Every year thieves grow smarter, more organized and determined. To combat them retailers must remain a step ahead.

The more things change the more they stay the same. Technology has improved how retailers combat loss prevention, yet between employee theft, consumer shrink and organized crime, thieves are always developing new ways to beat the system.

It is estimated that U.S. retailers lose more than $35 billion dollars to theft annually. Supermarkets are the biggest victims. According to a study conducted by the University of Florida, with a funding grant from Tyco Integrated Security, supermarket shrinkage was 2.5%, 1.1% above the average. Of the major causes of shrinkage reported by supermarket retailers, 44% was attributed to employee theft, 33.3% to shoplifting/organized crime, 9.9% to administrative error and 6.3% to vendor fraud.

Industry observers say improper monitoring of employee activities is one of the reasons employee theft continues to be so high each year. “An efficient inside thief can easily rack up thousands of dollars in losses per week by stealing and then reselling high value products. In the high volume, low margin grocery environment, this can quickly eat into profit margins,” says David Andrews, director of marketing communications for Reflexis Systems, a Dedham, Mass.-based workforce management/task execution solutions provider.

While internal theft continues to be one of the largest contributors of shrink, customer-related shrink is also on the rise. One of the top areas of concern is self-checkout. Yet, observers say today’s technology offers retailers the tools to combat loss prevention before incidents happen.

“Regardless of whether customers are looking to intentionally deceive or not, we’re seeing more opportunity for theft to occur at self-checkouts,” says Malay Kundu, CEO of StopLift Checkout Vision Systems, based in Cambridge, Mass.

Organized Retail Crime (ORC) on the Rise?

Organized retail crime (ORC) is also escalating. According to the National Retail Federation’s (NRF) 2012 Organized Retail Crime Survey, 9 out of 10 retailers were reportedly victims of ORC last year. The effects of organized crime can be devastating.

“ORC rings typically steal large quantities of products for online or offline resale and target high-value and high-demand merchandise such as liquor, cigarettes, infant formula, razor blades, medicines, creams and more,” says Joerg Niederhuefner, director of business development for Intelligent Loss Prevention (ILP), based in Rockford, Ill. According to the FBI, ORC costs U.S. retailers about $30 billion per year.Beyond profiting from resale or fraudulent returns, he says some thieves use merchandise as currency itself.

Some say grocers are at particular risk for ongoing theft issues due to their multi-faceted supply chain and diverse store operations. “Stealing is an old business with ever-evolving new tactics,” says Steve Sell, director of marketing, North America retail for Tyco Integrated Security, based in Boca Raton, Fla. “Shoplifting and security concerns are profit-eroding issues that continue to evolve each year, as do shoplifters and organized retail crime groups’ determination to defraud.” Sell says Tyco’s goal is to help grocers integrate solutions to create a comprehensive security strategy and achieve higher levels of visibility into the events that take place in their stores.

In a down economy, high unemployment and tight budgets typically generate a rise in the shoplifting of essentials like food. “Our solutions are intended to arm the grocery retailer with better weapons to defend, react and anticipate the actions that are affecting their bottom line. In addition to solutions and analytics to aid in preventing shoplifting, we want our solutions to complement what our customers deliver, which is great customer service—one of the best ways to deter crime,” says Sell.

New loss prevention technology is only useful if retailers actually invest in it. As existing solutions quickly fall out-of-date and after years of budget cutting many loss prevention departments are playing catch-up.

“Many retailers are concentrating on updating their video infrastructure with IP cameras and replacing exception reporting tools which really hasn’t left them much time to focus on what’s coming down the pike,” says Derek Rodner, vice president, product strategy for Agilence, based in Mount Laurel, N.J.

Given the focus on testing and/or deploying mobile POS solutions at a high level, Rodner says These technologies are great for the grocer because it saves labor costs by giving the job to the customer, but is a potential nightmare for thwarting theft.

“This technology raises a lot of questions, such as how do you audit what is happening at the POS when the POS is anywhere? How do you validate what shoppers are placing in their cart has actually been scanned? When a customer is leaving the store, how do you know they bought anything when there are no longer printed receipts?” he says. It will be a major challenge for loss prevention experts to address and currently there are no easy solutions, short of watching all of the video, he adds.

To help address loss prevention as well as other issues, Reflexis created StoreWalk and Task Manager. Company officials say that as problems are detected, the system automatically can assign best-practice corrective actions through StoreWalk to Task Manager integration and can be tracked to completion. Additionally, the system allows management by exception so that management can quickly identify and focus on problem areas and quickly correct them.

“During an audit, a retailer can use Task Manager, for example, to uncover areas of non-compliance, particularly those that make them vulnerable to loss such as product handling as well as those involving employees and assign and track a particular task digitally,” says Andrews. By automating the process the information is gathered quickly and disseminated just as fast to corporate to address.

For instance, Andrews says identifying that your employees are not being escorted out to the loading dock or garbage dumpsters as policy indicates and addressing that issue quickly removes two prime theft opportunities.

“When proper procedures are followed in terms of handling, storage, employee entrance and exit, inspections of loading/unloading dock areas, and so on, theft can be significantly reduced,” he says.

Self-Checkout Woes

Self-scanners were designed to speed customers through the checkout process, but there is something else they are doing—creating an opportunity for customers to steal. According to officials at StopLift, theft occurs five times more at self-checkouts than manned checkouts. “Self-scan is an area where a whole new opportunity for loss prevention issues is arising,” says Kundu. However, at the same time, current measures in place are creating too many false positives, making the self-checkout lane anything but fast.

There are clearly bugs that need to be worked out in terms of tightening security, Kundu says. “By complimenting self-checkout with video analytics we can help retailers create a much tighter system,” For instance, one of the easiest ways to beat self-checkout is for a customer to leave items in the cart. Kundu says technology exists now where the attendant can be notified if an item was left in the basket while the customer is still checking out. The same technology is also effective in identifying customers who bag items off the weight scale.

ILP officials believe it is important to help retailers identify theft at its initial stage—when sweep occurs at the shelf. “EAS alarms at store exits provide notification far too late,” says Niederhuefner. “Typically the shoplifter is long gone before store associates can react.” With this in mind, the company has developed several products that intervene at an earlier stage.

“Our OPEN Merchandising System is a product facing system that detects product removal and can send alerts via pager or intercom in the event of sweep. We also feature a Sonic Hook that emits a beep upon product removal and an alarm if multiple items are removed in a short amount of time,” he says. ILP also offer SelectSafe and DispenSafe, shelf-level dispensers that allow for self-service shopping but prevent sweep.

“Beyond early intervention of theft, all of these solutions were developed keeping the honest shopper in mind. While they range from open-display shopping to push-button dispensers, all solutions retain a positive and convenient shopping experience that drives sales,” says Niederhuefner.

Customized approach

Sometimes the loss prevention issue in need of resolution is a new one. Other times companies discover that an existing solution can be improved allowing a retailer to leverage it in unique ways, adding new and valuable data to a retailer’s store environment.
“As it relates to technology, implementing IP video along with sophisticated analytics is a great example of a solution that continues to evolve and helps retailers curb theft in their stores without increasing labor costs,” says Sell. “There are a number of solutions being used today by our customers to lower shrink, enhance customer experiences and improve ROI.”

Officials at Tyco say they have solutions that can be tailored to a specific grocery store’s needs in order to best deter crime and help the stores concentrate on what’s most important—their customers. “TycoIS works with our retail customers to figure out how our innovations can best deliver optimal store performance and useful information around in-store events and traffic intelligence, as well as new IP video applications that help drive improved flexibility and visibility to the loss prevention environment,” says Sell. “Our focus today and in the days ahead will always be; how can we partner with grocery retailers to deliver better technology, better data and higher visibility across their enterprise?”

Reflexis Systems recently announced its new StorePulse product. Designed to sit on top of the company’s other solutions such as Task Manager, StoreWalk, KPI Activator, Time and Attendance, and Workforce Manager, StorePulse provides one interface for all key tasks and metrics based alerts. It also integrates with loss prevention systems such as video surveillance.

With StorePulse the camera detects an event in real-time and sends an alert to the store manager. The views of the store, regional and corporate managers are role-based so the information each sees is determined by their responsibilities. Alerts and other communications are ranked based on the company’s priorities and filters within the program can ensure that managers see the most important information first. “With StorePulse, loss prevention can become more dynamic and real-time, instead of an after-the-fact tool to use for evidence,” says Keshav Shivdasani, manager of marketing and strategic alliances for Reflexis.

StopLift’s newly introduced Self-Checkout Accelerator is designed for real-time reporting on self-checkout theft and other scan avoidance, prevents false alerts and immediately flags unscanned merchandise at the checkout. Using video analytics, StopLift’s technology visually determines what occurs during each transaction and distinguishes between a legitimate act and a fraudulent one. “The Self-Checkout Accelerator enhances weight-based security to handle a broader spectrum of cases,” says Kundu. “Until now, security at the self-checkout has been performed solely by weight scales, but smart thieves know how to work around this,” he says. StopLift’s video analytics help retailers to detect theft and unintentional scan avoidance in the bagging area. “Thieves will often try and leave merchandise in the cart or bag their items outside the bagging area, without scanning. With real-time alerts, the attendant is notified right away so that he can take immediate action before the customer leaves the checkout,” says Kundu.

If a customer inadvertently places an item not meant for purchase such as a purse or cell phone in the bagging area, the program can also identify it as such and not send an alert. “By receiving more trustworthy alerts attendants gain the confidence to act on an alert when it happens,” he adds. With attendants spending less time clearing false alerts, they can spend more time providing true customer service.

This year ILP will be introducing Vensafe, a post-checkout dispensing system designed to prevent individual theft and organized retail crime. In the Vensafe system customers pay at the checkout and receive a product receipt that they take to the Vensafe dispenser located between the checkout and the exit. The merchandise is dispensed only when the product receipt is scanned at the kiosk.

“With Vensafe’s secure dispenser requiring a product receipt activated at checkout, both internal and external theft of participating products are eliminated. Plus, out-of-stock SMS notifications ensure no losses occur to due product unavailability,” says Niederhuefner. Even items requiring ID-verification like cigarettes, liquor and certain medicines can be used with Vensafe.

Agilence has introduced a technology platform that delivers real-time reporting and analysis to reduce fraud. According to Rodner, Retail 20/20 was architected from the ground up to take advantage of more than just the POS or the video and was built to incorporate any data sent from the store or from corporate. “By combining all of the data, and even video into a common interface, we enable loss prevention to quickly pinpoint unusual activity and investigate it fully, all on a single screen,” he says. “We are quickly reaching a point where both structured data such as POS, scales, RFID, EAS, pharmacy and DSD can be combined with unstructured data from social media and raw video feeds to deliver real-time intelligence. Loss prevention is becoming the driving force in grocery to make this a reality,” he says.

Article published in the Grocery Headquarters Magazine and written by Carol Radice

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