents to remove a tag at the point-of-sale.

 

EAS Tag Recirculation™:

Apparel manufacturer agrees to pay a pre-determined usage fee for a conventional plastic EAS tag.

The manufacturer pays freight, applicable taxes and duties (on the first purchase only). The tags are affixed at the factory and shipped to the retailer.  Presumably, the cost of the tags and tagging labor is added to the cost of the apparel.  This is negotiable between the retailer and the apparel manufacturer.

Tags are removed at the point-of-sale, collected and picked up for recirculation. A cash rebate is paid for tag returns. Tags are continually recirculated.

The retailer may use any type of EAS tag or even ink tags —including existing tag inventory. Per-unit pricing depends upon the type of tag required.

 

Disposable:

Apparel manufacturer buys disposable plastic tags from an EAS tag manufacturer at a pre-negotiated price. The manufacturer pays any applicable freight, duties and taxes.

The apparel manufacturer affixes the tags and ships garments to the retailer tagged and floor ready. Presumably, the cost of the tags and tagging labor is added to the cost of the apparel.

This is negotiable between the retailer and the apparel manufacturer. Tags are removed at the point-of-sale and either discarded in the trash or collected and sold to a plastics recycler.

As the name implies, disposable tags are used only a single time. So, the security characteristics (plastic thickness, quality of the locking mechanism, etc.) are not of a similar standard to a conventional reusable EAS tag.

 

In-Store:

Retailer buys EAS tags at “retail” from a tag manufacturer or middleman and pays applicable taxes, freight, financing costs, and an opportunity cost. Tags are affixed either in a distribution center, a store receiving room, or on the selling floor. Tags are removed at the point-of-sale, collected within the system for re-use.

A prominent retailer converted from in-store tagging to sewn-in disposable labels.  Within a year, the inventory shortage sky-rocketed, so they converted to EAS Tag Recirculation™ because they were unwilling to re-instate the labor hours necessary to tag in-store.