Cutting losses

Loss prevention systems do more than catch thieves. They also identify training and operational issues that can lead to shrink.

By Kim Ann Zimmermann

The tools of the loss prevention trade, including sophisticated video surveillance systems and transaction monitoring software, are working overtime to catch the bad guys—from employees giving their friends “sweetheart” deals on porterhouse steaks to organized professionals quickly clearing the shelves of baby formula to resell on the black market. That is the sexy side of loss prevention.

However, many grocers are discovering that in addition to snaring thieves, loss prevention technology can point them toward serious operational issues that need to be corrected, such as inattentive cashiers who unintentionally fail to scan items or cases of water that ring up for the price of a single bottle due to a glitch in the system.

Experts say the key to stemming shrink is to react quickly to any event, whether the cause is thievery or an innocent mistake.

“In light of the struggling economy, there is no doubt that there are otherwise honest people who are stealing, but in reality that is not the most significant source of shrink for the majority of retailers,” says Derek M. Rodner, vice president of product strategy and marketing for Camden, N.J.-based Agilence. Ac­cord­ing to company officials, Agilence software marries the data from the point-of-sale to the CCTV video in real-time to enable loss prevention analysts to identify shrink caused by factors such as cashier fraud, external theft, systemic errors, operational inefficiencies and poor promotion execution.

Doing double duty

“The trends we’re seeing is that retailers are looking for a greater value out of their technology spend,” says Agilence’s vice president of operations Pedro Ramos. “It is much broader than loss prevention. Retailers are changing the way they think about losses in general. Loss prevention systems used to be just for catching fraud, but now retailers are using these systems to examine anything that involves shrink, such as cashiers ringing up a buy-one-get-one promotion incorrectly.”

At JONS Marketplace, a 14-store grocery chain based in Los Angeles, Agilence’s Hawkeye point-of-sale video auditing solution produced a return on investment in six months and helped to push shrink to an all-time low, according to company officials.

“With exception reporting, we had only the receipt information,” says Manuel Sauceda, director of IT at JONS.  “Now, with the Agilence software, we have similar data as we did before, including the receipt documentation, but we now have the images and video as well. This visibility provides us with a lot more information when we speak to employees about shrink activities.”

Along with the loss prevention benefits, the retailer also gained an effective tool for identifying operational and training issues, according to Sauceda. “Agilence identified several costly operational issues, such as inadvertent employee errors,” he says. “We were then able to use the software’s video to show cashiers the correct and incorrect way to handle such activities as scanning items and administering credit card transactions.”

For example, using Agilence’s Hawkeye, JONS found many employees improperly scanning manufacturer buy-one-get-one promotions. In order for the promotion to work properly, the employee must scan both items. However, many employees were scanning the first item and not the second.

Like most retailers, JONS pays for the product upfront and then bills the vendor back for the promotion. However, without the item being scanned, JONS was missing a critical piece of the data required to do this. As a result, the chain lost money for every item that was given to the customers for free.

As another example, Springfield, Mass.-based Big Y is using its loss prevention technology to help address cashier training issues.

“[The technology] is enabling us to improve our cashier work force through better training as well as better systems to detect and control employee theft,” says Mark Gaudette, director of loss prevention at Big Y. The retailer has installed Scan-It-All video recognition software from StopLift Checkout Vision Systems, based in Cambridge, Mass. The software monitors existing security cameras watching over the checkout registers. As soon as a “sweethearting” incident occurs, the software flags the transaction as suspicious, identifying the cashier and the date and time of the incident.

While the system helps to detect “sweethearting” throughout the 56-store chain, Gaudette says it has been a valuable tool in helping identify unintentional missed scans by cashiers.

“Over the past year, we have been able to reduce missed scans by 86%,” he says. “We are now able to send a video link, and when the manager sits down with the cashier to discuss that they have been missing scanning items, they can call up the video and show them. It is an ongoing process.”

“While we certainly find our share of malicious theft, we also find intentional disregard,” says Malay Kundu, CEO of StopLift Checkout Vision Systems. “The cashiers give up on scanning the item and they don’t like to type if they can’t scan it. It is a big silent killer.”

Maximizing video

Since video cameras and public view monitors showing customers as they enter and exit the store are installed in many grocers, many have been seeking ways to have their systems do more than just record video that can be viewed after an incident.

“It is not always about looking for the bad guys,” says Lee Pernice, retail director for Boca Raton, Fla.-based ADT Security Services. “Retailers are looking at tying the video systems into exception reporting to improve their operations. They may use the system to alert them to an employee who is struggling with a particular type of transaction, for example, to provide additional training. They are using these systems to become more profitable and more efficient.”

Pernice also says that public video monitors, which many retailers use to deter theft, can pull double duty as marketing vehicles. “Retailers can use them to announce special promotions, for example, or drive traffic to high-profit areas of the store.”

Loss prevention systems can also be used to improve the shopping experience, according to Matt Tengwall, vice president of sales for Verint, based in Melville, N.Y. “By converging the POS data and video, a grocer could analyze a certain high-traffic area between certain hours to discover ways to improve sales, for example,” he says. “Say there are 150 shoppers, but only 30 transactions. The grocer can use the video and POS data to help understand why the shoppers were not buying.”

Retailers can also use the systems to identify staffing issues. “If customers are seeking out employees for assistance and there is no one to help them, that can be addressed.”

Catching criminals

While they are valuable as a tool to help identify operational issues, loss prevention technology still has to pull its weight as a crime deterrent. Retail theft is the fastest growing crime in America, according to the FBI. Loss prevention executives point to a link between the nation’s economic woes and increasing theft-related shrink levels.

Retail store employees steal $15.5 billion worth of merchandise a year, according to the 2008 National Retail Security Survey. The survey is a collaborative effort between the National Retail Federation (NRF) and the University of Florida.

Nearly half (43%) of retail theft is committed by employees, according to the survey. Retailers estimate that about two thirds, or $10.5 billion, of employee theft is due to “sweethearting” at the checkout.

Kundu says his video recognition technology is now being expanded to detect bottom-of-basket and middle-of-basket theft. The system can also be installed at self-check lanes.

“Bottom-of-basket and middle-of-basket theft is a big problem for grocers,” he says. This type of shrink occurs intentionally—an employee doesn’t ring up an item at the bottom of a friend’s cart, for example—and through cashier inattention. “Either way it is a loss, and we can detect it.”

At Evolution Robotics Retail, based in Pasadena, Calif., they are using image recognition technology not only to determine if there are items left in the bottom of the basket, but to identify the items and add them to the transaction.

“We have a very sophisticated visual pattern recognition program that can tell if it is a case of Coke or Diet Coke based on a very small portion of the package,” says CEO Alec Hudnut. The product is called LaneHawk BOB. “It doesn’t need to read the barcode. The item is then added to the transaction and the cashier then prompts the customers by asking them if they want add that item to their order.”

The company’s LaneHawk InCart addresses what Hudnut refers to as “top of the basket”  shrink. When customers intentionally or accidentally leave items in the shopping cart, or when cashiers miss items, LaneHawk InCart recognizes the missed items and notifies the cashier at the transaction total—without having to read the barcode.

It also addresses barcode switching, Hudnut says. When organized crime rings alter barcodes so the scanners ring up prices far below what the items really cost, LaneHawk InCart recognizes the items that were scanned with the incorrect barcode information and brings them to the attention of cashiers and security, thereby helping to prevent organized retail theft, Hudnut says. “For example, someone might take a razor that is $14.99 and switch the barcode for a $2.99 razor of the same brand. An alert cashier might catch that, but if the store is busy or the cashier is new, they might just see that it is the same brand and not question it. Since our systems recognizes the attributes of the packaging, those types of common barcode switching techniques can be caught.”

The company’s ShelfHawk offering monitors inventory on the shelf and can alert security if someone attempts to sweep a large amount of product off the shelf at one time, which is typical of organize retail crime rings. “What we’ve heard loud and clear from retailers is that they want information in real-time to allow them to save product before it goes out the door.”

While the ShelfHawk system can deter shelf sweeps, the system can also improve profitability by ensuring that shelves remain stocked. “It improves the customer experience and helps to prevent customers from walking away because the inventory is sitting in the back room and not out there for the customer to buy.”

Preventing pushouts

Pushouts are another loss prevention challenge that benefits from real-time monitoring to prevent thieves from pushing a cartful of groceries out the door.

Carlsbad, Calif.-based Carttronics’ POPS system uses the patented locking caster and networked radio frequency components to stop a shoplifter from leaving the store if he or she has not gone through a checkstand and paid. This is an extension of the company’s CAPS system for preventing shopping carts from leaving the parking lot.

CEO John French says the company is developing a system that will deter customers from walking out with unpaid items in a handbasket. While there are no wheels on the basket to lock, the system can capture video and snap a picture of the person, French says.

“It creates a negative emotional experience, so some people will think twice about doing it,” he says.. “Anything we can do to further encroach on the bad guys’ space is a good thing.”

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