Supermarket retailers, vulnerable to theft both from within and without, are turning to a wide variety of technologies to both proactively prevent theft and to capture and help prosecute criminals when theft does occur.
Today, digital video surveillance systems, some Web-based for remote monitoring and some integrated with point-of-sale (POS) and/or electronic article surveillance (EAS) systems, are making it possible for retailers to deter and to identify incidents of internal and external theft, as well as to increase surveillance within high-shrink-rate stores.
Also, the latest automated “smart” electronic article surveillance systems, in the form of new “electronic” fixtures, have the potential to deter both everyday shoplifters and organized retail criminals; and a six-month-old centralized network-based communication, monitoring and tracking tool, LERPnet, is helping retailers and law enforcement agents track individuals who commit organized retail crimes (ORCs).
The National Retail Federation estimates that retail losses due to organized criminals who steal large amounts of product from a store, moving swiftly from store to store and region to region, are approaching $30 billion a year.
“By combining our information through the online LERPnet database, retailers and law enforcement can develop comprehensive action plans that specifically target ORC groups,” said Joseph LaRocca, NRF's vice president of loss prevention. LERPnet is the acronym for the Law Enforcement Retail Partnership Network.
According to Food Marketing Institute's 2007 Supermarket Security and Loss Prevention study, whose full findings are being released this month, the median value for supermarket shrink in calendar year 2006 was 1.52% of sales, down from 1.69% in 2005 and 2% in 2004.
The largest contributor to shrink, the study found, was employee theft at 38.6% (it was 38.1% in the 2005 study), followed by shoplifting at 31.5% (down from 35.3% in the 2005 study) and vendor theft at 9.2% (up from 8.8%), while the rest, 20.7%, was attributed to other miscellaneous causes such as waste (vs. 18.1% in 2005).
Executives from 47 retail and wholesale companies representing 8,893 stores responded to this year's survey.
In the 2005 National Retail Security Survey, implemented by Richard Hollinger of the University of Florida, Gainesville, the average shrink rate in supermarkets was reported to be even higher than the FMI estimates, at 2.38% of total sales, compared with 1.59% of total sales for the retail industry in general.
ORC on the Rise
Traditionally, according to a wide variety of loss prevention studies — including studies done by Hollinger and FMI — the bulk of shrink has been the result of internal theft. But for the past two to three years, the focus has been changing, primarily because of the growth in ORC incidents, said the sources interviewed for this story.
“Consequently,” said Bill Alford, president of Charlotte, N.C.-based International Lighthouse Group, a provider of loss prevention and risk management services to retailers and a consultant to FMI, “supermarket retailers are not only losing high-ticket products like baby formula, razor blades, over-the-counter medicines, health and beauty aids and cosmetic items to organized thieves, they are losing the opportunities to sell those products as well.”
Supermarkets, said Cheryl Blake, vice president of loss prevention services for Bloomington, Minn.-based Aspect Loss Prevention, a provider of loss prevention services for retailers, “have such a huge number of transactions that occur in their stores, and items with so many different price points, that they are now doing more and more things with technology to prevent and minimize theft and to lower shrink.
“In meat and deli, they have integrated scale management into their exception-based POS software programs. Now cashiers don't have to enter in data, they just scan the bar code. But if an exception report shows that a cashier has an above average number of key-ins in meat or deli, that's a signal that something may be wrong and that raises a flag to look closer at those transactions.”
To discourage internal theft, two years ago Grand Rapids, Mich.-based Spartan Stores, which operates 108 supermarkets and drug stores, synchronized its digital video surveillance monitoring system with a POS exception-based reporting system, Retail Expert's NaviStore, and with its front-end POS system. Retail Expert is a division of ADT Security Systems.
NaviStore, said Tim Bartkowiak, director of loss prevention and security for Spartan Stores, “gives us the ability to create easy exception rules or key performance indicators [KPIs] that are synched with our camera and POS systems.
“If there are any questions about the exceptions or any transactions we are looking at, we can click on an icon and have access to the video that corresponds to the POS information. The KPIs let us identify and fix problems associated with the cashiers manning the POS before they create significant shrink or lost sales.”
In addition, he said, the software helps “identify problem transactions like fraudulent voids, coupon fraud, etc., and it lets us catch the problem at its infancy stage when someone is stealing $5, $10 or $25, rather than hundreds of dollars.”
Having digital TV and exception-based software synched with its POS system, said Bartkowiak, “has reduced our investigation time on internal crime involving front-end personnel, like embezzlement, by almost 50%. We also saw a spike in performance-training opportunities for cashiers, and also in our investigations of POS incidents. All in all, we've seen some pretty healthy reductions in our front-end shrink and increased operational performance.”
Today a handful of retailers are beta-testing security/loss prevention fixtures tied into electronic devices. One such system, an on-shelf security rack made by various fixture manufacturers and synchronized with surveillance electronics called ShelfAlert from Checkpoint Systems, Thorofare, N.J., has been in beta test in some 25 national chain stores for more than six months, testing various types of products, including razor blades, CDs/DVDs and health and beauty products.
The rack is wired to send an alert to the manager or to a central monitoring center when too many products are taken off the shelf at the same time. Stores can choose the number of products that can be taken off the shelf before an alert is triggered. Retailers can also use the fixture to signal them when the shelves run out of stock on the products displayed.
The alert can be audible to the customers, if the retailer chooses, or silent, sent wirelessly to a store manager or an in-store loss prevention agent via their PDAs or to a remote LP monitoring agent who can react appropriately via the chain's Web-based monitoring network.
Morag Harmsen, vice president and general manager, North American sales at Checkpoint Systems, said the system gives retailers the chance to approach shoppers acting suspiciously in a “customer-friendly manner, and if the customer is honest, the offer to be helped is appreciated, and if they are not honest, the offer to assist is typically enough of a deterrent to cause the shopper to voluntarily leave the store, abandoning the goods they took from the shelves.”
In one recent incident, the alarm sounded by the system saved a store from a $600 loss of baby formula. When the manager responded to the alert, he saw a woman with a cart loaded with baby formula. When he asked if he could help her check out, she said, “Thank you,” but said she had forgotten her checkbook and would come back. She never did.
Steve White, senior director of security technology for Checkpoint Systems, said the company is working with security fixture manufacturers now to help them develop fixtures that are “Checkpoint-enabled.” He said Checkpoint hopes to have the system on the market by sometime next year. If the system prevents just one high-volume ORC sweep from taking place, “it can pay for itself immediately,” said White.
Today, more and more supermarkets are using video or camera systems synchronized with exception-based software and POS systems in their retail establishments.
“That makes the cameras smarter,” said Lee Pernice, director of vertical markets for ADT Security Services. “Going forward, the cameras will help to detect a slip-and-fall as it happens or when a customer is spending a suspicious amount of time dwelling in front of a shelf. The video system can then send an alert, becoming more proactive instead of reactive, and the store managers and loss prevention personnel will be able to respond quickly to these types of incidents.”
Integrating closed-circuit television cameras with POS exception-reporting systems and electronic article surveillance systems “absolutely is an emerging trend,” said Steve May, president and chief executive officer of Milford, Mass.-based LP Innovations, a provider of outsourced loss prevention solutions to retailers.
“As retailers convert from analog to digital networks, they can attach the video to their high-speed broadband networks and close the loop with their POS exception report data. It's the best use of technology, because now retailers can look at the entire incident from a remote location and then transmit that data with a report to their local law enforcement agency. That yields a very high closure rate, typically over 90%.”
Some supermarket chains that LP Innovations has worked with, said May, “typically see a 20% to 35% reduction in shrink in the first 12 months of an integrated exception report/closed-circuit camera program.” Some chains, he added, have reduced shrink to as low as 1% or lower after two to three years with a proactive solution.
Centralizing Crime Data With LERPnet
But technology by itself if not a cure-all. Alford points out that retailers need to dedicate resources and personnel to actually “look” at the exceptions identified by exception-based monitoring software.
In one recent instance, he noted, a supermarket retailer zeroed in on a cashier who rang up a 10-cent meat sale. “That in itself wasn't that big a deal, but the monitor went back and looked at the video of that transaction and saw an entire cart, a whole cart full of groceries, and the transaction was just $24.
That one 10-cent meat item, said Alford, “is what drew them to the image of the video. What that cashier did on most of the items was just pass them over the scanner, not even bothering to scan or discount them. And from the evidence of the video and the exception reports, they got a confession of $36,000 in goods stolen that he admitted to.
“But the key point is that this chain caught that individual because they had people dedicated to looking at the exception reports, following up on the data and really drilling down.”
About six years ago, Spartan Stores implemented Grand Rapids, Mich.-based Vision Technology International's digital video recording (DVR) system with remote viewing capabilities via either its IT network or the Web.
From its security control center at corporate headquarters, management now has “a window out to all 108 of our retail locations,” said Bartkowiak. “We pick the stores we want to look at, and we conduct daily wellness checks, bringing up the video for that location and monitoring in real time what is going on. The remote access allows for an extra set of eyes. The move to DVRs has also assisted in keeping our labor costs down in the LP area.”
The Vision Technology system, which replaced VHS tapes, said Bartkowiak, has “significantly cut down on investigation time and travel time, thus lowering operational costs. It has also given us standardization in our LP tools. That has allowed us to focus more on the prevention side of loss prevention.”
The majority of Spartan's stores also have “alarm systems and some duress buttons that employees can press if there is any type of criminal activity or disruption inside their store. Control center operators responding to an alarm or duress button can instantly pull up the video corresponding to that store,” he said.
“The ability to have video verification with an alarm, even when the store is closed and no associates are in the store, assists us if and when we have to dispatch local police.”
The online loss prevention investigative database LERPnet, which launched last April, now has close to 60 retail members, including most of the nation's largest retailers such as Safeway, Target, Wal-Mart, Kmart, Supervalu and Publix. The current members of LERPnet generate $740 billion a year in retail sales and operate approximately 71,000 stores altogether. Membership is $1,200 a year, but the ROI comes in the form of reduced shrink.
“Having data come through from individual stores and being able now to centrally populate that data and analyze it in real time gives retailers the ability to get alerts in advance of incidents that are moving in their direction,” said LaRocca.
Three leading trade associations — the NRF, FMI and the Retail Industry Leaders Association — joined forces with the FBI to launch LERPnet.
LERPnet also, said LaRocca, allows retailers to work closely with law enforcement when incidents occur.
“You can have two different stores experiencing similar issues,” he said, “and even though they may be competitors and the crimes may be taking place in two different law enforcement jurisdictions, having all the information in a centralized database allows the retailers and law enforcement to work together. By analyzing and using this information, they are more effective — not just to investigate crimes, but to detect them quicker and ultimately prevent them before they occur.”
LERPnet, Bartkowiak added, helps retailers “build a case against ORC criminals, working with law enforcement and sharing that information with the LP departments of other retailers.”
Grand Rapids, Mich.-based Spartan Stores monitors all of its own burglary/fire alarm systems, and when there is an alarm, the operators in the security control center can look inside the store to verify that there truly is an incident taking place or if the alarm is false.
“This,” said Tim Bartkowiak, director of loss prevention and security for Spartan Stores, “has been able to significantly reduce fees associated with false alarm calls.”
Many local police departments these days will not respond to an alarm until there is conformation that it is a real incident and not a false alarm. “That seems to be a trend these days,” said Bartkowiak, “which is moving us toward video verification.”
In addition, because the monitors can see the burglars on their screens, they can tell the police, said Bartkowiak, “how many individuals are inside the store, what they are wearing, whether they seem to be armed and sometimes, if there are also cameras outside the store, what type of car they are driving.”
Common alerts that supermarket retailers are using to spot fraudulent POS transactions include:
Comparing transaction duration to item counts or to dollar totals, to catch incidents that suggest items are not being scanned — a way to catch item pass-throughs or “sweethearting.” If the transaction time was long but the dollar amount low, there might be something suspicious transpiring.
Searching for unusually high numbers of high-ticket items, like meat or seafood or deli, being keyed into the transaction rather than scanned.
Searching for large numbers of coupons not tied to the items in the market basket transaction.
SOURCE: ASPECT LOSS PREVENTION