Uses blockchain technology to combat retail theft

Retail is one of the most important sectors of the US economy. Unfortunately, the covid-19 pandemic has left the trillion dollar retail industry vulnerable to shoplifting.

Findings from the National Retail Federation’s 2022 Retail Security Survey show that retail losses from stolen goods increased to $94.5 billion in 2021, up from $90.8 billion in 2020. Some retailers are also required to lock certain products to prevent theft, which can lead to reduced sales due to consumers’ lack of access to goods.

Retailers look to blockchain to solve retail theft

Given these extreme measures, many innovative retailers have begun to look to technology to combat retail theft. For example, Lowe’s, an American home improvement retailer, recently implemented a proof-of-concept called Project Unlock, which uses radio frequency identification (RFID) tags, Internet of Things sensors and blockchain technology. The solution is currently being tested in several Lowe’s stores in the USA.

Josh Shabtai, senior director of ecosystem practices at Lowe’s Innovation Labs — Lowe’s technology wing that developed Project Unlock — told Cointelegraph that Project Unlock aims to explore new technologies to help mitigate theft while creating better customer experiences.

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To accomplish this, Shabtai explained, RFID tags are used to activate specific Lowes’ power tools at the point of purchase. “So if a customer steals a power tool, it won’t work,” he said.

Shabtai noted that RFID tags are a low-cost solution that many retailers use to prevent theft. According to the National Retail Federation’s 2022 Retail Security Survey, 38.6% of retailers are already implementing or planning to implement RFID systems. However, Shabtai explained that combining RFID systems with a blockchain network could provide retailers with a transparent, tamper-proof record to track in-store purchases. He said:

“Through Project Unlock, a unique ID is registered and assigned to each of our power tools. Once that product is purchased, the RFID system activates the power tool for use. At the same time, the transaction can be seen by anyone, since that information is recorded in a public blockchain network.”

Mehdi Sarkeshi, senior project manager at Project Unlock, told Cointelegraph that Project Unlock is based on the Ethereum network. Sarkeshi elaborated that each product under Project Unlock is linked to a pre-minted nonfungible token (NFT), or digital twin, which will receive a status change upon purchase.

“A product’s NFT undergoes a status change when it is either sold by Lowe’s, if it has been stolen, or if its status is unknown. All of this information is publicly visible to customers and retailers since it is registered on the Ethereum blockchain. We have essentially built a purchase authenticity for Lowes’ power tools,” he said.

While the concept behind Project Unlock is innovative for a major retailer, David Menard, CEO of asset verification platform Real Items, told Cointelegraph that his firm has been exploring a similar solution. “Traditionally, RFID tags prevent theft, so this problem is already solved,” he said. Given this, Menard noted that Real Items combines digital identity with physical products to ensure that stolen items can be accounted for. He said:

“If physical items are paired with digital twins, retailers can know exactly what was stolen, from where and from which product lot. Retailers can understand this with more clarity compared to information generated by RFID systems.”

According to Menard, Real Items currently has a memorandum of understanding with SmartLabel, a digital platform that generates QR codes for brands and retailers to provide consumers with detailed product information. He shared that Real Items plans to implement “digital product passports” with SmartLabel products in the future. “We see digital product passports as the foundation for storing information about a product throughout a product’s lifecycle,” he said.

Menard further explained that Real Items uses the Polygon network to store product information. It is important to point out that this model differs from Project Unlock since a blockchain network is used here only to record information about a specific item. “We use a product’s digital twin – also known as NFT – for engagement. It may be related to anti-theft, but it’s more about providing retailers with useful data.”

While the solutions being developed by Lowe’s Innovation Labs and Real Items could be a game-changer for retailers, the rise of the metaverse could also help curb retail theft. According to McKinsey’s “Value Creation in the Metaverse” report, by 2030, the metaverse could generate $4 trillion to $5 trillion across consumer and business uses. The report notes that this includes retail.

Marjorie Hernandez, CEO of LUKSO – a digital lifestyle Web3 platform – told Cointelegraph that designer brands like Prada and Web3 marketplaces like The Dematerialised, where she is also the CEO, already use NFT redemption processes.

Hernandez explained that this allows communities to purchase a digital item in a metaverse-like environment, which can then be redeemed for a physical item in the store. She said:

“This redemption process allows retailers to explore new ways to authenticate products on the chain and provide a more sustainable manufacturing process with customized demand. This also creates a new and direct access channel between creators and consumers beyond the point of sale.”

Hernandez believes more retailers will explore digital identities for lifestyle goods in the coming year. “This allows brands, designers and users to finally have a transparent solution to many of the problems facing retail today, such as counterfeit goods and theft.”

Will retailers adopt blockchain solutions to combat theft?

Although blockchain may help solve shoplifting in the future, retailers may be hesitant to adopt the technology for several reasons. For example, blockchain’s association with cryptocurrency can be a pain point for businesses. Recent events such as the collapse of FTX reinforce this.

Still, Shabtai remains optimistic, noting that Lowe’s Innovation Labs believes it’s important to evaluate new technologies to better understand what’s viable. “Through Project Unlock, we have proven that blockchain technology is valuable. We hope this can serve as a proof for other retailers considering a similar solution,” he said. Shabtai added that Lowe’s Innovation Labs plans to develop its solution beyond power tools going forward.

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While notable, Sarkeshi pointed out that it can be challenging for consumers to understand the value of using blockchain to record transactions. “For example, if I’m a customer buying a used product, why should I care if it was stolen,” he said. Given this, Sarkeshi believes that a shift in the customer’s mindset must occur for such a solution to be completely successful. He said:

“It is a challenge for culture building. Some customers will initially not feel comfortable buying a stolen product, but we need this to resonate across the board. We want customers to know that when a product is stolen, everyone in the entire supply chain is harmed. Building that culture can be challenging, but I think this will happen in the long term.”