An Update on Major Subjects Affecting Retail LP

security cameras

After completing the three-part series on the first fifteen years of Loss Prevention magazine, I promised to write an additional article that looks at the current and future state of some subjects we discussed that have a huge influence on the retail loss prevention profession. As I looked at the subjects covered in the series, it became clear that some are evolving faster than others and will probably have a bigger impact on loss prevention going forward.

Organized Retail Crime

From the very first cover story in the fall 2001 preview edition of the magazine, through today, modern-day organized retail crime (ORC) has been featured more than any single subject with the exception of LP technology. In that premiere issue, King Rogers referred to it as “organized retail theft.” When I first started in the business, we simply called it professional shoplifting. But things have changed.

In the early years, most efforts to fight professional shoplifting were mainly coordinated with fellow retailers in a given city. Pros in those days were much less mobile and much less organized. Interstate and intercity communications were limited. Local efforts were often coordinated through various cities’ Stores Protective Associations. With the growth of sophisticated communication capabilities and ease of travel came more highly organized and far-reaching crime organizations. King Rogers made note of this in his article.

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Between then and now, the magazine featured numerous articles on the growing threat of ORC and offered many tips on how to effectively investigate and control it. Some industry efforts were successful; some weren’t. Of particular note is LERPnet (Law Enforcement Retail Partnership network). Retail LP professionals worked for many years to create a network where law enforcement and retail LP could share information across the United States to combat ORC. There were many attempts and several start-ups, most of which failed. Finally in the fall of 2007, through the combined efforts of the National Retail Federation (NRF) and the Retail Industry Leader’s Association (RILA), LERPnet became a reality. Many major retailers enthusiastically jumped on board. In 2011, Verisk Analytics joined, adding its financial and analytical expertise. But it’s curious to note that as of today, Verisk’s website says it is “not currently onboarding LERPnet clients as we re-envision our ORC-oriented solutions for retailers and law enforcement.” Hopefully, whatever issues exist with LERPnet can be solved, and it (or some other solution) can once again drive communication between retail LP and law enforcement. It is very much needed.

ORC is still a huge problem, and it is growing, as highlighted in NRF’s 2016 ORC report. The report reveals some very sobering statistics:

  • Eighty-three percent of retailers reported an increase in ORC in the past year.
  • Fifty-nine retail LP executives stated that 100 percent of their companies had experienced ORC in the past year.
  • Identified ORC losses soared to $700,000 per $1 billion in retail sales, up from $454,000 in the prior year.
  • Seventy-one percent of retail executives believe that top management now understands the ORC threat.
  • Sixty-three percent of those surveyed said they had recovered merchandise from physical locations such as storefronts, pawn shops, or flea markets.
  • Sixty-eight percent of respondents experienced ORC criminals refunding merchandise for store credits. Those credits are often resold on the black market.
  • Thirty-four states now have ORC laws, but conversely, sixteen do not.
  • Fifty-six percent of respondents in states with ORC laws said they have seen no increase in support from law enforcement.
  • Cargo theft, often by ORC perpetrators, was noted by 44 percent of respondents.
  • Los Angeles was cited as the hardest-hit area followed by New York City, Chicago, Miami, Houston, San Francisco, Dallas-Fort Worth, Atlanta, Philadelphia, and Orange County, California.

Crisis Management

As we have speculated, the flurry of crisis management articles after 9/11 discussed many best practices, and as a result, less has been written on the subject in the magazine in recent years. But things are changing. Some of the events taking place just since the presidential inauguration on January 20 may portend that civil unrest, once again, will become a major issue in the months and years ahead. It’s timely that the January/February 2017 issue of the magazine contained an insightful article by Lawrence Barton, PhD, a renowned expert on crisis management and communication. In his article, Dr. Barton outlined some basic types of threats, things to think about, and what to prepare for in formulating an effective crisis plan.

Retail LP Technology

Articles and columns dealing with retail LP technology covered more pages than any other subject during the magazine’s first fifteen years. It is the subject changing most dramatically— one that will affect the future direction of retail LP more than any other. And it probably will be the most-covered subject going forward. In fact, the January/February 2017 issue contained an insightful article written by Garrett Seivold that talked about retail video surveillance and what’s coming. I will also take a look at that subject a bit later in this article.

Electronic Article Surveillance. Many of the experts I talked to in preparing this article readily admitted that EAS has seen no significant advances in many years. Yes, we have seen the development of independently alarming tags and multi-alarming tags. And yes, there are now such things as keepers and spider-wrap tags to protect unique products. But the basic concept of alarm tags and pedestals at the door hasn’t changed much.

One retailer conducted a test and removed all tags and pedestals from ten stores. Shrink went through the roof. Often due to pressure from the visual team, many retailers shifted to soft tags and hidden tags sewn into garments. Once again, shrink usually skyrocketed. Most experts agree that EAS, with its tags and pedestals, is strictly a deterrent to shoplifting. And most everybody agreed that it is here to stay.

One interesting EAS development being tested is long-range scanning deactivation. A retailer who sells large, bulky items was experiencing an inordinate amount of false alarms at its exits. When investigated, it turned out that cashiers didn’t want to wrestle with bulky items, so they simply did not remove or deactivate the EAS tag during a legitimate sale. Working with a vendor, the retailer came up with the idea of being able to deactivate the EAS tag from a distance using Bluetooth-type technology—something new for sure.

Beyond some hardware and software advancement, every expert I talked to agreed that the real future of EAS revolves around leveraging those pedestals and tags in a way that adds value to operations and stimulates sales. The question to ask is how to invent new or use existing LP technology that supports corporate philosophy and direction. Regarding EAS, the pedestals and tags are there, so how can we put them to new or better use? The key may be using or modifying existing EAS technology or combining it with RFID to drive better inventory accuracy.

With the growth of omni-channel retailing and the buy online and pickup-in-store concept, pinpoint inventory accuracy is critical. If a customer buys something online and shows up in the store to pick it up, it better be there. One industry expert told me a story of buying a giant screen TV from an electronics retailer online. Since he needed it right away, he indicated he would pick it up at the store. He rented a van and went to the store. When he got there, he was told, “Sorry, it’s not in stock.” My advice to him was to call first.

Totally accurate inventory is not only a boon to the customer experience but also a huge competitive advantage for those retailers who get it right. Leveraging EAS pedestals and tags to help drive inventory accuracy leads directly into a discussion of RFID. I’ll hold a more in-depth discussion around that for later in the article.

Cameras and Video Technology. Unlike EAS, cameras and video have seen more advancement over the years. In the “old days,” use of cameras by LP involved banks of monitors observed real-time by in-store LP personnel. Then came pan-tilt-zoom cameras enabling LP to follow prospective shoplifters throughout the store. Later, the ability to easily record made video review after the fact possible. But some of those processes are things of the past. Now, the ability to remotely monitor and record over IT networks is a reality. Digital and IP (internet protocol) cameras are replacing old analog cameras and CCTV systems.

One challenge for LP switching to IP cameras is that they use up system bandwidth, which most of us know is the private domain of the IT department. Or so they claim. Thus, very often, that domain is hard to penetrate. In addition, since IP cameras operate on the network, hacking can become an issue. And IP cameras and video monitoring systems can be expensive.

One alternative may be to create a secure LP network and employ HD (high definition) cameras. But with cameras, as with EAS, the real question centers around how this technology can be expanded beyond LP and become invaluable to operations and help improve profits. The future here will involve using cameras and video technology to aid in traffic counting and customer-dynamic analytics. And this expansion of LP technology is already beginning.

Historically, customer traffic counts were conducted using beams at the door, later replaced by ceiling-mounted detectors that simply counted customer entries and exits. Results were not truly accurate due to those technologies’ inability to distinguish between individuals in crowds. And once the customer entered the store, information regarding their actions stopped. Plus, these old systems were easily “massaged” by unscrupulous store management wanting to alter counts. But cameras can “see.” Traditionally, LP has managed in-store camera systems, and they have cameras installed at most entrances.

With the advancement of video technology and LP’s need to assist in enhancing profit beyond low shrink, it follows that cameras can be a major contributor to consumer in-store analytics. Providing metrics and analytics, smart cameras can be used to record customer patterns, dwell times, and flow throughout the store. One major retailer’s LP department led the way in installing modern smart cameras throughout the chain. Going beyond LP, one of their first discoveries involved their customers’ habits at their in-store ATM machines. They had ATMs installed inside all their stores near the front. Video observations and analytics, made possible by the new system, clearly showed that customers often came in, used the ATM machine, and left. The ATMs were moved to the back of the store forcing the customers to walk through the aisles to get their cash. The results were that sales increased because of this simple move. Everyone I talked to agreed that the future value of cameras in stores must go well beyond LP and shrink.

Another interesting technology being developed is the ability to track an individual customer through their personal devices—a smartphone, key fob, and so forth. A unique identifier can theoretically be tied to an individual, and once established, that person’s movements and habits can be tracked. The theory is that a retailer can learn from an individual’s habits and vastly improve on the knowledge that is currently available. There are also obvious advantages to LP of being able to track habitual offenders’ routines. Positive uses in marketing and analytics are the goals of this technology, but as we will see with facial recognition, privacy issues and “big brother” are bound to be major hurdles to its wide-scale adoption.

Facial Recognition. The mechanics behind facial recognition are complicated. And the concept is frightening to many. In 2013, LP Magazine contributor Chris Trlica described facial recognition as “having the potential to change the rules of retail” but cautioned against poor execution. As of this writing, at least one major retailer is championing the use of facial-recognition software to help LP identify prolific shoplifters. And there are potential operations and marketing applications around identifying loyal and important customers entering a store.

Costs are coming down, and accuracy is increasing, but there is still room for improvement. A recent FBI document on the subject noted: “the computer-based facial recognition industry has made useful advancement in the past decade; however, the need for higher-accuracy systems remain.”

The value of being able to identify an individual through cameras and software is obvious for national security and, potentially, for retail. Both Facebook and Google are investing heavily in the technology. However, most forms of identifying a person involve actions or processes of which the person being identified is well aware. Facial recognition can identify someone without their knowledge or consent. So it goes without saying that the huge elephant in the room, once again, is Big Brother and privacy concerns. For facial recognition applications to become widely adopted, the government and private industry must deal with these issues and develop protocols and practices that will take full advantage of its capabilities but lessen, if not eliminate, privacy concerns. That may not be possible.

Because of the issues of privacy, we are starting to see applications that assign unique numbers instead of names to individuals based on identification using multiple identifiers beyond facial. This and other emerging technologies may be what’s needed to move this technology forward.

Mobile Payments. The rise in mobile payments has been described as the next big security headache. It’s continuing to catch on, but as of today, it is far from mainstream. James Martin, in a recent CIO article, outlines some reasons why:

  • A mobile payment transaction is actually more involved than simply inserting or swiping a credit card. There are many more steps that need to be taken on one’s smartphone to activate a mobile payment.
  • Mobile payments don’t offer enough special incentives to persuade consumers to switch. Mobile payment users often can’t take advantage of loyalty points or special offers at the point of sale (POS).
  • The mobile payment infrastructure has been slow to evolve. Merchants must invest in POS terminals capable of near-field communication (NFC) transactions. More phones are coming with NFC chips, but they need a compatible POS terminal to be used.
  • EMV (chip cards) transactions won’t help mobile payments. When using EMV machines with mobile payment, the transaction actually slows down. Numerous messages requiring action pop up on the POS terminal, which slows the process.
  • Modern mobile pay experience is inconsistent. The diversity of mobile pay options (Apple Pay, Android Pay, PayPal, Visa Checkout, and so forth) confuses the customer, thus slowing adoption. Which one to use? Which one does this retailer accept?
  • Ingrained behavior is tough to change. Only 31 percent of mobile payment users always use mobile payments. And the majority of those are Millennials or Gen Xers.
  • Mobile payments raise security concerns. They are actually more secure than other forms of payments, but many consumers fear they aren’t
    Younger generations’ adoption and advances in technology will no doubt drive ever-increasing popularity of mobile payments. But it has a way to go become an everyday part of consumers’ lives.

RFID. As discussed in my previous three articles chronicling the first fifteen years of Loss Prevention magazine, RFID took center stage when it came to discussing LP technology. The following comes from a 2012 article in the magazine regarding RFID:

  • It’s coming, but it’s not really here yet.
  • Item-level RFID is the future.
  • On-shelf accuracy is critical to omni-channel retailing.
  • RFID “may” be useful in combination with EAS.

Fast forward to today. Most experts I talked to for this article agreed 100 percent with those four points. But the first point still rings true.

It’s generally agreed that RFID (radio frequency identification) is amazing technology. Its roots can be traced back to military use in World War II. The Germans, Japanese, Americans, and British had radar, but they needed a method to identify whose planes were whose. Experiments were conducted with early RFID-type detectors. It wasn’t until 1973, however, that the first patent was issued for the type of RFID in use today. IBM did some early pilots with Walmart, but these efforts never resulted in the commercialization of the technology. Development continued.

In the 1990s many retailers, including Walmart, saw supply-chain accuracy as a major potential use of RFID. Walmart further envisioned RFID saturation at the item level and proposed demands that its suppliers comply. As of November 2003, Walmart announced that it would modify its position with vendors and concentrate on only using RFID at the carton and pallet level. When asked why the slow evolution given the potential value and interest level, one industry expert said, “It didn’t work very well in the beginning.” And there were issues of size and cost. In addition, for simple applications, a barcode works pretty well. But 100 percent item-level inventory accuracy has been a goal of retailers for decades. And with the emergence of omni-channel retailing, the need becomes even more critical.

Given shrinking size, reduced cost, improvement in performance, and the growing business need for accuracy, RFID has begun to gain traction in retail in recent years. Fulfillment of consumers’ online purchases in-store, from a different store, or from a warehouse requires the inventory system to be as accurate as possible. For RFID to truly track inventory accurately, every piece of merchandise must be tagged. Source tagging has been the desire of retailers for years when it comes to EAS, but it has seen mixed success. Less than 100 percent tagging is not an option for RFID to work effectively. To that end, Macy’s has led the effort to expand RFID in retail and also to adopt standards. Retailers such as JCPenny, Kohl’s, and VF are getting on board. In addition, Zara, the world’s largest fashion retailer, is working hard on complete RFID implementation knowing that total inventory accuracy will be a competitive advantage and will drive sales. They have an advantage over many retailers regarding tagging in that they are vertically integrated, manufacturing their own product.

On a less positive note, American Apparel, one of retail’s early adopters of RFID and one-time poster child for inventory accuracy, has recently announced that it is closing all of its 110 US stores. Hence, RFID is not a panacea for all things.

Increasing RFID adoption, even given the compelling business need, has not been totally smooth. As recently as 2013, there have been intense legal battles regarding who truly owns the patents for RFID technology. Round Rock Research won most of these battles resulting in royalty payments to them from the vendor community. But despite many hurdles and a few setbacks, RFID expansion in retail continues. From on-shelf accuracy to “smart” fitting rooms to accurate loss reporting, the positive applications are not only endless but also critical to retail growth in the 21st century.

One RFID application that has long been talked about is the mass adoption of a combination EAS/RFID system and tag. This is just one more example of how LP may become a major player in operations and sales enhancement. It truly does look like the next five years will see RFID come into its own in retail and drive tremendous value in terms of improved operations, inventory accuracy, and sales—and of course LP. We’ll see.

Not Just Shrink Anymore

I talked to a number of retail industry experts in the preparation of this article. I won’t list them all, but I want to give shout-outs and special thanks to the following individuals. Their information and insights were invaluable.

  • Bob DiLonardo, noted consultant and retail expert
  • Randy Dunn, Tyco Retail Solutions
  • Kevin Lynch, LPC, Tyco Integrated Security
  • Adel Sayegh, USS

There you have it. Some LP subjects haven’t changed a great deal over the years. Some have seen dramatic change. I tried to highlight those that I thought were of the most interest and ones that have the potential to significantly change our industry going forward. One thing is very clear regarding LP’s future—successful LP departments and professionals need to continually expand their scope and find new ways to become integral to their companies’ profit-enhancing efforts. It’s not just shrink anymore.

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