First the gloom. As America and probably the world heads to a double dip of economic malaise, retailers aren’t expecting over-heated cash registers. With high unemployment and dipping morale of sales associates, there is the expectation of more shrinkage — retail’s term for losses due primarily to shoplifting and employee theft. Then there is the growing threat of organized retail crime; gangs fine focused and able to steal more and turn the goods into cash more quickly.
Across the store aisle from these gloomy goods, and of interest to today’s system integrators, retailers are more accustomed to the use of effective security technology since, unlike other industries, retailers, especially the biggest ones, track and compare shrinkage as a percent of sales. Use of technology also continues to seep down to smaller chains and even mom-and-pops. And organizations are more quickly discovering applications of technology, specifically security video, which can help increase sales through marketing and merchandising know-how.
This sector is huge. It is estimated that annual retail sales in the U.S. market is about $4.17 trillion.
But, ironically, it is also one of the few sectors that fairly consistently tracks losses to theft, fraud, and product disappearance, and, to a lesser degree, what policies, procedures, and technologies are effective to reduce those losses.
In fact, there are three recognized studies of retail crime and losses.
But, no matter the various of number of retailers surveyed or the frequency, there is a lot of information that can help integrators understand their retail clients and adjust products and services to their ever-evolving needs.
For example, for those who expected a significant increase in retail crime due to a bad economy, the outcome has not been that overall result. There has been just a slight increase. For those who see shoplifters as the biggest threat, instead, and growing over the years, employees of retail establishments steal much more.
The National Retail Security Survey (NRSS), started up in part by this author and Today’s System Integrator's sister publication, Security Magazine, is one of the three research projects and has been embraced by the National Retail Federation (NRF).
In a preliminary NRSS update tied to the NRF Loss Prevention Conference in June, retailers said they lost more than $37 billion to theft last year, in the annual survey conducted by the University of Florida with a funding grant from ADT Commercial. The survey shows an increase in theft by nearly $4 billion, from $33.5 billion in 2009 to $37.1 billion in 2010. Retail shrinkage increased to 1.58 percent of retail sales, up from 1.44 percent the previous year.
But the increase may not solely be due to shoplifters and sales associates.
“It is possible this increase is due to the prevalence of organized retail crime (ORC), where items are stolen in quantity and then resold to consumers on the Internet or at flea markets,” says University of Florida criminologist Richard Hollinger, Ph.D., who directed the survey. “The NRF just completed its own survey showing an increase in ORC activities with more than 95 percent of retailers saying they had been victims and almost 85 percent indicating that the problem had gotten worse over the last three years.”
Retail theft includes shoplifting, employee theft, administrative error and vendor fraud.
As in years past, employee theft made up the largest portion with $16.2 billion in losses or more than 43 percent of the total. The second biggest category was shoplifting and ORC with a loss of $12.1 billion or almost 33 percent of the total losses.
There are a number of technologies available to help retailers combat retail theft. Some are especially good at helping to detect and limit ORC activity, according to Michael Creedon of integrator ADT Commercial. “There are a lot of sophisticated video and software products available that can help detect ORC behaviors and alert store management.”
Smart camera systems can help pick up unusual behavior such as a shelf of over-the-counter pain medication disappearing into the coat of a shoplifter. These intelligent camera systems can help follow a suspected shoplifter throughout the store recording movements and alerting store management.
High definition and megapixel cameras allow retailers to capture quality images of shoplifters or ORC gang members and match up those images with law enforcement photos. And advances in network technology allow more retailers to take advantage of cameras and recorded video. Retailers have the option of using the power of cloud computing to simplify their systems and maximize their technology investment by outsourcing the collection and storage of video while still having 24/7 access to view it from almost any location with an Internet connection.
Retailers also turn to new and more efficient inventory technologies. Radio frequency identification (RFID) tags help retailers complete inventory tasks in hours as compared to the days it previously took. Knowing what merchandise they have and where it is located is key in detecting retail theft. It can help a retailer sort out what merchandise is being lost to vendor fraud, administrative error or to employee theft and shoplifting. Once the retailer knows what is causing the losses, action can be taken to stop or limit it.
Another recently published survey, by Jack L. Hayes International, included major retail companies representing 18,906 stores. In the surveyed year, security apprehended over one million shoplifters and dishonest employees, and recovered more than $163 million from those apprehensions.
For the fourth consecutive year, the Hayes survey found the total shoplifter and dishonest employee apprehensions increased substantially. Shoplifting apprehensions increased 16.8 percent, while recovery dollars from those apprehensions increased just one percent. However, the apprehension of and recovery dollars from dishonest employees decreased for the first time in six years, falling 9.3 percent and 15.7 percent respectively.
One out of every 28.4 employees was apprehended for theft from their employer.
The Hayes survey agrees with others.
A struggling economy is causing some people to shoplift.
- Fewer employees on the sales floor creates more shoplifting opportunities.
- ORC activity continues to increase.
- There is a reduced social stigma of shoplifting.
The Global Retail Theft Barometer, conducted every two years and supported by Checkpoint Systems, an electronic article system (EAS) competitor of ADT and its Sensormatic operation, surveyed 1,103 retailers worldwide.
It finds that the cost of shrink globally was down 5.6 percent to $107.3 billion in 2010, the latest surveyed year. Somewhat good news to system integrators, money spent globally on loss prevention/security rose by 9.7 percent to $26.8 billion, although the fastest growth is outside the U.S. Shrink, according to the Barometer, represents 1.36 percent of retail sales, far lower than the NRSS.
The highest shrink, according to the Barometer?
- Apparel high-risk product lines: accessories and children's wear
- Grocery high-risk product lines: fresh meat and luxury cooked meat
- Health and beauty high-risk product lines: shaving products and perfumes/fragrances
- Countries with highest shrink rates: India, Morocco, Brazil
- Countries with lowest shrink rates: Austria, Hong Kong, Taiwan
- Global cost of shrink: $186 per family
No matter if shrinkage is slightly up or slightly down, there are losses.
And most everyone agrees that organized retail crime continues to be a sizeable and growing factor, especially in today’s Web and flea market resale environment.
ORC affects almost every single retailer, with 95 percent reporting they have been a victim of organized retail crime in the past 12 months, up six percent from last year, according to the NRF. Although retailers continue to build their defenses against this growing problem, criminals are finding myriad ways to work around the system. Retailers are also reporting that the criminals they apprehend are increasingly resorting to violence, putting the safety of both associates and customers at risk.
Of interest to today’s system integrators, the scope of most of these criminal enterprises extends far beyond store limits. NRF polled retailers about this threat and found that nearly half of all respondents said they have been a victim of cargo theft within the past year. The survey found most cargo theft occurs en route from the distribution center to the store, but other points within the supply chain are just as vulnerable. This not only affects a retailer’s bottom line, it also affects what consumers end up seeing on the shelves at the store and the amount of inventory available.
Crime rings throughout the U.S. often take advantage of big cities and large highways to move their stolen merchandise and hit multiple targets. When asked where retailers have the most problems with criminal gangs and organized retail crime, cities including Los Angeles, Miami, New York and Dallas were listed. Making the list for the first time, Las Vegas and Phoenix are now among the top metropolitan areas retailers say are affected, indicating criminal enterprises continue to travel the country.
Security technology has, in many ways, gone beyond fighting shoplifting, employee theft and organized retail crime. And the effort can help both loss prevention directors and system integrators.
EAS most often can alarm if a product walks out of a store. But more sophisticated radio frequency identification systems can track product through the supply chain.
But security video seems the new darling of retailers. Through analytics, the images can better and more quickly identify problems and problem people. In addition, through diverse in-house and third party sources, the information can help marketing and merchandizing executives reach conclusions on traffic patterns, shopper demographics, shelf positions, sales advantages well as well the sharing of purchasing budgets with loss prevention.
In another recent survey of 100 retail security managers, research firm Frost & Sullivan found that managers are very much aware of the importance of creating solutions well-tailored to their specific operational and security requirements. Matia Grossi, research manager for physical security group and author of the survey, notes, “The majority of retailers, when asked about unmet needs, point out that customized services, innovative technology and the integration of old and new security systems are all value-added services that retailers are starting to expect from their system integrators.” Among trends identified: the ability to monitor and analyze from one central location, says Grossi.
“Over 70 percent of those we interviewed declared an awareness of the utility of video surveillance for applications beyond pure security, such as customer counting and demographic and queue monitoring, with varying percentages for each application. Roughly 80 percent of those aware of this possibility suggested they are also looking actively into the potential deployment of video analytics,” Grossi adds. While the research points out that no analytics works perfectly, there is growing interest in collecting more demographics that differentiate among a man or woman, race, and age. In these applications, since they are not security-centric, accuracy is less a problem. Getting more information automatically can prove helpful on the merchandise and marketing sides.
This evolution of video analytics, cutting across the entire business, mirrors the evolution of the loss prevention profession itself.
Writing in a question-and-answer column on a website for colleagues, Tim Fisher, director, asset protection and safety, Best Buy, points out that “I have watched the loss prevention industry evolve throughout the course of my career. When I first started in the profession, [it] barely consisted of more than the corporate cop. We were focused very specifically on enforcing company rules and catching violators. For many of us, our worth was measured by apprehension statistics.
“In my early days, there wasn't even much focus or discussion on actual shrink rates. Somewhere in the late 1980s and early 1990s, as loss prevention-related technology evolved and became affordable and more user-friendly, it seemed as though everyone rushed to implement technology solutions to shrink,” Fisher adds.
These days, at giant chains such as Best Buy and even at small boutique stores, analytics has help break through the silos and, as a corollary, brought loss prevention executives even closer to their businesses and system integrators.
Such new-age tools go beyond security to help retailers understand shopper behaviors and trends by providing insight into in-store promotions and advertising campaigns, identifying traffic flow patterns and measuring dwell-time, and helping to ensure proper product placement on shelves and aisles. By using a video analytics tool, retailers can extract and search customer behaviors through stored video. In addition, the analysis can be used along with point-of-purchase (POS) data to further understand buying patterns.
Some simple kinds of analytics such as motion detection have been around for many years. But, points out Brendan Daly of New Hampshire’s Eye P Video, there are advantages with network-based video and with digital video storage and retrieval. “Analytics works well inside and in fixed environments.” Daly’s bottom line: “Digital turns video into data which a retailer can mine” for a variety of security and business reasons.
There are indications that loss prevention executives are close to pulling the IP video trigger. At NRF’s Big Show early in January, a surveillance survey report, conducted by the Loss Prevention Research Council and sponsored by Axis Communications, found that 87 percent of retail companies who currently use analog technology for surveillance are now considering migration strategies toward network video.
Almost all of the retailers surveyed (98 percent) claimed to currently use video surveillance in their stores, yet just 25 percent stated that they have already made the move to an all IP-based surveillance system. There is also a push to megapixel and high definition cameras with “at the edge” analytics processing and storage, which demands networking. Such advanced installations can offer intelligence ranging from simple people counting to more sophisticated applications.
Simple people counting can, however, be useful to a number of businesses. Gaming establishments may employ this video analytic in conjunction with state regulation to determine taxes based on patron visits, says Honeywell's Tom Brodsky. More typical retail operations often embed people counting into their video upgrades and analog-to-digital migrations. Intelligent tracking is another feature of video analytics, adds Brodsky. “How customers look at items or are they just passing through. Are they touching items on the shelves or, for security needs, is the customer taking too many items,” he comments.
For instance, a number of shopping centers, owned and managed by Canada’s Ivanhoe Cambridge, are deploying new IP video surveillance systems. Using an IndigoVision (www.indigovision.com) solution, Mapleview Shopping Centre, located in Burlington, Ontario, is the latest to undergo the transformation. Santo Polito, property services manager for Ivanhoe Cambridge, explains that shopping center management can access footage to help analyze events, promotions and footfall trends. Real-time analytics can also be used for some innovative applications. Mapleview is currently trialing the directional virtual tripwire analytics function built into the video transmitter modules to provide the shopping center with a count of customers entering two of the building’s entrances. This provides better accuracy than so-called “eye-beam” equipment installed on the doorways, which unfortunately can double-count people as they enter and leave the premises.
Russ Tate of ADT Security Services contends, “Security video and analytics is all about the customer experience.” One interesting twist is the emergence of enhanced public view monitors that can sit on a shelf next to or near high ticket or high risk goods. “These monitors can be at eye level and can come with a built in video recorder.” In addition to alerting to suspicious actions, “they can drive addition revenue. Just stick in a flash player and at certain intervals, it provides audio and video promotion,” which the product maker or distributor would compensate the retailer similar to prime shelf position or other store displays.
In addition to the allure of digital video, for some retailers, analytics has been so attractive that new types of businesses have started up to take security video from a client store, analyze it and provide back or give access to reports that can be easily customized by specific security and business needs. The data often goes way beyond simple people counting.
One of these firms, Agilence, specializes in POS video auditing with a mixture of software and analysis services that enables retailers to quickly identify losses caused by operational errors, promotion execution, systemic errors, and associate fraud. While the firm works with loss prevention, it markets clearly to a retailer’s COO, CFO and CIO by appealing to their need for return on investment beyond security. Rite Aid, the large drugstore chain, uses the professional auditing services at nearly 600 of its stores. “The software nicely complements our existing loss prevention initiatives,” says Robert Oberosler, Rite Aid group vice president.
Another firm, ReTel Technologies, blends machine vision and cloud computing with a trained human auditor workforce. According to ReTel’s Adam Rodnitzky, video is usually captured on-site, encoded and transmitted to his firm’s secure servers for proactive auditing, which determines what video to send to human auditing. The service also creates video auditing tasks to distribute to the auditing workforce and monitors the workforce to accept or reject auditors’ work based on quality and accuracy. “We link exceptions to video evidence to provide additional context around events while the retailer can access reports and videos online, as e-mails, alerts, or viewed in other systems through secure XML feeds. Human auditing on top of machine vision is a game changer, especially for best-in-class retailers,” adds Rodnitzky.
Analyzing behavior, especially at checkout, is other specialty area in which firms such as Stoplift Checkout Vision Systems play. By mathematically analyzing the pixels of digitized video, the technology scrutinizes how a cashier handles each item to determine whether or not it was properly scanned. According to Stoplift, the system is capable of understanding the full set of fraudulent behaviors, including when a cashier covers up a barcode by hand or purposely misaligns the scanner and item such that it is not scanned.