Raley's System Eliminates $18M in Shrink Loss

MICHAEL GARRY

WEST SACRAMENTO, Calif. — Raley's here was able to reduce losses attributable to operational and fraud-related shrink by about $18 million last year as a result of a chainwide rollout of a centralized asset protection program based in part on a POS video auditing system, SN learned last week.

Raley's began testing the system at six stores in September 2008 and began a rollout to its 134 stores in California and Nevada in January 2009, completing it in August of last year. As of June 30, 2009, the end of its fiscal year, with virtually all of its stores on the system, the chain had achieved the $18 million savings, according to Derek Rodner, vice president of marketing and product strategy for Agilence, Camden, N.J., the supplier of the auditing system, called Hawkeye. About 40% of the savings came from corrections of errant POS operational processes identified by the system, he added.

“We did not realize the extent of losses occurring that were not related to fraud and were causing substantial shrink,” said Michael Teel, chief executive officer, Raley's, in a statement released this week. The auditing system “helped us detect several operational issues that were occurring frequently in many stores.”

By “quickly and accurately” detecting operational shrink and theft, the auditing system was able to “significantly impact our profitability,” Teel added. Raley's overall asset-protection program “has improved our bottom line while in a down economy,” he said. Teel declined to comment beyond his prepared statements.

The auditing system pulls transactional data from the POS system and links each purchased item to a video image of the cashier scanning or keypunching the item. It includes an in-store server that collects POS and video data and a central server that aggregates data from each store. The list price of a setup similar to Raley's is $9,000 per store, plus an annual maintenance cost of 18% to 22% of the initial cost, said Rodner.

In setting up the system, Raley's relocated CCTV cameras to provide a one-camera-per-lane arrangement, though the system can accommodate two lanes per camera, said Rodner. The chain also established a centralized team of analysts to interpret the video and data, rather than rely on store personnel. “Raley's reorganized and trained its loss prevention staff to focus more on operational issues rather than just fraud,” said Rodner.

The system is also monitored by Agilence analysts, who assisted Raley's during the first year of implementation. Agilence has started to prioritize the information it provides retailers to avoid “data overload,” said Rodner.

In addition to monitoring cashier's operational errors and fraud at the POS, the system also checks that promotions (such as coupons and buy-one-get-one deals) are properly handled and that the POS system has correct item and pricing information, said Rodner. Agilence's latest release issued in June also has sweethearting (deliberate non-scan) capability and automatically detects customer presence. The system does not detect bottom-of-the-basket loss.

SCANNING MISTAKES

Among the errors it has corrected at Raley's, the auditing system determined that cashiers were using a pharmacy-department code for non-pharmacy items, throwing off margin calculations, said Rodner. It also showed that cashiers at several stores were routinely scanning the bar code on individual water bottles in cases of water rather than the correct bar code UPC on the bottom of the case. Customers were being charged 69 cents for water bottle cases, a $4.80 loss that could have cost the chain over $80,000 annually, Agilence said.

The system also allowed Raley's to determine that in many self check-out transactions, the podium clerk was not present, causing customers who needed help to either leave the orders behind, look for a conventional lane, or walk out with the items without paying, which occurred 25% of the time, said Rodner.

In addition to operational and systemic issues, the system helped Raley's identify employee fraud and theft, including two veteran employees who had been stealing cash for years by removing small refunds. The employees apparently knew the maximum that they could steal before the chain's POS exception reporting tool would detect them.

The system, which looks at all questionable incidents, linked the refunds to video showing no customers were present, Rodner said. The auditing system can integrate the results of an exception reporting tool but does not require that information, he added.

The system also helped stop a case of consumer fraud in which a shopper was getting refunds without a receipt for items she had not bought, said Rodner, adding that Raley's no longer offers refunds without receipts.

Other retailers using the Agilence system include Jons Marketplace, a 14-store chain based in Los Angeles, and Draeger's Markets, a four-store retailer in San Francisco, whose implementation of the system last year was announced this week.

Another video monitoring system that tracks sweethearting, bottom-of-the-basket and operational errors is provided by StopLift Checkout Vision Systems, Cambridge, Mass. Evolution Robotics, Pasadena, Calif., supplies a widely used intelligent video system that seeks to prevent bottom-of-the-basket losses.