Article:

New Methods for Source Tagging Apparel and Accessories

©Robert L. DiLonardo, 2005

There are two new ideas on the horizon that will eventually change the way electronic article surveillance (EAS) protection is applied to apparel and accessories. One is a disposable (throw away) plastic tag, and the other is “tag recycling”. Both methods will facilitate the long sought after goal of moving the costly tagging process from the store to the manufacturing plant.

Plastic EAS tags with pins have been affixed to apparel and accessories for over 35 years. In the past 15 years, ink tags have been “mated” with EAS to form a more formidable deterrent. Retailers purchase the tags, and store personnel apply them before the merchandise reaches the selling floor. In some cases, tags are affixed in distribution centers before the merchandise is shipped to the store. Sales associates remove the tags at the point of sale, and then reuse them on new merchandise. Although in-store tagging is the current standard operating procedure, it is capital and labor intensive, and the tagging process often delays merchandise from reaching the selling floor in a timely manner.

Until now, there have been only two viable source tagging alternatives for apparel. The original idea was to have adhesive-backed EAS labels affixed to the paper price tickets, graphic tags, pocket flashers and other brand identification tags that are “swiftached” on garments by apparel manufacturers, who buy the labels and include the cost of procurement and tagging into the wholesale cost of the garment. A few chains have chosen to have ticketing service bureaus affix EAS labels in this manner. In fact, Checkpoint Systems, Inc. manufactures the labels and provides the service around the world. While inexpensive to implement compared to a reusable plastic tag, this alternative is not very secure. Typically, the EAS labels are easy to find and remove. They do, however, offer a measure of protection in certain applications, such as silk scarves.

The other method is a fabric “pouch”, containing an EAS label that is sewn into the garment at the factory. As in the case of the graphics tags, apparel manufacturers buy the pouches as if they were buying a brand identification label to include as “trim”. The garments arrive in the store already protected. The EAS component is deactivated at the point of sale, but the consumer must cut off the pouch before the garment is worn. Originally developed jointly by Paxar Corporation and Sensormatic in the mid-90s, the concept has been adopted by a few enterprising apparel retailers, such as Ann Taylor, J Crew, Hudson Bay Company, and Kohl’s. Proponents claim that these labels are more difficult to defeat directly on the sales floor, because they are affixed on the inside seam of apparel, and require more effort to find than conventional EAS tags. However, they may not be as effective against amateur shoplifters who snip off the pouches in fitting rooms. Since they are concealed inside the garment, and effectively invisible, they may not create the same formidable theft deterrent as plastic tags, or EAS/ink tags in combination.

Jim Burger, a well-known security consultant, led J Crew through its conversion from reusable plastic tags to sewn-in pouches. “Our main objective in converting to the pouch was the implementation of cross docking, floor ready goods and the elimination of in-store tagging labor costs”, says Burger. “Tagging compliance rose to 100% and the deployment of EAS to previously unprotected stores with lower shortages combined to significantly reduce shortage across all merchandise categories. Although the sewn in pouch is easier to defeat than the hard tag, the increase in compliance has a significant impact on the shortage results. When companies have a 95% tagging compliance and think that that is acceptable we found that it was that 5% improvement in compliance that makes the difference.”

Disposable Plastic Tags

What if a plastic tag and pin were designed that was strong enough to provide adequate protection, yet cheap enough to be affixed by the apparel manufacturer, and thrown away after removal? Sensormatic Electronics Corp. (Sensormatic/ADT), now a part of the ADT Fire & Security division of Tyco International, began doing some research and development on a disposable tag around 2000. A few prototypes were designed, but the idea didn’t generate much enthusiasm within Sensormatic, and was not commercialized. Alpha Security Products, Inc. built an entire line of disposable products, called Shark Tags™, demonstrated to the public in 2002-2003. One of the Federated Department store divisions tested Shark Tags™ on apparel and leather purses in early 2003. Other retailers tested a product designed for jewelry, and Costco source tagged leather coats for two years using a non-EAS version of Shark Tag™. These exercises demonstrated that disposable products could reduce shortage as successfully as a reusable tag.

Alpha discontinued the product line, but the success of Federated’s test has encouraged a consortium of department store loss prevention executives to persuade other retailers and apparel manufacturers to embrace the disposable tag idea. Consortium members determined very early in the process that a visible and fairly robust plastic tag was going to be a better solution in their circumstances than the adhesive label or sewn-in pouch. The encouragement re-kindled a design effort by Sensormatic/ADT. Their Visible Source Tag (VST) is now commercially available in fairly large quantities. It has been designed to work in concert with its acousto-magnetic EAS system and the SuperTag™ detacher. Version two of the VST will include ink in some format.

Working on their own, and through the apparel security sub-committee of the Source Tagging Council, the consortium has been conducting regular meetings with apparel manufacturers to understand their unique issues. These meeting have resulted in the formulation of a set of informal standards covering such issues as tag placement and training. Much work remains, however, before apparel manufacturers become totally comfortable with assuming tagging responsibilities.

Unisen, a well-known manufacturer of EAS tags in all frequencies and ink tags, has introduced the E-Tag™ - a product that is disposable or reusable after a simple “reset” of the locking mechanism. The E-Tag™ will be made available in either acousto-magnetic or RF EAS. Unisen plans to make tags with three different locking mechanisms - a magnetic release ball-clutch mechanism, a locking mechanism that can be removed by a SuperTag™ detacher, or a tag that can be removed by a proprietary detacher of Unisen’s design. EAS SensorSense, another tag and system manufacturer, has also introduced a disposable product containing a wound ferrite circuit rather than the conventional acousto-magnetic material. Sensormatic/ADT has a strong patent position on the operation of tags in the SuperTag™ detacher. Any other competitive tags should be designed so that there is no possibility of infringement.

Source Tagging, Then Recycling

EAS tag recycling is potentially the most cost effective method of source tagging. Recycling in retail stores is not a new idea. Apparel retailers employed the concept with clothes hangers for several years. The majority of cut-and-sewn apparel arrives in stores with hangers placed at the factory, rather than in the store. During the late ‘80s to early ‘90s hangers were removed at the point-of-sale and collected for recycling. Hanger manufacturers established collection services that offered retailers a per-unit cash rebate for each returned hanger. Recycling became a standard industry-wide practice. As oil prices dropped, and as more hangers were cheaply manufactured in Asia, they, too, became disposable. Now, disposable hangers are routinely ordered as any other “trim”.

Based upon the hanger model, apparel manufacturers would pay a fee to “rent” an EAS tag, and then affix it to the apparel at some point in the manufacturing process. Merchandise would arrive “secure and floor ready”, and the tags would be removed at the point-of-sale in the current fashion. Retailers would collect and box the tags and pins, and be rewarded with a cash rebate for their timely return. The tags would then be sent to a central location where they would be counted, inspected and “re-rented” to apparel manufacturers.

There have been a couple of furtive attempts at EAS tag recycling in the past. J.C. Penney & Co. applied the concept to security by source tagging and recycling ink tags on fashion jeans. Federated Department Stores, Inc. seriously considered recycling as they began their original rollout of acousto-magnetic EAS in 1998. The idea was abandoned because the recycling logistics were too complicated, and buying extra tags at retail price to accommodate a tag “float” was too costly. There are a number of advantages to recycling:

• Retailers save money by drastically reducing in-store tagging labor costs, and transferring the cost to the apparel manufacturer at its cheapest location – at the factory. The biggest cost of an EAS program (buying and affixing the tags) would become part of the “cost of goods”.
• Retailers would have the option of including their current tags – including ink tags (or specialty tags for lingerie, accessories)- into the recycling program, if desired.
• Tags with a multi-year life cycle cost less per use. For example, a tag costing $0.67 that can be used 28 times over 7 years has a raw, “per use” acquisition cost of $0.024 ($0.67 divided by 28). That compares to the $0.13-$0.20 cost of a disposable tag used only once.
• Recycling would encourage the tag manufacturer to build a high quality product – resulting in the same physical deterrent provided by today’s reusable tags.
• Recycled tags offer some immunity to the impact of petroleum price increases because of their multi-year useful life. The spot price for a barrel of North Sea Brent crude oil has risen from about $32.50 to about $53.00 in the past year (63% increase). EAS tags are made of ABS plastic. In China, the current price of ABS has risen from $850 to $1,936 per metric ton after duty refund - an increase of 128%.
• Recycling minimizes “green” issues. Some legal jurisdictions don’t allow the disposal of plastics. Many, such as UK, charge disposal fees.
• Plastic tags offer a higher level of security than sewn-in security labels.

Who Should Provide the Recycling Services?

Retailers are not in the proper position to plan and execute an EAS tag-recycling program. They must pay middlemen for tags and logistics services, causing the total cost per application to be too high compared to the other alternatives. EAS tag manufacturers are the perfect organizations to organize and operate a recycling business because their cost to acquire a tag is lower than anyone’s. Provided the tag rental price is adequate, EAS tag manufacturers can more easily assume the financial risk of a tag “float”. If a tag and pin costs $0.20 to manufacture and sells for $0.60, then a manufacturer can “float” three tags for every tag bought buy a retailer.

To illustrate this differently, suppose a reusable tag and pin can be manufactured for $0.20, and it costs $0.02 to get it ready for another cycle. If the tag manufacturer “rents” it for $0.08 (net of a rebate for the tag’s return), then the tag begins earning a profit on its fourth cycle – or, probably in its second year of use. The net “rent” for 4 turns is $0.32, and the handling costs are $0.08 (2 cents per cycle). So, the tag manufacturer has invested $0.28 cents ($0.20 to build the tag, and $0.08 in handling) and has received $0.32 in “rent”. Every additional cycle for the tag generates profit. Since the retailer buys the tag for $0.60 and attempts the same process, the breakeven point wouldn’t occur until at least the tenth cycle – somewhere in year three or four. Clearly, this is an unacceptable return compounded by a great deal of effort to recycle.

Tags and apparel are manufactured in Asia, where wage rates remain low. The current monthly wage rate of semi-skilled apparel factory workers in China ranges from about $100 in rural areas to about $220 in urban areas. A tag manufacturer with facilities in Hong Kong or China could collect, sort, count, inspect and recycle tags at a fraction of the cost of an American-based operation, and apparel manufactures could affix tags for less than a penny per unit. Unisen is in the process of establishing a comprehensive source tagging and recycling service called “E-Tag”.

What does it REALLY Cost to tag a garment?

Most large retailers have a good idea how much it costs them to affix an EAS tag in a store or distribution center. Since apparel source tagging remains “theoretical” rather than practical, the following chart attempts to identify and quantify the per application costs that will be incurred to acquire and affix an EAS tag at the factory using one of the methods described above. Column A lists the cost types as subsets of two categories -Tag Acquisition Costs and Tag Usage Costs. Columns B through D represent the three methods of source tagging, and column E represents in-store tagging.

The data in this chart is based upon a combination of recent research, previous studies and experience, and not actual practice. The intention, however, is to provide a method by which retailers can decide which source tagging method to employ. Costs in each case would probably be different, because retailers’ EAS requirements are different, and apparel manufacturers are located all over the world. In addition, a retailer that manufactures its own products, such as J Crew, must account for both cost categories, rather than just the Tag Usage Costs borne by retailers that buy apparel from “brands”. Appendix A contains descriptions for each of the line items on the chart.

EAS Tagging Cost Comparison

Conclusions

The only unanimous conclusion is that in-store EAS tagging is too expensive, and should be eliminated by retailers as soon as practical. There are “pros and cons” to the three source tagging methods. The sewn-in pouch seems to be the easiest to implement, but some retail loss prevention professionals question whether or not shoplifters are sufficiently deterred by this method. The disposable tag is showing promise – provided that its cost can be contained in light of the precipitous rise in ABS plastic prices.

For those looking for a paradigm change, perhaps source tagging and recycling would be the appropriate method. In-store tagging labor costs are eliminated; the tag manufacturer/recycler assumes the financial risk for the tags and recycling logistics; retailers could use their own current tag inventories, and collect a cash rebate for a tag’s successful return into the system.

Appendix A – Glossary of Chart Terms

Tag Acquisition Costs - Currently, retailers pay for EAS tags. The money comes from either the capital budget or the expense budget. Tags cost anywhere from $0.25 to $0.75, with an additional $0.30 for an ink tag instead of a pin. Disposables and sewn-in tags cost anywhere from $0.13 to $0.20 each. The apparel manufacturer buys these products, and the cost is recovered, in whole or in part, by an increase in the cost of the garment. Today’s tag prices are probably lower than future prices.

• Cost of Tag – The price that a retailer or its apparel manufacturer would pay for the product used in an EAS tagging application.
• Sales Tax – Charged only to a retailer buying a tag for in-store use.
• Tagging/Handling – The tagging labor cost component (in Asia) for recycled, sewn-in and disposable (columns B-D). This represents the cost of handling a tag within a retailer’s distribution system before it is affixed.
• Opportunity Cost – the value of the next-highest-valued alternative use of that resource. In this case it is 4% interest that would have been earned if the capital were invested instead of spent on a tag.
• Useful Life of Tag - Disposables and sewn-ins have a single useful life. In the example below, the useful life of a reusable tag is 7 years, with 4 turnovers per year – or 28 applications over a tag’s lifetime. The useful life of a recycled tag is irrelevant because the tag manufacturer commits to tagging – whether or not the tag is used or new.
• Inventory Turnover Rate – For in-store tagging only, this data is used to calculate the acquisition cost of a tag per application.
• Acquisition Cost Per Application - For recycling, disposable and sewn-in, the cost per application equals the cost of the tag plus handling and tagging costs. These costs may or may not be the same for each application. When the retailer buys the tag, the Tag Acquisition Cost sub-total is divided by the turnover estimate. Dividing the Tag Acquisition Cost ($0.67) by 28 “turns” equals a Tag Cost Per Application of only $0.024.

Tag Usage Costs – The costs incurred by retailers for tag removal, handling, disposal and other fees. For recycling, the rebate is included as a benefit to the retailer.

• Tagging Labor Cost – For recycling, disposable and sewn-in, tagging labor costs are borne by the apparel manufacturer, and are included above in the Tagging/Handling subset of Tag Acquisition Costs. For in-store tagging, wage rates vary by region. $0.10 of tagging labor per application is based on 120 tags affixed per hour, and a fully burdened (hourly rate plus fringe benefits) wage of $10.00.
• Removal Labor Cost – Removal costs are incurred for recycling, disposable and in-store methods. Using the fully burdened wage of $10.00 and a removal rate of 300 tags per hour, removal labor is $0.033 per application.
• Loss, Damaged Tags – Applicable only for in-store tagging where the retailer is responsible for buying replacements. In this example, the loss/damaged rate is about 2.8%.
• In-Store Handling – In the recycling situation, tags and pins must be dropped into a box and processed for pick-up by the recycler. In the sewn-in situation, there would be no in-store handling. For disposable tags, handling cost would include throwing them into the trash. In-Store handling includes getting tags back to departments for re-use.
• Tag Disposal Cost – Certain jurisdictions may have fees for plastic disposal. For example, the fee in the UK is about $48 per ton.
• Rebate to Retailer – In recycling, the retailer would be paid a cash inducement to return tags and pins. In this case, the rebate is $0.04 per tag/pin.

Total Cost per Application - The sum of Tag Acquisition and Tag Usage Costs per application. Estimated.

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