THE POWER OF DETERRENCE 2004-03-22 (1)

LIZ PARKS

Since the beginning of commerce, the one thing that has probably proven the most effective in countering theft is fear.

"If it looks like there's a fairly good chance that they are going to get caught, most people won't steal," said the loss prevention director of a large regional supermarket chain (who, along with some other retail executives, requested anonymity due to the sensitive subject of this article).

Sadly, store theft continues to hound the supermarket industry. According to Food Marketing Institute's most recent "Security and Loss Prevention Study," supermarkets still lose approximately $11 billion a year to shrink, which translates into almost 2.3 cents lost for every one dollar in sales. A 10% decrease in shrink, the study noted, would result in a 20% boost in bottom-line profits.

Increasingly, retailers are turning to technology that helps catch thieves and thereby deters shoppers and employees who may be inclined to steal merchandise -- or sends them elsewhere.

As one loss prevention executive put it, "They'll go down the block where the pickings are easier."

According to the FMI survey, the largest percentage of retail shrink, 48%, comes from employee theft, such as cashiers sliding a $20 package of porterhouse steaks through the POS without scanning the bar code. Another 31% comes from shoplifting, 10% from vendor theft, and the rest from accounting errors, markdowns, spoiled or damaged products, etc.

So it makes sense that many of the technology systems supermarket retailers are now investing in are designed to prevent or minimize the dominating shrink categories: employee theft and shoplifting.

On the employee side, retailers are continuing to use point-of-sale loss prevention software with tools like data mining and exception reports to identify suspicious cash register patterns and other unauthorized activities that contribute to shrink. Retailers are also installing closed-circuit television (CCTV) cameras in more stores, and integrating them with their POS cash registers to discourage cashier theft. Most recently, they are converting to closed-circuit digital recording surveillance systems connected to wide area networks that allow remote monitoring of the stores.

On the shoplifting side, retailers continue to discourage petty thievery and organized retail theft by using surveillance cameras and by placing electronic article surveillance (EAS) tags on items that are most frequently shoplifted.

The FMI study shows a positive correlation between the deployment of anti-theft devices and CCTV and the apprehension of shoplifters.

According to last year's survey, chains that had CCTV systems deployed through 75% to 100% of the stores apprehended an average of 38 shoplifters per store, vs. an average of 14 shoplifters caught for those chains with CCTV systems deployed in 0% to 74% of their stores.

Chains with EAS systems in 15% to 100% of their stores apprehended an average of 28 shoplifters per store, vs. an average of 20 shoplifters apprehended in chains with EAS systems deployed in 0% to 14% of their stores.

"People who might be tempted to slip a DVD disc or a bag of shrimp into their pockets when they think no one's watching will often reconsider doing that when there are surveillance systems in place and they may be caught," said Dave Shoemaker, group vice president, strategic marketing for Thorofare, N.J.-based Checkpoint, a provider of security/loss prevention devices.

Suspicious Exceptions

POS loss prevention software designed to identify suspicious exceptions that suggest employee theft continue to evolve and gain traction among retailers. "In the past five years, supermarkets have been purchasing software upgrades or purchasing POS systems that enable them to start tracking exceptions, looking for cashiers that have a high coupon average, a high multiple average at certain price points, high incidences of refunds, etc., that may indicate a pattern that would be consistent with theft," said Steve May, president of LP Innovations, a loss prevention service provider in Needham, Mass.

A wide range of POS LP software is available.

Thrifty Foods, British Columbia, is using an exception reporting program called Elite LossPrevention from Aspect Loss Prevention to deter theft and enhance employee productivity. Stater Bros., Colton, Calif., is using the Shrink Trax and DM2 data mining software applications from Trax Retail Solutions to enhance operational efficiencies. Minyard Food Stores, Coppel, Texas, is employing Datavantage's Proact XBR Loss Prevention exception-based software to minimize shrink.

Minneapolis-based Lund Food Holdings, the parent company of Lund and Byerly's, is using Retail Expert's NaviStor exception reporting/performance management applications to reduce shortages.

Carol Martinson, director of risk management for Lund Food Holdings, said the exception reporting tools in NaviStor "will help us identify what the issues are rather than speculating. It will show us our losses and our vulnerabilities, but it will also help us enhance performance and show us where we may need to change policies."

The exceptions flagged by the system will be integrated with a new digital surveillance system that Lund is installing so when management finds a POS incident deemed suspicious, said Martinson, "we will be able to look at the visual connected to that event."

"Supermarket retailers are comparing video data with POS exception reports," said May of LP Innovations, "and they are either finding the evidence they need to document a theft or they are discovering training issues that need to be addressed."

Lisa Ciappeta, product manager for ADT Security Services, Boca Raton, Fla., said as an industry, supermarkets were early proponents and adapters of CCTV technology, and now they are "one of the leading users of digital video recording/remote access systems targeting internal theft."

Some chains are reporting a relatively new practice in which local street gangs are encouraging their girlfriends to get jobs as cashiers to make shoplifting even easier for members of the gang.

One retailer said they can easily spot when this is happening through his POS exception reports designed to flag incidents that might be attributed to internal theft. "We diligently monitor our POS exception reports," this LP executive said, "and our employees know that, so it's been very helpful in discouraging internal theft."

It's become a necessity to scrutinize POS reports, another LP executive said, because internal theft is becoming more creative. "It's easier for them now to steal products in lieu of cash. And the best way to fight that is with data mining, exception reports and digital recording. These have all had a significant impact on our shrink and cash theft. Basically, it's helped our employees who are honest remain honest because they know that if they give in to temptation and steal, they could get caught because they're being watched."

In addition to doing exception-based POS reporting to deter theft, May pointed out, some chains, such as Lund and also Austin, Texas-based Whole Foods, link their investments in POS exception reports to job training programs emphasizing ethics and teamwork as well as professional skills.

In one of the newest developments in shrink technology, Checkpoint is offering ePOS, an application that integrates POS exception reports with Checkpoint's EAS deactivators.

EPOS is designed to make it virtually impossible for cashiers to steal from retailers by "sliding" expensive items through the POS without the POS reading the bar code. For example, by covering the bar code with their fingers as they pass it over the scanner, cashiers can deactivate the EAS tag without a sale being registered. The sliding makes the transaction look right to an observer.

EPOS gives retailers the capability to program their POS so the system in effect will not deactivate the tag until it gets a valid bar-code scan.

A Better Mousetrap

Retailers are finding more and more ways to deter and catch shoplifters.

For example, some chains are trying to choke off the market for stolen goods by adopting stricter purchasing guidelines. "We are no longer buying certain branded goods from repackers or brokers because we realize we can't always be sure they acquired those goods legitimately," said one supermarket LP executive.

It's also become more common for many supermarket chains to use product movement data to allocate shelf quantities as close as possible to real demand. So instead of putting 10 packages of Tylenol into one facing, one source said, retailers may stock two to three deep and then use empty packages to fill in the rest of the slot.

"A professional thief isn't going to waste their time in a store if they can't come in, get a large quantity of what they want, and get out fast," this source said.

Supermarkets are also making more prudent allocations of merchandise so there are too few expensive products on the shelf to tempt professional thieves.

Another "low-tech" approach is to install clip strips and other fixtures that only release one item at a time.

Still, high tech remains a key resource. Most supermarket retailers are using closed-circuit cameras to record inside and outside their stores, particularly stores in high-crime neighborhoods or in locations susceptible to what one retailer called "spasmodic sweeps," and they want their customers to know they are being filmed.

One retailer said he wants to get the word out onto the streets "that we monitor our stores with video cameras, and that our more expensive products are source-tagged and that we merchandise high-theft items like cigarettes and infant formula from behind or near our service counters."

"Digital CCTV has been very exciting to supermarket retailers," said Dave Shoemaker, group vice president of strategic marketing for Thorofare, N.J.-based Checkpoint. "Under various types of alarm conditions, you can instantly pull up that moment in time and react to it very quickly with actionable data."