Thinking Outside the Small Box

Thinking Outside the Small Box

Brad Seehoffer, district loss prevention manager for thirty-eight Big Lots stores in upstate New York and Pennsylvania, remembers the good old days of loss prevention, but he doesnt miss them. I would spend days searching through journal tapes to find one transaction for a fraud investigation, says Seehoffer. Or discover I didnt have visual evidence on a theft because someone forgot to change the tape on the stores VCR. It was a waste of my time and the companys money.

Company loss prevention leaders knew something had to be done to help its managers in the field, but new technology carries a hefty price tag.So David Orahood, manager of shortage control for the closeout retailer, teamed up with Rick Fannin, director of technical support, to take a look at the options.

We looked at several remote digital surveillance systems and began to test them in nearby stores so we could give them immediate attention, says Orahood. According to Orahood, some systems failed miserably while other systems didnt work at all. Often units were inadequate and frames were delayed going across the network, making the video choppy.

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Taking It One Step at a Time

It took a lot of careful study, but the team did its homework. They evaluated many comparable models on the market with a focus on things like screen-size resolution, refresh rate, the ability to transport various image file sizes, and ease of administration. And, it was important they find a system that created a central management database. That way they could make routine system settings changes in one location and not be required to connect to each individual location.

Research included talking to about thirty different vendors, attending various trade shows, and speaking with other retailers who were using similar products.

Armed with what they learned, the team went to upper management with the facts and figures. Combined with an intensified target store campaign, which included loss prevention store visitations and the introduction of a customized associate awareness program, they estimated the new system would dramatically reduce costs associated with shortage. When the actual numbers came in from the first fifty-four stores that tested the remote digital video technology, shrink rates were reduced by 35 to 50 percent.

In November 2001, Big Lots installed fifty-four Rapid Eye remote video units from Ademco Group in a select group of its stores with the highest shrink rates. The system uses a frame-relay network. Frame relay is a constant connection communication infrastructure that allows the retrieval of data from the units. Credit card transactions, the store PC, and Rapid Eye all use the frame-relay communication network. In addition to on-the-spot video surveillance, the constant connection optimizes other store functions as well. A credit card transaction, for example, saw as much as an 18-second delay in the past. Now one comes through in about a second.

We wanted to create a communication framework that we could build on, says Fannin. The frame-relay network also allowed Big Lots to move forward with projects like customer and associate kiosks. The kiosks, now located in select stores, are filled with company facts and figures, ad fliers, and other pertinent information.

With the new system, loss prevention experts can look at live stream video or go back and retrieve previous data they have questions about. In some cases, they lay it against point-of-sale exception software to verify transactional data. The system also provides a snapshot of all the action in the stores, allowing analysts to watch morning openings, night closings, and traffic flow from anywhere in the country.

Right away, shortage analysts at the companys corporate headquarters in Columbus, Ohio, caught dishonest behavior, such as an associate pocketing money in the counting room and proof to refute a workers compensation claim that a cashier had fallen at her register.

After only four months, test stores saw dramatic improvements. In fact, during the past year since Big Lots began using remote digital video and data tracking software, shrink in these test stores has been reduced by double the company average. Based on this initial success, the company purchased another 100 units this year. Eventually, the goal is to equip a third of all 1,350 Big Lots stores with the systems.

Today, keeping tabs on things is a lot simpler. Big Lots eight regional loss prevention managers and seventy-one district LP managers can watch store openings and closings from wherever they are, 24-hours-day, without having to travel from one store to another. The companys director of shortage control, along with his managers and analysts, can monitor stores for POS exceptions. Big Lots four distribution centers can be monitored by the LP operations manager and his staff from home or at work.

More than Catching Thieves

OK. So it saves money. But Big Lots discovered even more advantages.

Remote digital video feed allows a retailer to be proactive from a safety perspective, like spotting blocked doorways or other potential hazards.

With VHS, there is the human factor for error. Maybe someone forgets to change the tape or the recorder is accidentally unplugged. Digital technology is simpler to operate and there is no downtime because the recording is continuous, 24/7.

Retrieval is as quick as a keystroke. About forty days worth of video can be saved on a computers hard drive or filed for future reference. And the system cant be tampered with. In the past, robbers have broken into Big Lots stores and stolen security tapes, making it harder for authorities to track them down. This cant happen with the digital system. They would have to take the whole computer unit and their locations are hidden.

In fact, it used to be easy for dishonest associates to just unplug security VCRs before they stole merchandise. The new system, tied into the Big Lots server at company headquarters helps deter that kind of associate theft because analysts are alerted within seconds if a unit goes off-line or is disconnected.

Digital technology enables the user to quickly send detailed information to police. They simply dial in, pull up the related video clip, and email it to law enforcement officers.

Other areas of the business benefit as well. The information systems (IS) department also uses the new system as a tool to see how cashiers interact with point-of-sale equipment. By installing the cameras in test stores, IS was able to discreetly look at forty different stores and evaluate several hundred customer transactions.

According to Steve Bromet, senior vice president of information systems at Big Lots, they are using what they learn to help change associate behavior patterns and training. With our old environment, for example, about half the time our cashiers would scan merchandise as they put it inside the bag. We found that method was 25seconds quicker than setting the item down, scanning it, and then placing it in the bag.

In another test, Big Lots used remote digital technology to study things like traffic flow and customer movement. Last year, when Big Lots opened its six LAB (Learning and Building) stores new stores experimenting with layouts, fixtures, lighting, and signagesixteen cameras installed in each store observed customer shopping patterns. And the system is installed in all Big Lots distribution centers to track traffic flow and monitor entrances, exits, and perimeters.

Going from videotape to digital also allows Big Lots to investigate elements of a suspected crime with a lot more detail. Digital technology provides LP professionals with the ability to conduct video forensics to enhance the evidence. Now they can lighten or darken images, and combine frames and other techniques to improve the quality of the feed.

Doing More with Less

Remote digital technology allows Big Lots to do more with a whole lot less less legwork, less staff, and less revenue spent on expenses like airfare and mileage. The company has created open communications with its associates about all new technology being installed. And its allowed a switch to preventive shrink management instead of focusing on the apprehension side of the business. Its helping Big Lots close more cases and provide a better quality of evidence than ever possible in the past.

This open approach seems to be working well, according to LP professionals. Employees know the systems are in place and they are comfortable with their function in the stores.

Sounds great. But is there a down side?

As long as youre dealing with computers you run the risk of any computer-related problem occurring, like programming issues or the occasional need to reboot the system. But the system is maintained and updated regularly and Big Lots provides every loss prevention district manager with a training video of key informationtheyll need for proper installation and trouble-shooting.

Thinking Outside the Small Box

It Doesnt Stop Here

In April of this year, Big Lots became one of only a few retailers in the country to use computer forensics software to investigate computer activity. This enterprise-level software allows examiners to preview or acquire a bitstream image or an exact copy of the suspects computer over the network, including even deleted files. And examiners can acquire a specific hard drive over the network before a person even knows theyre being investigated. Previously examiners would have to physically seize the computer to continue with such an investigation.

We are also testing electronic article surveillance (EAS) to protect merchandise from shoplifters and to minimize liability in the event of a customer dispute over an alarm. As part of a one-year test, targeted stores are applying the tags to things like electronics and pharmaceuticals, which are high shrink items thieves often steal to sell on the secondary market.

Big Lots uses remote digital video in conjunction with EAS to review door greeters and their role responsibilities. And we’re taking a look at management and hourly associates responses to alarm conditions created by the EAS system. This allows us to monitor, educate, and train associates while minimizing liability.

We are also in final negotiations with a vendor to do data modeling. It may sound a little like the plot of a science fiction movie, but some experts believe we can recognize, track, and analyze transaction patterns captured through in-store systems and use the data to stop loss before it happens. This data is based on clusters of information such as cash register transactions, markdowns, and refunds identified by point-of-sale data collection software. The data analysis software quickly pinpoints suspicious POS activity, drills down reports, and flags high-risk transactions.

Thinking Outside the Small Box

Finally, Big Lots is taking a look at some emerging scientific principles to fight shrink. Neural networks and genetic algorithms are mathematical models that mimic the human brains learning the process. The human brains neurons are the basic processing units that receive signals from and send signals to the many nervous system channels throughout the body. When the body senses or inputs an experience, the nervous system carries many messages describing that input to the brain. The brains neurons interpret the information from these signals by passing the information to combine and transform the data. Through repeated stimuli, the brain learns to process and respond to the stimuli.

Just as a human brain learns through repetition, a computer-based neural network trains itself with repeated input and output of data. The network can then pinpoint probabilities of theft or other shrink contributors by analyzing the data patterns. By looking at such behavior patterns, analysts hope in some cases to predict if a store is likely to experience high shrink.

Retailers continue to face damage to their profit margins as a result of security and loss prevention risks, says John Capicchioni, director of shortage control at Big Lots. To combat shrink in the future, well need to leverage our use of technology to maximize our effectiveness. Well need to use more sophisticated data mining and pattern recognition techniques to identify early warning signs of shrink to employ corrective measures.

Previously, we relied on physical inventory to identify high shrink stores. With this technology, we hope to identify at-risk stores. Then we can focus our resources on those stores to resolve any issues and prevent future shrink.

Capicchioni and other experts believe that technology and innovative theft prevention methods will have a dramatic impact on the future and the retailer who masters them could have a distinct advantage in the marketplace.

Thinking Outside the Small Box

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