Managing the Frontiers of Retail Innovation

Managing the Frontiers of Retail Innovation Image

Rapid developments in mobile technologies now mean that some retailers are offering customers the opportunity to use their own devices to scan and pay for products in their stores, frequently with little or no staff interaction. For some this represents the natural next step in the seemingly relentless move toward giving consumers yet more choice and control over their shopping experience. For others it represents a significant and profound change in the extent to which retailers are able to control the problem of shop theft and non-malicious stock loss.

This article presents the findings from a twelve-month study funded by the UK government’s Economic and Social Research Council (ESRC), undertaken by academics from the University of Leicester’s Department of Criminology, to understand how retailers are beginning to use mobile scan and pay technologies (MSP), what the risks of using it might be, how they are currently being managed, and how these risks might be mitigated in the future.

The study is based upon extensive interviews with staff involved in the development and implementation of MSP systems across four retailers in the UK, two in the US, one in Belgium, and one in Holland. In addition, loss prevention practitioners were interviewed, analysis of shrinkage data from one retail partner was undertaken, and researchers also carried out on-site observation and testing in three of the retailers taking part.

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All retailers in the study were at different stages in the development of MSP, with one UK retailer piloting MSP across several stores, another was in the process of conducting a trial within one store, one had piloted a system though the company had (for the time being) shelved roll-out plans, and another had not got past the planning stage of a pilot project. All four international retailers taking part had rolled out MSP to varying degrees, with three currently running versions across a number of their stores, while one had recently withdrawn the option from a group of trial stores.

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The development of fixed-scan technologies required a considerable leap of faith in the integrity and honesty of the shopper, who needed to be trusted to scan and pay for all items they wished to purchase. With the introduction of mobile self-scanning and payment, then arguably this leap of faith becomes even greater as the potential opportunities for risk-free noncompliance grow yet further.

Across the majority of the retailers taking part, MSP was currently focused upon only offering customers the opportunity to use their own mobile device to scan items, rather than developing a payment wallet. Only one retailer in the study was currently trialing both a scan and payment wallet with its MSP system.

Innovation and Retailing

The cornerstone of modern retailing is the necessity to innovate and change. As competition increases and consumers become more and more demanding, the pressure to offer new and exciting products in dynamic and enthralling retail spaces, some of which now reside in cyberspace, continues to grow. This has driven a number of developments in the customer experience in recent times, moving from a time when most products were primarily held behind a counter to one where the consumer now has much greater engagement with, and responsibility for, the selection and purchase of goods.

This is best exemplified by moves toward open display and, more recently, the use of fixed self-scan checkouts where customers not only have to find and select items themselves, but also are expected to take responsibility for payment as well at dedicated self-scan checkouts. Alongside this has been a rapid growth in mobile commerce and online shopping, allowing customers to search and pay for products online via their own computers, tablets, or mobile devices. Most recently, and the focus of this article, is the development of systems that allow the customer to use their own mobile device “in-store” to not only scan items they wish to purchase, but also in some circumstances pay for them using the same device through the use of downloadable smartphone apps, anywhere in the store.

All of this can be seen as part of long-term changes in the retail industry where increased customer autonomy and self-service is being introduced at the expense of formalized staff-customer interactions. These changes have generated impressive rewards for some retailers—fewer staff need to be employed, and store designs can be radically changed to maximize the display of goods, both of which have led to significant increases in sales and retail profits.

However, there is a price to pay. More open and less-controlled retail spaces make it not only significantly easier for motivated offenders to steal products, but also reduces perceptions of risk for customers, encouraging more to think about taking advantage of the new opportunities for deviancy presented to them. For instance, the development of fixed self-scan technologies required a considerable leap of faith in the integrity and honesty of the shopper, who needed to be trusted to scan and pay for all items they wished to purchase. With the introduction of mobile self-scanning and payment, then arguably this leap of faith becomes even greater as the potential opportunities for risk-free noncompliance grow yet further. Many of the risk amplifiers introduced to provide a modicum of control at fixed self-scan checkouts, such as weight control and employee oversight, are stripped away leaving relatively few options available.

Perceived Benefits of Mobile Scan Technologies

Although the pace at which MSP systems were being developed and implemented across the retailers included in this study was slowÑand in many cases not without difficultiesÑrespondents highlighted several potential benefits. These included consumer convenience and the streamlining of the purchase process. As one respondent stated, “Customers don’t have to empty their trolley [basket] and reload it all again at the end, which ultimately speeds up the process.”

It was also positively perceived to enable customers to know exactly what they have spent at all points of the shopper journey and pay within the aisle rather than at a payment bank at the end of the shopping journey. Indeed, the potential for the “personalization of shopping” was thought beneficial as it allowed the customer to keep a closer track on their purchase history and any loyalty points accrued.

Another benefit for customers was thought to be the ability to utilize geolocation data and real-time messaging with integrated webpage or store hubs. Geolocation data could allow stores to identify where customers are in-store, which could then be linked to store maps and directions to specific products. Integrated webpage/store hubs would allow customers to browse goods via the retailer webpage, while also being sent information about where the products are located in-store, if they are available, and at what price. There is also the potential to relate items purchased to other commonly purchased items, such as shaving gel to razors, tonic to gin, or childrenÕs shoes to children’s clothes, and to send the customer real-time push notifications about offers on other related products.

Benefits were also identified for retailers as well. While much has been made of the potential savings that might be made on staff costs as a benefit of customer self-checkouts, this was also cited as a key potential benefit of MSP. For some retailers the use of this technology would offer two staffing-related opportunitiesÑto enable more staff to be utilized away from checkouts and on to more customer-focused services such as in-aisle assistance, and a reduction in the overall staff hours allocated to stores.

An add-on effect would be savings on the purchase costs of physical checkout equipment as less would be needed, as well as the associated maintenance and cash-handling costs. In addition, less physical checkout equipment would free up more space for product displays.

Other key benefits related to customer retention and the marketing of products. As eluded to above, forms of loyalty bonuses and product offers could be offered to MSP customers. Ultimately, registering customers as MSP users would also allow retailers to hold even more information about them that could yield shopping pattern data, enabling opportunities for yet further personalization of the shopping experience.

Despite these perceived benefits, the research revealed a considerable number of problems associated with using this type of technology, which are summarized in Table 1.

Technological & Process Chart
Table 1. Technological and Process Challenges of MSP

Potential Impact on Theft and Loss

The study found that MSP systems were likely to impact upon crime and loss in at least four ways:

  • Theft through malicious non-scanning of goods.
  • Non-malicious loss through non-scan or scanning errors.
  • Physical and verbal abuse against staff generated via audit checks.
  • Transaction frauds or fraudulent use of payment wallets.

Respondents to the study were particularly concerned about the increased risk of theft, but not necessarily from what might be regarded as professional thieves. As one respondent put it, “Moving toward the ultimate in self-service [MSP] not only might send out the wrong physical cues to potential offenders, but also those shoppers who might not necessarily plan to steal may start to take opportunities to exploit weaknesses in systems.” Thus, retailers using MSP might actually begin to encourage shoppers who fully intend to scan and pay for products to engage in criminal activity. Another respondent said, “What you might see is people who traditionally don’t intend to steal, but realize when I buy twenty, I can get five for free. Maybe I’ll continue to do that.” There are a number of factors that might begin to explain why this could happen.

Ease of Effort and Access to Products. Whereas traditional counter shopping limits access to goods, the rationale for MSP is that customers have open access to products and take responsibility for payment with limited or no staff involvement. As one respondent observed, “It’s the ultimate in trust.” Another said, “They call it ‘Scan and Rob.'” Thus, MSP potentially promotes ease of effort for theft by removing any human contact throughout the shopping process and in some cases—possibly most importantly—at the final payment stage.

Increased Rewards for Offenders and Non-scanners. The MSP environment might generate long-term rewards for offenders and non-scanners. Indeed, several respondents suggested that non-scanning behavior could become part of the routine behaviors of some shoppers, and they may begin to target stores where this shopping option is offered.

Reduction in Risk Perception. A number of studies have shown the important role staff presence can play in reducing the risk of theft occurring, typically by making any would-be offender feel there is a greater risk of being caught. Within the MSP environment the potential for staff to interact with consumers is markedly reduced—sometimes to the point where no contact whatsoever is necessary. This could act to significantly reduce the perceived risk of non-scanning items.

Likely Excuses. Self-scan technologies present the user with ready-made excuses as to why products may not have been scanned properly—what the authors have termed the “self-scan defense.” Giving customers the freedom to self-scan gives them the opportunity to blame faulty technology or problems with the product barcodes, or to claim that they are not technically proficient as reasons for non-scan. Indeed, proving intent can be tricky: “I scan twenty items, and I don’t scan five; am I a thief or just someone who’s not very competent?”

While some retailers had made efforts to tackle this problem, such as in-app prompts requesting confirmation that all items had been scanned and sharing non-scanning behavior between retailers, analysis of audit data and interviews with staff suggest that virtually all identified non-scan transgressions were typically condoned by the retailers, leading to no formal sanctions whatsoever. As things stand, the self-scan defense is potentially a powerful tool for diluting any risk of being found not to have scanned certain items when utilizing MSP.

Likely Provocations. At present, there are a number of points in the MSP shopper journey that could trigger disputes with staff. Store visits identified frustration points when products would not scan, when staff had to intervene to remove EAS devices or do age verifications, and when payment wallets would not work. In addition, audit checks (random checks carried out at the point of payment) could also cause grievances especially if particular customers felt as though they were being targeted.

Impact on the Rate of Shrinkage

While a number of retailers have been operating versions of MSP for the last few years, no data has been published to date analyzing the impact these systems have on rates of store shrinkage. One of the retailers taking part in this study did agree to share data although to protect their anonymity, we will not disclose the currency of the numbers being presented. The retailer is a multi-billion [dollar/euro] business with many hundreds of stores providing a wide range of products. As part of their MSP process they carried out random audit checks on those utilizing the technology. They also provided the consumer with a retailer scan gun to perform the same function as their mobile device. Over a twelve-month period, covering 12 million shopping trips encompassing just over 1 billion in sales, they undertook just over 1 million audits that involved checking 6 million items (staff were limited to checking on average six items per basket). Staff found products with a value of 850,000 had not been scanned out of a total audit value of 21 million. This generated a shrinkage rate of 3.97 percent (calculated as a percentage of retail turnover).

The overall company average for shrinkage was 1.47 percent. Therefore, the mobile scan rate was 170 percent higher. This is a profound difference, and with retailer profit margins being continually squeezed, it would appear to make this form of shopping at best borderline profitable for some businesses. The study was not able to ascertain what if any savings the retailer had made from introducing the technology, such as reduced staffing and equipment costs, which may have mitigated these losses, nor was it able to shed light on what proportion of the non-scan events were malicious or non-malicious in nature. That is, were customers trying to steal, or had they genuinely forgotten to scan the items due to difficulties with the technology, distraction, or absentmindedness?

Behavior Control Chart
Table 2. Behavior Control through Risk Amplification

This is a critically important question in determining how to generate risk amplification with this form of shopping. If it is predominantly malicious, then this points to the importance of risk amplification through approaches such as audits to act as a credible deterrent; while if it is largely non-malicious, then it points toward the need to improve consumer communication and awareness training.

Amplifying Risk for the Mobile Shopper

As things currently stand, the retailers taking part in this study had only two points in the mobile shopping journey when they had an opportunity to amplify the riskÑat the point of store entry when users must register or sign in to use the system and at the point of payment when a user could be subject to an audit check. The first opportunity generates some risk by reducing the degree of anonymity as the store lets the user know that they have arrived, while the second increases the risk of non-scanned items being identified in a shopper’s basket, although proving intent to purposely non-scan remains problematic.

For the rest of the shopping journey, there is little or no capacity to amplify risk. Traditional forms of security such as guards, CCTV, and product security tags offer little in the way of a viable concern to the mobile shopper. They can simply move through the store placing products in their basket or shopping bag without any real opportunities to verify whether they have been scanned or not.

Detailed in Table 2 are some of the ways in which risk could be amplified across the entire shopping journey for the mobile shopper of the future. While there is not sufficient space to discuss them in detail at this time, the key is to develop ways in which the mobile shopper perceives that they are operating within a controlled space—that non-scan activity in particular will generate a response and that they will be easily associated with that activity.

Some of this can be achieved through better registration and user monitoring systems, but the majority of the risk amplification could be done by the products themselves—essentially they could become their own guardians and amplifiers of risk. This could be done through direct communication with the shopper—”Excuse me; I think you forgot to scan me”—or through communication with store staff—”Customer X has not scanned me; you may want to offer assistance.”

For this solution to become a reality, technology providers need to develop the next generation of product tagging—moving beyond the well-known limitations of radio frequency to utilize new ways in which objects can communicate with each other. This may then begin to deliver the much vaunted, but ultimately flawed businesses cases developed as part of the RFID bubble. MSP may be the trigger to generate the technological innovation that finally begins to deliver true product transparency across the retail supply chain.

The Industry Challenge

Without doubt innovation in the consumer shopping experience will continue at a rapid pace. Whether consumers using their own mobile devices to scan and pay for items will become mainstream is certainly open to debate at the moment. This research found that it was not terribly easy to use, relatively few consumers had taken up the opportunity to utilize it thus far, and a number of technological barriers remained.

However, research on current usage does shed some important light on how consumers may use and abuse such systems and how increasing customer autonomy in the retail space, particularly when perceptions of risk are reduced and sanctions are difficult to apply, can lead to very adverse outcomes for a retailer’s bottom line.

Amplifying risk across the shopping journey is critical, but it needs to move beyond the current foci and requires the industry to develop new ways in which products themselves can be tasked to become their own guardians. If not, then there is a real danger that the mobile shopper of the future will routinely rely upon the self-scan defense to generate their own discounts.

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