Waging a war on shrink

Supermarkets bolster loss prevention efforts by integrating analytics into existing anti-theft solutions.

By Deena M. Amato-McCoy

Shrink has always been an in­ev­itable cost of doing business, but the sluggish economy has raised the profile of the loss prevention department and the technology used to battle losses from internal and customer theft.

By merging loss prevention strategies with information technology solutions, such as analytics, grocers are making it clear they will not back down in this tough war on shrink.

While doing more with less can help keep a lid on operations costs, that’s not always the best strategy for battling rising shrink levels, according to industry executives.

Global retail theft reached $114.8 billion in 2009, representing a significant increase of 5.9% over the previous year’s total of $104.5 billion, according to the third annual edition of the Global Retail Theft Barometer, which surveyed 1,070 retailers. The yearly study, which is conducted by the Centre for Retail Research in Nottingham, U.K., and is sponsored by Thorofare, N.J.-based Checkpoint Systems, reports on key trends in retail shrinkage and crime in 41 countries and regions.

According to the survey, average shrink rates among North American retailers increased 8.1%. In the area of food items and groceries, the fresh meat category was hardest hit, with a 3.4% loss rate.

Grocers’ shrink rates range from 1.5% to 2%—a figure that is roughly the equivalent of the profit margins for many grocers. Industry officials say what makes it even tougher to fight shrink is that there are multiple sources—including amateur shoplifters, organized crime rings and a grocer’s own employees.

“Historically, loss prevention teams focused purely on theft and fraud in retail,” says Derek M. Rodner, vice president of product strategy for Agilence, Inc., based in Cam­den, N.J. “However, there is a major shift occurring and organizations are now looking beyond fraud toward other areas of loss, including the operational and systemic issues that are negatively impacting their profitability to a much larger extent.”

“In addition to malicious theft, there is plenty of loss caused by associates’ disregard—both intentional and unintentional,” explains Malay Kundu, CEO of StopLift Checkout Vision Systems, a Cambridge, Mass.-based company that provides a checkout system to detect sweethearting and other theft at the POS.

With a stronger uptick in shrink, retailers are re-evaluating the fundamental tools needed to reduce shrink and improve operations. Between razor-thin margins and diminishing operating capital budgets however, every new project and associated investment is being scrutinized.

Budget-friendly tools

The good news is that even on a budget, loss prevention is possible. First, grocers are increasing their focus on how to make better use of existing infrastructure, such as closed circuit television systems, electronic article surveillance systems, even digital video recorders. The next step is to merge this technology with newer solutions that can bolster the return on investment aid in nabbing the bad guys.

Computer processing power and memory continues to expand while their price tags drop, creating “many more reliable, feasible options for retailers to create the building blocks needed to fight shrink,” says Alec Hudnut, CEO of Evolution Robotics Retail, based in Pasadena, Calif. “Router costs have dropped, networks are faster and cameras have more mega pixels than their analog predecessors. This is fertile ground to develop loss prevention solutions.”

Challenges arise however, when chains rely on solutions “that cast a broad net over many loss prevention problems simultaneously,” he says.

Instead, experts urge chains to explore how to make the most of point solutions that can address specific issues. They say one way to bolster performance, gain better insight into loss incidents, and create a better mousetrap to solving shrink issues is to link it with data analytics.

“There are plenty of creative ways to link analytics to different technologies and create a stream of information gathering,” says Steve Sell, Checkpoint’s vice president of global marketing.

EAS tags are appearing on more merchandise than ever, experts note, thanks in part to CPG companies applying the units during the manufacturing process.

“Our EAS system compiles data such as product tracking and alarm deployment, which helps chains predict loss, what times of day this may occur and staff needed to respond,” Sell says.

Companies such as Checkpoint and Sensormatic are also interfacing with the laser scanners integrated at point-of-sale, upping the ante on data collection. “The scanner’s deactivation antenna interfaces with active EAS tags as they are scanned,” explains Taylor Smith, director of product management, scanning and mobility division for Morristown, N.J.-based Honeywell. “POS software can detect when a barcode was successfully scanned, the tag was deactivated and the customer paid and walked out. This is one of many big EAS pushes.”

By adding analytics to the mix, experts say retailers can turn this data into actionable information. One challenging area that this concept aids is the reduction of false alerts, Smith says.

Say cheese

By combining the power of video and imaging, EAS can move to an even higher level, experts note. Not only are retailers looking at data of incidents, but now they have images to support the information. This is becoming a reality with the help of IP (Internet Protocol) video cameras, or CCTV cameras that use IP to transmit image data and control signals over a fast Ethernet link and are recorded by a digital video or network video recorder. While a majority of the market still supports analog CCTV system, the speed and dropping cost of IP is driving evaluations and adoption.

“This is going to be the future of video and CCTV, and early adopters are already building full, enterprise-wide deployments,” says Steve White, vice president and general manager for Checkpoint’s CheckView business. “The configuration is able to identify potential problems before they become larger ones.”

The combination has lead to big returns for chains. For example, one grocer that is using the configuration within its pharmacy department has been able to accurately pinpoint high risk merchandise and “drive millions of dollars in savings just by changing their staff’s behavior,” Sell says.

It also shortens the prosecution cycle for criminals caught red-handed with tagged merchandise, a process that has dropped from 18 months to between three and six months.

Getting to the bottom

As retailers step up loss prevention efforts, one area that is getting renewed attention is bottom-of-the-basket loss. A typical supermarket lane processes 2,500 items daily, and approximately 100 of these end up in the bottom of the shopping cart.  “Grocers often do an excellent job of catching approximately 96 or 97 of these items daily, but the three or four they miss can cost $10 or $15 per item, per lane,” says Evolution Robotics’ Hudnut. “That loss adds up when you consider the items missed per lane, per store.”

While some chains rely on CCTV, baggers or security guards checking receipts, there are always some situations that these solutions fail to solve. By tying analytics to imaging, retailers can recover this once lost merchandise.

Evolution Robotics’ LaneHawk BoB system works to capture these undetected items and turn this merchandise into profits for grocers, according to company officials. The system, which is integrated at POS, is comprised of a visual scanner that recognizes items by dimensions, not barcode. A smart camera that monitors all shopping cart dimensions is flush-mounted in the checkout lane.

When an item is detected and recognized—but accounted for in the transaction—its UPC information is sent to the POS. The cashier verifies the items that were found under the basket and continues to close the transaction. “The key is to add a solution that is not intrusive to the cashier,” Hudnut explains. “LaneHawk only alerts cashiers’ transactions if an item is missed or overlooked.”

Analytics can also help to solve sweethearting, or the practice of cashiers passing along unscanned merchandise to their friends, free of charge. Whether they do it intentionally or simply forget to scan an item, sweethearting cashiers ac­count for approximately $13 million billion in losses annually.

StopLift’s proprietary software that detects and records questionable cashier behavior related to sweethearting, is integrated into a grocer’s existing CCTV cameras and DVR systems. The system’s algorithms monitor all cashier behavior or actions, and immediately flags the incident, as well as identifies the cashier and the date and time of the potential theft.

On the backend, the solution uses analytics to keep grocers in the know of potentially brewing problems. “Using a web interface, managers can log into a password-protected site to view all recent incidents, as well as new ones,” StopLift’s Malay explains.

Grocers such as Big Y, based in Springfield, Mass., have deployed the technology, and officials for the the 56-store chain say they have reduced sweethearting activity by 85%.

Organized against crime

One of the biggest, fastest-growing threats of loss is organized retail crime, perpetrated by groups of shoplifters who pilfer high-value merchandise in bulk.

Customer theft, which includes shoplifting and ORC, caused the greatest shrinkage loss in most countries, a total of $48.9 billion (42.5% of total shrinkage), according to the Global Retail Theft Barometer study. This is an increase from 41.2% last year.

Meanwhile, the value of stolen merchandise has also increased by 30%, “as thieves are stealing more and more expensive things,” says Checkpoint’s Sell. “Retailers are using analytics to better profile these people and understand when rings can hit across the chain.”

The most common practice of organized crime rings is a shelf sweep, when a large quantity of high-value items such as razors, teeth whitening strips and baby formula are taken off the shelf in a short period of time. Evolution Robotics’ ShelfHawk system helps chains by recognizing when a large number of items instantaneously leave a shelf.

Company officials say cameras facing high-value items can detect this practice from 50 feet away and within five seconds electronically alerts managers and security to an aisle sweep in real-time, allowing them the opportunity to foil the attempt before the thief leaves the store.

Green Hills Farm, based in Syracuse, N.Y., is using a similar strategy across its health and beauty care shelves. Called the intelligent shelf, Green Hills has is monitoring what moves from the shelves in real-time. The solution from Winston-Salem, N.C.-based Rock-Tenn operates through a hardwired Ethernet or WiFi connection running through the shelf. The solution is also integrated to analytics tool from San Jose, Calif.-based BVI Networks. For example, each time a Tylenol box is picked from the shelf, an electronic signal to BVI’s store management platform.

Based on thresholds created by Green Hills, if the system detects that six boxes are moved off the shelf, a real-time alert to sent to store associates’ smart phones or laptops.

“Standard daily reports show how many items left the shelf and how many were scanned at POS,” says the grocer’s CEO Gary Hawkins. “It keeps the associate in the loop and keep merchandise from leaving the store.”

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