`(exceeds 300 pages)
`
`Proceeding] Serial No: 9 1 165826
`
`Filed: 06- 12-2006
`
`Title: Opposer’s Notice of Filing; Testimony
`Deposition of David K Shoemaker; and Exhibits
`
`Part 4 of 9
`
`
`
`.u..
`
`Securing Your Products Against
`Counterfeiting and Product Diversion
`
`Secure Marks Provided by Checkpoint Systems
`
`Worldwide Counterfeiting Problem
`
`0 Globally, counterfeiting is one the fastest growing
`economic crimes
`> In last two years, market for counterfeit goods has
`increased from 6% to 10% of all world trade
`> Losses to US businss are estimated at $200 billion a year
`- Moretnanhalfofthose seized ooodscamehol-n01-naand
`Honqlwng
`> or all hand protection issues facing brand owners,
`counterfeiting ranks as most serious problem
`- Protect profits
`- Proms: quality and image olme orand
`- Cuszomer orouruon
`
`Real World Examples
`
`Counterfeiting in Apparel
`
`> zsonuonnuarltsnoftvuesezealuyunvanaontszsarna-cricxains
`>
`l:1urI=lt>rIr.yisnnvvri'KI'l-viorvhrvnllxarwrxuuu
`was
`cannula!
`> vwvu\2dwsdD~v1Icoounpnri¢IuAMaa'I1.nr\sv-cuaartg
`meson:
`y sn:O:LZoD2vruqn\Iy2mJ,utz5oaoeoos¢:ouusa1Jauu1ut
`Aaaums-oalwuuvunnmunoeuuu-on
`0 Nalfiooemu
`p hcucnmwuntnlaauxonn-Iuuvoorim-eoelnrvqvaywaa
`r Suunvwunlomnru-ducuna:
`Olkky
`p Anuouoavuua-cwiwwvmnuxz
`> <>Iy)uIi:u¢-rvvnnauvorwlrvuuloeus
`
`; Clothing and footwear are among industries most effected by
`counterfeit goods
`Clothing is :13 illegal import alter media (DVDs, CDs) and
`electronic devices
`$3-$6 billion worth of contraband clothing enters the US.
`each year
`In Eurooe. 32% of counterfeit sportswear is Nike, 13% is
`Tommy Hilfiger and 7% Adidas
`Recent study reverted that 50% of people would knowingly
`purmase counterfeit clothing .
`
`CS1 01576
`
`
`
`Product Diversion and Overruns
`
`In-Store Sweeps
`
`0 Occurs when vendors and suppliers act outside the
`tenns and conditions of a contractual agreement
`0 Diversion can negatively affect brand image if a
`product is sold in a channel/drain/store that it was
`not intended for
`0 Ovenuns occur when autiienficate product is
`produced and sold but not according to
`manufacturers plan
`
`0 In-store sweeps by UIDEVES who steal thousands ofdollars or
`merdiandise and sell to ‘diverters' is on the rise
`-. fiay e-aarnmace as a valide of fraud
`> Organized Retail Theft An (ORT) of 2003
`0 Retailers are addrasing the problem in various ways
`> Ovemv manung products
`> Cavemv rnanung products
`0 Most marking is done at store—level
`2 canoecoslyfrornalaborpersaemve
`'r can Impact brand mange
`'» Doesntalwaysguarantee desired rsults
`‘Organized retail theft is a scourge on retailas
`and consumers BUKC-..v Senator Lan-y Craig
`
`-
`
`Brand Protection Strategy
`
`L.-. -'
`
`0 Brand owners are taking action
`> Fortune 500 companis spend an average of $2 to 54 million per
`year to combat counterfeiting
`0 Key segments
`‘» Footwear and Apparel (Nike, Adidas, Timberland)
`> Pharmaceutical
`> Electmnits (Microsoft, Sony Ericsson)
`0 Significant growth forecast for brand protection devices
`
`Brand Protection Roadmap
`
`0 World of counterfeiting and diversion is dynamic
`
`9 Technology solutions range from
`
`> Simple tooomplex
`; oven to covert
`'» Single security feature to multi-security
`
`9 Modify strategy over time
`
`> Technologies available will evolve
`> Stay ahead of the counterfeiters/diverters
`; Start as an ‘Insurance Policy‘
`
`~
`
`'
`
`>
`
`-J
`
`__
`J
`
`:~-
`
`/I
`
`v
`
`J
`
`cs1 @1577
`
`"_l
`
`
`
`_‘,___A_,,.,......cn-.-.-mu-4
`
`Brand Protection Process
`
`Checkpoint’s Product Road ma p
`. .__....:..j..j_____.._._
`
`lrlucnatwum
`in-«i~-nan».-nsn 9
`""°°°"
`. Eaxnm
`Canznmd
`umoapa I
`am: ma -I-van
`vi aw-any
`tooacviuainer
`
`‘
`
`Leader in supply drain solutions
`Security
`Expmssfrok
`“*1”
`mu
`(Chivkss)
`95"”
`4-—:-—j-—j-—-2-——+:-——>
`
`0 Range of products In meet different applications
`> Aria-theft
`-. Supply chain management
`'- Bram orotemon
`9 Checkpoint is einionng solutions for Brand Protection
`3 Product offerings will evolve as new tnchnologis oemme availauc
`
`Dxadpah!
`
`Brand Protection Solutions
`
`0 The product: lnvisibie secure marks applied In your products,
`packaging, rags and tabels
`0 Thwart oounter1eiters' and divert2rs' efforts by giving the brand
`owner the ability to secure, authenticate and track and trace a
`produ:t throughout the supply chain
`0 Affordable and easy to use system
`
`Secure Mark System
`
`9 Checkpoint provides:
`' Pre-printed marts
`Readers
`Dam registry
`in-field audits
`Field audit report!» ‘Exception Based Reports‘ (problem
`areas identified and reported to brand owner)
`
`CS} @1578
`
`
`
`yxsu-.a-4l\’....i..-.-...-.-—--r-
`
`
`
`
`
`
`
`,.;. .;.'.r... . _‘.s,—.-.. -. :_..
`
`Range of Secure Marks.
`
`.1‘
`
`SmartDye"'
`
`Differentiated on level or security, fearura and pnce
`Fluorscent
`Infrared
`SmartDye
`Ink
`
`0 A covert “smart dye” based marking system that is:
`Customizable, hard to reproduce and provides unique ‘cabal
`fin9erpnnt" for client
`' Able to carry ‘ID, track & trace"dam
`‘ Easy to apply to almost any matenal using any priming method
`' Reliably read over product lifetime
`’ Readable via a low-cost hand held device
`' Cost-eflecxrve way to aumennaate 8. secure your prcduct/brand
`
`A Unique Optical Fingerprint
`
`A Unique Optical Fingerprint
`
`BRIGHTNESS
`
`After the excitation flash from a
`reader, the smart dye loses its
`luminescence rapidly...dilTerent
`excitation flashed generates
`different luminescent responses...
`
`BRIGHTNESS
`
`...but different smart dye
`formulas lose their luminescence at
`customizable yet characteristic rates.
`
`The dye chemistry is virtually
`impossible to "reverse" engineer.
`
`C81 @1579
`
`
`
`APP"C3ti°n EX3mP|es
`
`Secure Mark Readers
`
`0 Secure mans are applied to substrate at time of manufacture
`‘. Exarnpls
`- Asnwenvusabbamartfovautisevluanonok
`. Mcvua¢mn:acoc!ntMan¢2Doa'wa:nnu'I'\s
`muunuznnuwamu-uuuauaueunuurn
`nauswvo.r.'.:yoe.saunnca»,rom.nwsa
`- VU\$¢GlU€U|%SQ'$4I§EIU
`nmum
`ccwuinnxnlnvv-.
`
`.‘¢-
`'
`1]
`
`]
`
`z
`
`0 APD"C3O'0n dictates W96 Of reader needed
`> All Itne of sight
`
`\:/
`7-:
`r...‘
`""‘
`
`"
`
`I
`-
`._-—-_
`
`..~.;. —
`
`*~
`
`.||t_JJm1BJs||.%
`£'/Ieclpomz
`
`Data Registry
`
`Field Audits & Reports
`
`0 System mat omvida supolv chain visibility. security and
`3""‘°“”‘3“°" °“ 3 9‘°b°' W5“
`‘ “M399” bY C”5‘°‘"°" °' W c"°d‘9°'“t
`0 System an be oonfigured to your needs— simple to complex
`-’ A"'"'°"°°°°" WV
`_
`> Tad 5 Tact WW9" mm‘ “DOW mam macs‘
`
`0 Checkpoint will perform field audits to authenticate and
`monitor products based on customefis requirements
`> Network of auditors across U.S. and Canada
`._ "mom coverage’ a" ma“ c,,an,,e,5
`> On-going planned visits or onetime blitz
`; Reports provided via web, elecuomc copy or hard copy
`
`|.n.4.w.«.a
`
`CS1 @1589!
`
`
`
`Pricing Schedule
`
`Checkpoint Value
`
`0 Average sell price for the secure mark is estimated at $.01-$.07./mark
`-» Type of secure Ink
`; TYDC or mark (same vs. vanable nnformauon)
`> Volume
`0 Readers, data registry and field audits/reports quoted separately
`
`> Secure marks are printed and distributed by Ozedzpoinr only
`
`0 Complete, single source for all Tag 8:. Label needs
`> Pnnfing
`> Logistics
`; NEW! Brand protection
`0 Whole product solution
`9 Extremely secure process
`
`C51 @1561
`
`
`
`
`
`mccooaazzoa2.323
`
`Imiuoonw
`
`C81 @1582
`
`
`
`Subcommittee Interactive Workshop: Hardgoods
`
`October 10, 2003
`
`Facilitator:
`
`Dave Shoemaker— Group Vice President of Strategic Marketing — Checkpoint
`Systems, Inc.
`
`Attendees: (Again — Lets loose the list of attendees???)
`Impact Media
`.
`U/ta
`Rite-Aid
`Lovelock
`
`\
`
`Shoppers Drug Mart
`Walgreen’s
`Labeling Systems
`Target Corp.
`Nintendo of America
`Gillette
`
`Supermarket News
`Matrics
`
`Brown Forman Corporation
`BrandsMan‘ USA
`
`Kroger
`Barnes & Noble
`PE TsMART
`Bonds
`
`Dunwiddie Custom Packaging
`Woolworths
`
`Dave Shoemaker presenting the anti-trust statement.
`
`Purpose of the discussion is to identify common trends and work for common solutions.
`In the past, subcommittees have identified common areas of concem. This meeting
`consolidates hardgoods as a broader product scope and brings in CPG manufacturers.
`
`Update on DVD source tagging
`
`All major studios are tagging new-release DVDs and some catalog products.
`
`-
`
`lncrease number of tag orders from replicators indicates that program is
`highly successful.
`
`- Tags are applied automatically in line.
`
`C81 @1583
`
`
`
`- All replicators are using Checkpoint technology.
`
`I Checkpoint is identifying solutions" for tagging packages with metal or foil.
`
`- Frequency changes
`
`- Look-alike substrates
`
`- Cut-outs
`
`Buyer training programs
`
`Target:
`
`Buyers are focused on sales, so they had to be trained in loss prevention.
`
`- Explain what happens when 200 DVDs walk out the door
`
`- Explain that their decisions influence other parts of the company
`
`Ulta:
`
`\
`
`Education was notjust on source tagging, but the problem of shoplifting and
`theft.
`
`- Buyers change frequently
`
`I Manufacturers don’t always understand the issue
`
`- Manufacturers who are source tagging don’t always share the information
`with other divisions
`
`Fractional tagging
`
`Ulta noted that Coty fractional tags. They ship RF, AM and untagged, and they
`kill the AM tag prior to shipment. Every third item in a case is different. Ulta
`prefers 100-percent tagging, but so few companies are source tagging that
`fractional is better than not tagging at all.
`
`Kroger said that fractional tagging is unacceptable. Ideal is 100-percent tagging
`and package enhancements. It's too easy to slip fragrance bottles out of boxes.
`Fractional tagging may be acceptable if the item is stolen in batches rather than
`individually.
`Eckerd prefers 100-percent tagging, but was one of the first retailers to consider
`fractional tagging and has not received bad feedback. The lowest ratio it accepts
`is one out of three.
`
`- Coty source tags fragrances 1 in 3. Eckerd took fragrances out of lock box
`and placed on open sell in 2/3 of stores. Sales increased 200 percent.
`
`- Taking Buena Vista video out of lock box resulted in 100-percent sales
`increase with minimal losses.
`'
`
`Packaging issues with cosmetics and pharmaceuticals
`
`- Europe uses more packaging and peg rack displays for cosmetics and does
`more source tagging of cosmetics
`
`cs1 @1534
`
`
`
`I Checkpoint’s 1915 tag can be used for antihistamines and other products in
`foil blister packs
`I Checkpoint's source tagging presentation encourages manufacturers to look
`at the inside of the package
`Inserts or spacers are used in foil-lined paperboard packages (e.g. pregnancy
`test kit)
`I Checkpoint will attend vendor meetings with customers to address technical
`issues
`
`I
`
`Manufacturer I distributor issues
`Nintendo of America is a distributor for Nintendo. The distributor packages its
`own software.
`-
`
`I
`
`investigating possibility of printing tag directly on title sheet
`
`I
`‘ Looking at tagging costs
`I Need to educate parent company (manufacturer) on need for source
`tagging
`I Need factual data on up-tick in sales with source tagging
`
`I Working on lockable DVD-style case
`
`Product availability is a big issue for Gillette.
`I Established tools to evaluate benefit of going from restricted
`merchandising to open sell. Saw 78-percent increase.
`I Want to curb shrink not only at shelf, but at receiving dock, warehouses,
`factory.
`
`I Holistic approach is key.
`I Set up store lab to look at shoplifter behavior, locations within store, time
`and motion studies.
`
`Brown Forrnan believes education is necessary on both sides.
`I Modifications to bottling lines may be necessary to accommodate source
`tagging.
`I Manufacturers aren't refusing to source tag, but need to know how to
`make it practical.
`’
`I Get Checkpoint involved and see how all can work together.
`Retailers reported seeing more large manufacturers offering source tagging.
`particularly as category managers get the message. Reinforcing the importance
`of source tagging to category manages is important, because it is not a top-of-
`mind issue for them. Some retailers are evaluating whether to stock certain items
`that they can't get source tagged, particularly on high-price-point items.
`General reaction to the shift to EPC and applications of interest
`
`C81 @1535
`
`
`
`—......—vu-uuuu
`
`
`
`
`
`.‘___a.__..J'.._.—lA::'%-J.‘
`
`
`
`
`
`The overall reaction was positive. Gillette was excited about the previous day's
`RFID demonstration, and Rite-Aid said that the conference was valuable in
`bringing attendees up to date on EPC/RFID.
`
`- PetSmart sees an opportunity to control computers at headquarters.
`
`- Education is important. The controller, category managers, president/CEO
`have to understand the value of EPC/RFID.
`
`- Nintendo is in a learning phase. The company hasan automated distribution
`center. It sees applications for pack-and-ship operations and the returns
`process, as well as combating counterfeits. It also sees electronic registration
`in the future.
`‘
`
`I Checkpoint technical team can provide support on application issues.
`
`EAS as a revenue generator
`Impact Media gave a presentation on its Impact Display Panel program. The
`company is an advertising/marketing company focused on helping retailers offset
`EAS costs, create a new revenue stream, increase profits and move more
`product. The company exclusively sells impact display panels for EAS pedestals.
`
`The program
`
`- Three-year contract
`
`-
`
`Impact calls on national advertisers and their agencies
`
`- Chains receive a commission based on net advertising revenues
`
`- Turnkey program includes set up, shipping, panel installation and changes,
`billing
`
`Benefits to retailer
`
`- New non-food, non-merchandise revenue stream
`
`- Product sales increase as much as 19 percent
`
`- Advertising that does not come out of merchandising budget
`
`I Four-color traffic builder at front of store
`
`- Revenue sharing with all advertising placed for length of the display
`
`Benefits to national brand manufacturer
`
`- Great sales impact from POP
`
`-
`
`74 percent of all purchase decisions made in store
`
`- Silent salesman educates and informs consumers
`
`- Gives ad 100-percent visibility to all shoppers
`
`- Guaranteed impressions
`
`-
`
`-
`
`28 cents per 1,000 impressions
`
`‘Reach active shopper in mode to make purchase
`
`C81 @1586
`
`
`
`
`
`- Largest ads at eye level in store
`
`Proven dramatic lift
`
`- Nicorette — 12 percent lift in product sales
`
`- Mrs. T's Pierogies —— 19.75-percent lift with no other promotions
`
`Potential revenue
`
`If a chain has 1,570 stores with 2 pedestals per store and its pedestals are 100-
`percent sold at $50 per pedestal, the chain stands to receive $54,863 per month.
`
`CSI @1587
`
`
`
`
`
`IKWACT
`
`DBPLAY
`
`PANEL
`
`PROGRAhI
`
`WHY iMi>Acr MEDIA '2
`
`-OFFSET your E.-\S cost
`
`-CREATE a new revenue stream & increase
`
`profits
`
`-LVCREASE product movement
`
`.. . ..--.___.r -#1
`fimfimimmA"
`
`?**
`
`”m®¢Tfi&m
`
`H°“‘ ‘he l"°g”"" “'°"“
`
`How the program works
`'|mpaci Media sales executives call on i\'ATlO.\‘.-\L
`advertisers and their agencies.
`
`lmpaci Media contracts with the retail chain to exclusively
`5:” Impact Dispia), panels inside the security pedestals‘
`
`°Chains receive a commission basal upon nei advertising
`revenues.
`
`The contract runs for a minimum three-year period. with an
`op“-on {or yearly mnewal Ihereafler.
`
`_
`_
`__
`_
`°lmpact Media handles the program “soup-to—nuis , shipping.
`installation, billing, panel changs. ..
`
`CS1 01599
`
`
`
`.
`
`RETAILER BENEFITS
`
`-Retailers benefit by receiving a percentage of all advertising
`revenues. as well as higher profits from increased sales.
`
`-The billboards attract the e_\‘e ofthe consumer to the
`advemsement. instead ofto the security device.
`
`\
`
`-Impact Media is forming a national network of retailers for
`this program. working with all Checkpoint clients,
`
`RETAILER BENEFITS
`- Retailer receives a commission basoi upon net advertising
`revenues. which can be used to offset the cost ofthe E.-XS
`program.
`- Revenue is derivaj from national advertisers. and national
`budgets. not merchandising budgets.
`
`RETAILER BENEFITS
`
`RETAILER BENEFITS
`
`Sales ofadvenised product proven to increase by more than
`l9% and irrprove profitability.
`evenue sharing with all advatising placed for the length of
`display.
`Another source of non~food. non-merchandise revenue that
`requires no maintenance by the retailer.
`
`-4-color high quality an on displa_i' for a
`professional appmrance.
`
`- “Traffic Builder" displays to increase product
`sales of advertised items.
`
`C81 @1589
`
`
`
`
`
`IMPAC
`
`EFFECT]! E — The effectiveness of P-0-P advertising is
`clearly demonstrated by sales impact. With the advent of
`scanner technology. brand marketers and retailers have been
`
`able to immazliately determine the effectiveness of‘?-O-P.
`
`PERSL-'.4SllE — P-O-P advertisin_<__' is persuasive. it is no
`coincidence, vvith'7-1°u ofall purchasedecisions made in store.
`an increasing number ofbrand marketers and retailers invest
`in this maiium.
`
`—. — ..
`—“D.vu§
`IIvfl’D
`
`IMP
`
`SlLE;\'TSALESMA:\'— P-O—P advenising serves as the silent
`salesman with displays, signage and in-store media educating
`and informing consumers about a product's availability and
`attributes.
`
`-SOPHISTICA TED— Increasingly sophisticated in its
`construction and utilization. P-O~P is more easi1_v assembled
`and maintained and at the same time. it‘s more powerful for
`entertaining and informing in the retail environment.
`
`-ENHANCE/llEl\'T— P-O-P advertising is used increasingly
`by retailers to enhance the shopping experience. lt is used to
`redirect store traffic and bolster merchandising plans.
`
`.....4munN.
`
`C81 @1592!
`
`
`
`Advertiser Benefits
`
`- Unparalleled Rncn: 99% at nurmases aremaae rvszcre 7I\ct bum aeasn:-mt are
`made n-store
`
`The Impact Display Panel Program
`The only medium that gives your advertisement
`100% visibility to all shoppers.
`
`- Lowostcostpu Thousand Imnrusions(SO.2B): OOH (52: non tsevt
`neu-snzoer139-).‘N(stew.vrncxnems»:
`- "Prime" thousands: Aunt: srnaoevs (aecson-rnaern vs nasswe mnvessons on the
`streenn nvnq rooms
`
`Guaranteed Impressions
`
`Not Just In Aisle #3
`
`Highly Efficient
`
`“J
`
`I.
`
`_
`
` Advertiser Benefits
`
`'The largest ad at eye level within the store
`-Highly coveted advertising position in the store
`
`
`*PRO\’EN dramatic lift in product sales
`
`
`
`5%
`-Exclusive rights to the front end of the store
`
`12% Lift in Product Sales for
`G|axoSmithK|ine (Nicorette/NicoDerrn CO)‘
`
`-"-'—:r.I_t_t+x
`H“.
`
`
`‘GSK rsearch September 2002 campaign
`
`C51 @1591
`
`x
`
`
`
`:4-‘..~..a
`
`»..:»-.
`
`Test Program Analysis
`. Pmdun Tamed: Mrs. TS Piemgies
`.
`.
`., _
`-;\umber ofsxore locauons: /3
`
`~.\'umber ofpedeslals with Display Panels: -1
`
`Test Program .-\nal_\'sis Mrs. T’s
`
`-Results were based over a 6-week Period.
`-Total increase in sales for a 6-week period: 19.75%
`
`-There were no other promotionsor sale prices during this
`‘es!
`
`°$>m‘_e5“e51ed "1: ‘\°nh Camhna‘ South Carolma‘ Fbnda‘ and
`\ xrgmla
`
`rmmulu -mecpnpludb,-.w,Ju_t Abraham .\'.1IronuI.ldIrrmmg D:rrtIurofFoa-{Luau
`Grant) Slarn.
`
`Sample Revenue Projection
`
`Rflenue Projection
`
`.
`_
`Liberty P)\- Number ofSlores: 1,570
`
`_
`_
`L1bertyPX- Number ofEAS Pedestals: 3,135
`
`Adveniser/Vendor Cost: S50 per pedestal per cycle
`(Includes both sides of pedestal)
`
`Revenues based on 35% commission paid (0 retailer
`
`Percent Sold Monthly
`
`Quarterly
`
`Annually
`
`100%
`
`$54,863
`
`$164,588
`
`$658,356
`
`C81 @1592
`
`
`
`
`
`5cl
`
`HP5«.5.2
`
`...
`
`C81 @1593
`
`
`
`. _.
`
`
`
`«San.U.mo:mm_o:
`
`
`
`=.m._._u3n_.u=..a.
`
`CS1 @1594
`
`
`
`ILRT Program and Panel Discussion
`
`October 10, 2003
`
`Facilitator:
`Michael Garry — Technology Editor— Supermarket News
`
`Paneh
`Jack DeAlmo — Vice President of Store Replenishment and Inventory Management —
`CVS
`Chuck Kibler— Group Vice President, Loss Prevention - Rite-Aid
`Brian Potvin — Manager, On-‘Shelf Availability — Gillette
`
`Dave Shoemaker introduced the panelists.
`
`Michael Garry noted that the HBC market has developed partnerships for source
`tagging and is laying the groundwork for EP_C by establishing a foundation for long-term
`cooperation. The momentum for EPC will build since Wal-Mart is taking a leading role.
`
`Industry Loss Reduction Team
`Jack DeAlmo gave a presentation on the ILRT. In addition to his role with CVS,
`DeAlmo sits on the board of overseers of the Auto-ID Center.
`
`Background
`ILRT is a group of retailers and manufacturers that got together to share
`frustrations regarding how to move source tagging fonrvard and to find
`solutions that worked for all involved.
`
`Theft impacts retailers’ profits and source tagging reduces theft.
`The manufacturer is moving product through the pipeline and views shrink as
`a retailers‘ problem.
`Various groups tied to reach a consensus on EAS source tagging, including
`NACDS. technology providers user groups and the Consumer Product
`Manufacturers Association (CPMA). One proposed solution was a dual-
`technology pedestal, but no manufacturer or retailer could support a retrofit of
`that magnitude. ILRT was formed in 2001 after a meeting between CVS,
`Walgreen's and the CPMA companies.
`
`- Open forum
`
`- Non-exclusionary
`
`CS] @1595
`
`,.,.......a
`
`--
`
`
`
`- Decision support models
`
`- Non-binding best-practice document
`
`- Understand and share costs
`
`Key issues
`
`- Create a way to identify high-loss SKUs
`
`- NACDS couldn't come up with top 1,000 because everyone's data is
`different
`
`- Working group pulled together list of top 250, which was ranked and
`accepted
`
`- Provides starting port for manufacturers
`
`- Build protection for new SKUs into budget for new items
`— Need advice on\how to think about item’s loss potential
`
`- Develop criteria for tagging; e.g. if expected loss is 2X cost of solution or
`when protection cost is less than 1 percent of retail price and item is
`easily pocketed
`
`- Retail Intelligence Subcommittee provides confidential guidance to
`manufacturers
`
`- ROI decision model tool included in best practices document
`
`- Determine ways to deal with a single inventory
`
`- Manufacturer must make a decision and come to trade with it
`
`- Retailer must decide whether to buy that product
`
`- Tag pollution is an issue, but to date has not had serious legal impact
`
`- How to think about emerging technologies
`
`- Work on broader issues of loss
`
`ILRT published its best-practices document in May 2003. To access the
`document from the NACDS website (www.nacds.org), search for ILRT. For
`membership information, contact anyone listed in the document.
`
`The ILRT model could be applied to other channels of trade and to RFlD.
`
`Following the presentation, panelists answered questions.
`
`How does the group enable the discussion to move forward?
`
`I Common goal — working together to remove barriers
`
`- Open dialog to understand each others’ issues
`
`- Willingness to make effort (e.g. identifying the major SKUs)
`
`- Willingness to look at issues in different ways
`
`C81 @1596
`
`
`
`
`
`aux-.nmar.»-«.4-up-nuamong.“
`
`
`
`
`
`n4~4u..o-I
`
`~A...
`
`What is the progress with the 250 SKUs identified?
`
`CVS sees progress with “new to world items." because it is easier for
`manufacturer to incorporate protection cost as part of the price point and
`production. It has not reviewed the list of 250 items.
`
`Gillette noted that it is taking corrective action against the hot SKUs. It also
`noted that with source tagging, introducing one new item results in three new
`SKUs
`
`Has the group discussed EPC?
`
`lLRT has not discussed EPC in depth, but agrees that the source tagging
`model has to work for EPC. As the number of pilots increases, the group will
`begin to focus more on EPC.
`
`CVS is interested in item-level EPC, primarily in the pharmacy, where
`inventory management is critical due to the regulatory environment. It is
`working on as pilot with Procter & Gamble and Accenture to track outdates and
`recalls. The retailer is also interested in targeting counterfeiting.
`
`Rite-Aid has asked Checkpoint to demo EPC/RFID solutions to its executives.
`
`At noon, Dave Shoemakerthanked participants fortheir involvement and closed the
`conference.
`
`cs: 01597
`
`
`
`I-tr-.t.tn-r:
`
`Industry Loss Reduction Team
`
`October to. 2003
`
`Agenda
`
`What Is the ILRT, why was I: Formed and \‘.'r'.o Are «:5 ltlemuelsa
`
`‘fne Goals oftne ILRT
`
`Results
`
`Other Agreed Pnncrples
`
`Next Steps
`
`:.~4 :4.-~ -«-s: 3:.” TA‘.‘'’. :11 >\-
`
`:D".N~'k-KY.‘ x.-.:st>~-»~:m>.»
`
`What Is the ILRT, Why Was It Formed and Who Are Its Members?
`
`- The Industry Loss Reduction Team (ILRT) is a group pt retailers
`and manufacturers working together to address retail loss lssues -
`focused initially on source taggmg
`
`The ILRT was formed to address the shared lrustratuons regardmg
`lack ot consuslency. complexity, progress and cost 0! EAS tagging
`
`The ILRT charter was to collaboratively develop and implement an
`action plan - reducing retailers‘ loss on high risk sku‘s in a way
`thal‘s a win-win for the retailer. manufacturer and consumer
`
`What Is the ILRT, Why Was It Formed and Who Are Its Members?%:_?
`Background - The Retailer's Perspectlve
`
`Theft significantty impacts retarler's profit
`
`Source lagging reduces theft
`
`Retailers have dealt with suppliers. one-on-one, to encourage
`source taggmg - with limulea success
`
`Without source agging. product are often locked up and not easily
`accessible by customer
`
`Sales and the customer sufler the consequences
`
`:od~.l~'A-IoI:vfl.$!o-DJ-ufliouv
`
`::>v:x~'4--v: K.II\'nD.P': ur><-
`
`C81 @1598
`
`
`
`
`
`
`
`What is the ILRT, Why Was It Formed and Who Are Its Members?
`Background — The Manufacturer's Perspective
`
`Snnnk is viewed as a retailer's issue
`
`What Is the ILRT. Why Was It Formed and Who Are its Members?
`Attempts at Consensus
`NACDSvAr'.nur L‘ Line conducted a stuoydes-gaeo to oeue:o: a roaarna:
`towards widespread U6 aooolcn ano source la;-;:n;
`
`Inlemat the-‘X. paper loss and retailer's operational inefficiencies are
`otner CJUSES
`
`To fully participate. three inventories (AM. RF. untagged) would be
`necessary - tne cost IS prohibitive - ‘nerd and soft’
`
`Dana SUDDO-'UX'lg Dositive impact 0! source tagging not availablelrloi
`snared
`‘
`
`:>a xv \ — :-1; ::.u :z»-.-—: in >.-
`
`NACDS'BattaIe Memonat institute set outto devetoo a se: of oeficrnance
`cntena to measure the oenormnce o: xanaus EAS technologies an 00::
`retau anomanutaaiunng enuronments
`‘roo—lo-Top meetings
`Sensomatic Source Taggng c°UnCI'
`Cnecioo-nl User Gr-auo
`Consurrer Products Manufacturer Association lCPll.lAl
`- Johnson 3 Johnson Procter A Garnue KDGZI, Giuene
`— Ananol to find 2 sotuuon — smg-e leatrviogt
`- Navavnsoon demons a Dedlsul so-utton mat aeieos ndzn teaimloq-es
`- Cvswaiqreens conduct a test at me CPMA soiut-on
`
`:>-a .2.-~-A -us: ::.no--.o-can >.-
`
`What Is the ILRT. Why Was It Formed and Who Are its Members?
`Formation of the ILRT
`
`.j.e_:
`What Is the ILRT_ Why Was It Formed and Who Are Its Members?
`Formation of the ILRT (continued)
`
`In 2001. a meeung was neldin Chicago Demeen CVS. Walgreens and the
`CPMA ccrwantes to
`~ Evaiuate me in-store test results 01 the single Dedestal solm-on
`- Determine next steps
`
`it was auICk‘Y3DDareI'l| lhaimohlle me test was SUCCESTUI. the CD5! ID
`retrofit would be prunnmve
`
`The Group discussed a different approach to trtmroblan
`Procua proleaion was really more :2! I suDD'1 Otanissue than a loss
`Drvvermon issue atone - lute fill rates
`together. retainers and rnanutaaurers have solved may other suooiy main
`Dfuotems
`ll aanruaa-ed as such. muld we find a solution
`
`Group decided to see if a larger group of retailers and manulactureis
`would
`- See tne sane oooortunxy
`— Agree 10 WOI1 on me DVDDIBTI
`
`A broader group of retailers and manufacturers convened in Chicago
`to discuss the idea
`— Concluded that tneidea was worth an arlanot
`- The ILRT was created
`
`:Ov~:I'~'.a\ . ran :.s:uuo- use :1: :~ .
`
`zoo-nr~r.s -v-aI:.1r4no- -.a--: us an-
`
`CSI @1599
`
`
`
`u-..a.-5'.
`
`What Is the ILRT. Why Was It Formed and Who Are Its Members?
`ILRT Membership
`
`Readers
`CVS
`Eckerc
`Kman
`Kroger
`Rlle Au:
`Targe:
`Walgreen:
`‘~'ai-Mar.
`
`Manulaclurers
`Gillene
`G|axoSmi(hKhne
`Johnson 8. Jcnnson
`Kodak
`Novams
`Pfizer
`Procter & Gamble
`Unrlever
`Wyeth
`
`:2»: xv « —-rs: ::..u->»-av. :2: :~
`
`Goals of ILRT
`
`To Deg-n me drsaussrcn between real-er: an: man-.:fa::.re's ta deve d: a new
`apcroacn to me rssues aroun: aroa-.;:: orurec.-c.". 5 source la;g-r; to e-ta: e
`razxona: mean-r;1.: and cos: e‘¢e:::ve Dfogress
`
`Focus
`Be an open l.-_r-.m for rarsm; and resolvn; lne Issues for FEB-|E"S an:
`rnam.1a::urers
`Develop a Decsron SUDDCH Model la: we can: an wen v.::—.
`Develco anq gum-sn Es: Pra:::ce' l1G-'lvD:.".:I.’1; recommenaamns that :0»:
`wOl'k as any relazl channel
`UHOEYSTZHU lne PEIZIIETS 1055 3713 B!|'§One 5 50123113‘ CGShS|u'1a'.'.' all SC?‘._'
`3l'1O HON I0 063 WM’.-'1(T1Ef71
`- COSI Sh3V‘..“.._:
`Enable awnnwrn oulczme lor (era-ers an: wen-.5 2‘..1.'e's
`
`Goals of ILRT
`
`lLRT Challenges _e..e..
`II was clear mar we needed lo address the current sku base but the longer term
`rssue was to derermrne lne anomnnaxe unaxecuon pnor to manner entry
`
`Creale a process for rdenr:r~_r~g gggrhwgn-loss skis and ce\elaD
`gurdelnes lo protect ngwmgn-ask sxu's before nlrocluclron
`- Oevaao Ullena 8 nruoess lo: -dermfymq slus
`-
`Bu-Id proremon no me sinus PAL
`- Dz-ode eany rn producl devenoamem cyue ll ororeamn would be needed
`-
`he-Inr¢WU§I.4I|'7lUVI'o:UeI
`- no-..nan°nug¢ cl\u'qc1rR4Iovvrulov\’IJ°C gum". or:
`
`Develop a Decnsron Model to nc delemne wnal sku's to nmlecl and
`ensunng me cosr ol prorecuon does not exceed me cdsl cl me loss
`
`Goals of ILRT
`
`ILRT Challenges (continued)
`4 Delermne flood 10 malnlarn a smge nmenlor,-ol lagged product
`-
`ll bdrn reamologres mnunue lo e-usx — can we 9¢1IO one ¢nvenmry"
`5 HOW 10 11%| Wllh the C051 ~II RUSK De UHCEFSIOOC
`
`6 Omar
`' Whfl G7?\s|OQrZlIDf‘l§ need YD DE filvln IO fffitfullv xecrrvclogres - ALAO-ID
`
`Now mum [his group -on mallne: on broader loss -ssues — D7301. dwers-on.
`eoumeneumg
`
`Hour In aw-eve me ab0V¢- Y9‘ sun orovsde and-ce let me mam-dual urndames
`
`can-::~-.g . new :lx..uo- run: 1:: On -
`
`:ou.:r~-.-. --aa,r:.1so..;aom><-
`
`C81 @1691?!
`
`
`
`The Results
`
`- The final recommendations. which were distributed in May 2003.
`addressed the tollowing.
`
`Current hign Loss S-u oaua
`
`Gu-ae:-nes 1:: New H-gn-nsx sx: CTDIECIIOI‘.
`
`Decision Support and R3 Mona
`|l'YU|EfT\el'|la5C-'3 VECCIEFTEOSZIOES
`
`ldentification of Current High Loss Sku’s
`The Problem
`
`- Manufacturers have been lrusrrateo oy the lack ol con5lSlEl'lC_\
`across retailers when asking for hign-loss items to oe tagged
`
`There is no comprehensive list ol identified items lor which tagging
`could provide an effective theft-deterrent. and lnere is no process
`lorioentilying and pnontizing them across retailers
`
`Existing items have an established PAL structure - adding cost is a
`problem
`
`:;~—' xv s ~ Art.
`
`:_n >--.--v. us >«~
`
`:>.‘x~' L -0-: s:.u»:- -.s-:s.i>.-
`
`lg‘
`
`l
`
`Identification of Current High Loss Sku's
`The Solution
`
`DlSCU§|OnS helped to deielop a process to icenlilytne top 250 canrnon
`High-loss slus as a slanmg point -existing slurs
`First. a Retailer Vlonung Group vies organized to identify and analyze their
`top 250 High-nss sku's
`‘rne Group wanted to agree to a target lsl ol 250. the data inclined
`- Sun I. UPC oaoe Desaiumrvsizusvervm
`- Data sources -naudeo shoplifunp apprehension data. retailer internal
`apprehension data. nu lever invembrv results. lEl2I|¢' exception repomnc
`- Then. not shortages or billing errors, drove In: 250 High-Ion sltu list
`Once corrplete. the slu's were pnontzed -highest risk to towest
`The work group presented the Isl to the NI ILRT and agreanent was
`reached
`
`The Reta! Intelligence Suoccrnrnirtee ol he ILRT will perooicaly uocme
`and repuolish thelisl
`
`:aai:r~v«--o-aisziaso-no-:sn Dn-
`
`15
`
`__guidelines for Introducing [~l£_w/_‘l_-l_igh_-_R_i_s_k__§lg1's
`The Problem
`
`__
`
`- There are generally two types of new items:
`— New or Changed EAN UPC (‘noes tor reiauncnesoaciege
`cnangesiretomulalmn. and
`- New 10 my World DPOUUCIS
`
`- we needed to develop criteria lot manufacturers to use for
`identifying potential High-loss skus early in the development cycle.
`so proper protection can be considered and cost ouilt into the P&L
`- There needed to be a retail resource that rnanulacturers could use
`to gain opinions on nsk potential
`
`:9: nova. --oa:is:.no.atp-cusp-..
`
`CS1 016131
`
`
`
`Guidelines for Introducing New High-Risk Sku's
`The Solution
`- Criteria for tagging hew to wane anocr Cnangec EAN ED: SKUS was
`developer:
`°rote<1-on should be mus-deled lor an items when oemg introduced irtta I
`iirovrfl H-amass rztegory arr:
`when tne uoeaed lass e-deeds 2x me can lor the arm-tnett soiutiom, OR
`Cost cl dmtecion is <1‘. ol resaie once AN:
`Item is EISIH aanceziatze AN:
`item wit: be introduced into a new utegory out Imeiy to be Highly oesiatxe due
`to aavertis-nq.oenerii
`
`- A Re:a:i lniealigeice Suocarimnee was created to
`Represent tne Food Drug and Mass sectors
`‘
`Maintain the process to -aeniiry High-IOSS nu s
`“mud: Best Pracices rvonsu: aodmaizies lot brocuc protection oeosions
`AGCYESS OUESIIOVIS BT13 WUVDGC U)fifIO€f|1.‘3|EfL§u|lZlIOfl DH 02* Of UWTVPC
`EAx L29: t:x:e items
`
`Decision and ROI Model
`The Problem
`
`Cnteria needed to be established to help determine what is the
`most effective product protection solution
`
`Need a methodology for manufacturers and retailers to evaluate
`protection costsfbenef