Future of Loss Prevention: Disruptive Role of Innovative Technologies

Anil Puri
CMD, APS group


A thought leader and an action catalyzer rolled into one – Anil Puri is a rare combination of a visionary, and one who has mastered the art of strategic and tactical thinking to the core. He has been using this combination to seed new ideas and to lead them to their implementation on-ground. This has been a consistent feature of his career. He has rich experience of approximately 35 years in corporate in diverse domains & from functional managerial level to apex as chairman of a corporate group. To him, the subject of loss prevention has always occupied central place when planning the security protocols for the shopping malls, warehouses, large shopping complexes, standalone retail stores and manufacturing plants. He has been keenly watching the developments in the loss prevention techniques emerging in this domain. Old adage loss prevention techniques have stood the test of times but have been breached – losses inflicted and profitability hit. However, Emerging innovative technologies have revolutionized the entire perspective of loss prevention. He contributes extensively in framework of security protocols of loss prevention with his ops team before deployment of security personnel at high end shopping malls. Here he shares his thoughts on new landscape which has gradually been shaping in favor of the retailers. Let us see what future holds for loss prevention…


 

INTRODUCTION

Loss prevention has proven to be a dynamic discipline, one that has risen in importance in retailers throughout the world. The function got integrated into senior management levels initially then moved on to the audit committee level and now is the talk of the board rooms. Loss prevention continues to be a major concern for retailers since loss mounts to whooping amounts. Retail shrinkage, or shrink, is a term used in retail loss prevention. It refers to any type of loss identified as missing money or inventory that should be present but isn’t actually on hand or saleable. It can come in myriad forms such as customer theft, damage, bookkeeping errors, internal theft, or vendor fraud. Shrinkage can affect any company, although it is most prevalent in the retail industry. Retail’s evolution from conventional sales in brick-and-mortar stores to multichannel transactions with both online and in-store customers has proven it to be a double-edged proposition. Multichannel retail allows businesses more opportunities to sell. However, it also opens them up to more forms of theft and fraud. The continued renaissance of the global retail industry will require increased innovation to protect employees, customers and products. Traditional security solutions that typically increase friction to deter theft are counter to the new digitally empowered consumer that progressively wants to just scan and go.

WHAT CAUSES LOSS?

The causes are well identified. However same cannot be attributed to one singular factor. The best way to combat shrinkage is to know where loss is coming from. Some common causes include:

  1. Shoplifting: Shoplifting is more than straightforward theft. Price tag swapping also falls into this category, where a shoplifter pays less than what an item is worth because a different item’s SKU is recorded in the sale. This not only includes customers hiding merchandise in their bags and walking out of the store without paying but also altering or swapping price tags and other methods of theft Shoplifting is one of the key contributors to shrinkage.
  2. Employee theft: Employee theft is a significant contributor to shrinkage. Theft, fraudulent returns and neglecting to scan items for friends and family lead to mismatches in the inventory levels and can add up to big losses for the business. It can include pocketing cash, discount abuse, under-ringing, sweet-hearting, refund abuse, or the theft of merchandise.
  3. Human entry error: Poor inventory management isn’t just frustrating. It can lead to shrinkage as well. Pricing errors due to markups or markdowns, bookkeeping mistakes, and counting, sorting and storing errors during cash handling can cost retailers a lot of money. On its own, shrinkage due to administrative errors doesn’t necessarily mean lost cost – but it does mean lost profit, as you were likely forecasting more revenue than the actual inventory numbers can bring in.
  4. Vendor error and theft: Vendors can be subject to the same administrative errors as retailers, which can contribute to shrinkage. Some dishonest vendors can steal from you by not delivering a full order, though this is, by far, not the way the majority act. Vendor theft is not a very large contributor to shrinkage, and many retailers will not fall prey to it. It most often occurs during the delivery and return of merchandise. Finally, 6.6% of losses have an unknown cause.
  5. Damage: Accidents happen! Sometimes goods are broken without any theft or administrative error.

LOSS PREVENTION APPROACHES

Companies tend to rely on time tested strategic, cultural and operational practices in developing an effective approach to loss prevention. Some of which are:

Strategic practices

  1. Establish senior management commitment to making shrinkage a priority, overseeing an action plan, allocating resources, and monitoring results. (Figures on inventory loss are a closely guarded secret at most companies, but one of the five in our study gives shrinkage data to outside financial analysts so that they can better assess the company’s performance).
  2. Ensure organizational commitment from managers throughout the company; otherwise, any attempted solution will be short-lived. The loss prevention department’s role is primarily to lead a cross-functional effort to manage the problem continuously.
  3. Embed loss prevention at all levels. Employees throughout the company must take responsibility for reducing shrinkage. The company should see loss prevention as equal to sales in importance.

Cultural practices

  1. Provide strong leadership and develop a team. Heads of loss prevention must command authority and be passionate and energetic, and they must create and lead multifunctional loss prevention teams.
  2. Use evidence-based management. Decisions must derive from detailed and timely data, not intuition. (Most of the five companies’ store managers received item-level shrinkage data every week).
  3. Innovate and experiment. Team members must listen and have open minds so that they can stay ahead of such new challenges as self-checkout scanning equipment.
  4. Talk shrinkage. Companies can help keep shrinkage on the agenda by, for example, providing regular shrinkage scorecards. e) Prioritize procedural control. All parts of the company must see the link between shrinkage and poor adherence to process. Checking the accuracy of stock deliveries should be viewed as on a par with catching thieves.

Operational excellence practice

  1. Empower store workers and hold them accountable. Store managers and frontline workers should be asked for their views as the shrinkage-prevention plan is being developed and then given the necessary tools, training, and data to implement the plan. (One of the companies we studied goes a step further, giving store associates a share of any savings in shrinkage beyond the store’s agreed-upon target).

TRADITIONAL LOSS PREVENTION TECHNIQUES

Traditional LP techniques dwelled on the stricter employee hiring norms, cracking down on theft, rethinking the store layout, proactive approach to fraud prevention and avoidance of costly administrative errors. These could be summarized as follows:

  1. Employing of frequent cycle counting. Cycle counting is more of a warning system than an inventory shrinkage deterrent.
  2. Implementation of anti-shoplifting measures like electronic security tags and security cameras.
  3. Mitigate employee theft risk factors by instituting buddy system, an anonymous tip line and use an all-in-one system for less admin errors.
  4. Creation of an inventory shrinkage action plan.

THE EFFECT OF EVOLUTION OF TECHNOLOGY

The traditional methods of loss prevention gradually evolved along with the advancement of technologies into the following:-

  1. Digital CCTV. From analog to IP cameras – with the explosion of digital CCTV and the storage of video on hard drives to nano devices, more and more video is being delivered via the Internet as the cost of bandwidth continues to drop. Storage capabilities are becoming very cost effective and the advances in how the information flows to the storage provider are numerous. Third-party storage providers will soon be enhanced with third-party data analysts who turn the analyzed data into intelligence for the retailer, who then directs their own investigators or outsourced investigators to resolve the issue and proceed with prosecution and recovery where and when appropriate. Other technological developments in the CCTV arena include object tracking and 360-degree viewing. As these two technologies mature, cost-effective applications will be found in the retail loss prevention marketplace.
  2. Exception reporting. Either integrated with CCTV or web delivered, or pushed from the host via intranet, exception reporting is becoming the standard versus the exception. Today, that exception information is generally reported from point-of-sale data. In the near future, exception reporting will also come from the supply chain. Merchandise shipping and receiving information is rife with data that can be mined and reported on rules-based logic and pattern recognition.
  3. GPS tracking. Exactly where were those 100 gross of men’s cotton shirts that were being shipped from Hong Kong just in time for an ad when the labor strikes shut down the ports on the West Coast? GPS technology, sometimes integrated with RFID, will be able in the future to tell us where our merchandise is in real time, anywhere in the world. GPS cargo and transportation tracking technology is very inexpensive and very effective today, especially when it is satellite based. Some forms of the technology allow the virtual construction of a ‘geo-fence.’ If the transporter strays outside of the ‘fence’ on the tracking device (deviates from the expected route from point A to point B), an alert is initiated and management and law enforcement can respond in real time.
  4. Access control. The technology for controlling access to stores and facilities is changing rapidly as well. Ultra long range RFID technology is being used by the government and military in identification cards that can be read by readers from as far away as 150 feet. The cards have data storage capability and can contain the digitized photo of the card owner, readable by an image display unit from a great distance. The card can also store and validate the owner’s fingerprints for immediate positive identification. Retailers are finding more and more uses for biometrics in their businesses, particularly in access control.
  5.  Burglar alarms. They also form very large section of usage in retail industry.

THE TOP FIVE LP TECHNOLOGY FOCUS AREAS

The top five LP technology focus areas which currently stand out are:

  1. PoS Analytics, b) Video Analytics, c) Fingerprint PoS, d) Facial Recognition, e) EAS Tagging.

In terms of emerging technologies, PoS analytics is becoming ubiquitous with 87% planning to have it implemented by 2020. Video analytics which is counter to some of “out” technologies is increasing its presence along with biometrics (fingerprints & facial recognition). According to the NRF survey, nearly two-thirds (63%) of retailers have implemented some form of PoS analytics. The point of sale system is the retail platform for a business and the hub of transaction data. So, it makes sense that it should also be the base camp for loss prevention technology.

VIRTUAL GUARD DOG – THE POINT OF SALES ANALYTICS

Point of sale analytics and video surveillance analytics are the eyes and ears in determining where a business’s weak points are when it comes to loss prevention. Working together they can plug those holes and reduce shrinkage. Security providers like Watcher Total Protection integrate with point of sale systems to marry sales transaction data and video surveillance to protect stores from shoplifting and retail fraud. They allow businesses to look up and review digital video of transactions. They display specific products sold, invoice amounts, payment types and the actions taken by the cashier. It makes spotting theft and fraud easier and more efficient. Health and beauty products and power tools are two of the leading targets of theft.. This kind of software and point of sale integration allows businesses to: (a) Manage operations (b) React to customers more effectively (c) Prosecute shoplifters and employees who steal, (d) View systems through mobile connections. ‘With a point of sale integration, you can see (on the screen) anything that is on that receipt.’

THE VIDEO ANALYTICAL APPROACH

Beyond the checkout stand and its video cameras, public view monitors, which display surveillance images from all areas of a store, have proven to cut shoplifting by up to 80%. Video analytics is the capability of automatically analyzing video to detect and determine if an anomaly has taken place based on a set of instructions built into the video software. The technology is able to count items, superimpose the register receipt over the video and then track things like item count compared to the register receipt, voids, returns and even instances where the cash register drawer has been open too long. Analytics allows retailers to identify incidents that lead to theft, establish relationships between them and adjust or change businesses practices to reduce them.

OTHER TECHNOLOGIES AND LP MEASURES

Other popular trends include use of Acousto-Magnetic (AM) electronic security tags and check approval database screening system. AM tags are similar to magnetic and RFID loss prevention tags but are preferred by some retailers because they provide fewer false alarms than other systems. Other steps which boost the loss prevention are employee training, product and pricing knowledge, interacting with the customers, monitoring the garbage and ownership, and so on.

WHAT IS STANDARD COGNITION AND HOW IS IT CHANGING THE GAME?

Standard Cognition is an AI platform that enables buyers to shop in a cashless retail store by using computer vi sion and deep learning. This AI enabled solution automatically identifies the product details picked up by a customer from the shelf and charges them while checking out and updates the inventory as well. It also understands if the customer puts the item back in the shelf. The shopper app from standard cognition helps the buyer to just walk into a store, pick up the product and walk out of the store while payment is done from the digital wallet without any human touch point. Thus, providing a seamless retail experience to the customers. The seller/ store app helps store staff identify customer location and what they are buying. It matches the shopper with their corresponding basket and processes payment automatically while checking out. It also recognizes shoplifting and notifies the staff to redirect the customer to a kiosk or self-checkout counter. As the boundary between physical and online retail keeps on reducing, it is high time to integrate artificial intelligence based computer vision solutions to encounter challenges like shrinkage. This will help the retailer to prevent loss, maintain operating margin and focus on superior customer experience at the same time. 

CONCLUSION

Inventory loss has always been regarded as an unavoidable consequence of doing business. Companies have shown that by adopting a proactive and integrative approach, they can successfully reduce shrinkage’s drain on profitability, thereby increasing shopper and shareholder value. The loss prevention has a bright future. Partially this is based on the fact that key legacy loss prevention technologies are disrupting the future of retail. As mentioned, according to the NRF study, more than 60% of retail businesses have already implemented point-of-sale analytics. However, the adoption of other forms of loss prevention technology is going much slower. Only about 34% of stores have enlisted a video analytics provider, slightly more than 17% are utilizing fingerprint identification at the point of sale, and 11% are using facial recognition in their stores. The traditional (loss prevention) person is focused on tangible things in brick and mortar, but today, by the time your loss is tangible, it’s already out of control. The loss prevention trajectory tells a story of a dramatically changing retail risk landscape, with new threats and challenges being met at each turn with new loss prevention tools. Progress is being made, but LP teams continue to face setbacks and challenges with new and expanding areas of threat. The technology is opening doors for the retailers to facilitate the loss prevention and closing the doors for those who are responsible for losses. Loss prevention technology is continually evolving as it deals with new and increasing threats. Often, the best defense is to use the new tools technology which provides to deter the onslaught. Cost cutting should not be applied to the expenses planned to ensure loss prevention. Most CEOs who used to view it as a cost have already transformed to write it as revenue account.



 

2 Thoughts to “Future of Loss Prevention: Disruptive Role of Innovative Technologies”

  1. Capt.Ravi Sehgal

    Very useful and educative write up. It reflects need of the hour.

  2. GADHAVI VIPULKUMAR

    Security Is Good….Aps Officer Is Good…Jay Hind….

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