Although retailers, by and large, have made significant strides in recent years to minimize incidents of shoplifting and internal theft, losses from shrink were estimated to have cost the industry more than $40 billion last year. Despite the severity of the problem, many loss prevention (LP) professionals are not on the same page with their counterparts in IT and other business units in retail organizations.
Axis Communications recently released the results of a study conducted by IHL Group, a global research and advisory firm that specializes in technologies for the retail and hospitality industries, which identified some of the underlying factors behind this disconnect. The study, which segmented retailers into four different tiers based on how much they generated in sales, found that loss prevention efforts related to data protection – PCI and data breaches – accounted for 35 percent of retailers’ total LP focus (i.e. focus on losses, not necessarily budget or staff allocation). Employee theft, return fraud, consumer theft and organized retail crime combined only accounted for 46 percent of the LP focus for retailers.
In addition, the study found that tier 1 retailers, which are those characterized as having more than $1 billion in sales, dedicate 4.5 percent of their IT staff to LP efforts, compared with tier 3 ($100 million to $500 million in sales) and tier 4 (less than $100 million in sales) organizations which devote nearly 8 percent.
Greg Buzek, founder and president of IHL Group, said that this doesn’t necessarily indicate that larger retailers are devoting less IT staff to LP efforts.
“What we realized is that there is a critical mass you need for any retailer in terms of the amount of staff, as a percentage of revenue, dedicated to security,” explained Buzek. “Once that critical mass is hit, there is also a ceiling as well, so there are so many (staff members) that you absolutely need and then it is not necessarily a linear scale and you begin to get efficiencies that allow you to put staff on revenue growth activities or other activities beyond security.”
And while the retail industry has been widely panned as one of the last stalwarts when it comes using analog surveillance technology, the study found that 86 percent of respondents had CCTV in place and of those, 64 percent indicated that they were leveraging IP-enabled solutions. According to Hedgie Bartol, business development manager, retail, for Axis Communications, some respondents may be in some form of pilot testing of IP video which could explain the high number.
“What I am seeing happen is a lot of folks maybe be piloting or testing IP technology and are therefore saying, ‘We are making the migration,’ when, in fact, they may only have a small number of stores using them,” said Bartol. “Some may also be due to definition. Some folks can regard that a DVR is an IP device because it is IP-addressable, when, in fact, it is using analog technology.”
Buzek said that this demand for IP video products is being driven more so by the desire to track shoppers and traffic patterns rather than for loss prevention.
“What is happening is that CCTV, which is generally a loss prevention technology, is being used more and more often for revenue generating or marketing type of activities where it is important to understand the demographics of your customers – where they are sitting, what they buy or don’t buy. One of the key things here is there are laws relating to Bluetooth and beacons that do not allow you to track somebody though the sales process. However, with cameras and facial recognition, the laws are different so you don’t have those same concerns,” said Buzek.
Despite the new ways video is being leveraged by retailers, security will remain its primary domain for the foreseeable future. According to the study, 39 percent of respondents said that video would be used for traffic counting purposes moving forward and 11 percent said it would be used for trade promotion compliance. That pales in comparison to their traditional security applications, such as employee and consumer theft, which 86 percent and 77 percent of respondents said their camera systems would be used for respectively.
Not surprisingly, the opinions of LP professionals differed greatly from IT and other business units when it came to their opinions on theft and how surveillance resources should be utilized. While both LP and IT where closely aligned when it came to preventing employee theft in stores, just 79 percent of IT professionals and only 57 percent of other retail business units believed that CCTV should be prioritized to mitigate consumer theft in stores, while 90 percent of LP departments thought that it should. And though 100 percent of LP professionals said that cashier monitoring is a priority use of CCTV, IT and other business units de-prioritized it at 56 percent and 57 percent respectively.
“I think there are a lot of folks that either don’t realize how big a problem shrink might be and therefore don’t think it’s a big deal, don’t realize the impact that shrink has on the bottom line of a retail organization or just regard it as a cost of doing business,” added Bartol. “If you really look at the impact shrink has to an organization; that number goes straight to the bottom line of an organization. If I, as a loss prevention guy, let’s say my shrink is 1.5 percent of the gross sales, that’s a big number and if I can reduce my shrink through technology, people, process , procedure, or whatever the needs may be by 0.1 percent, that reduction is straight profit at the bottom line. What would it take to improve sales by 0.1 percent? It’s not as easy.”
In looking at the barriers keeping LP and IT from developing a closer working relationship, “other business priorities” and “systems integration” were most frequently noted as the biggest stumbling blocks.
“We are going through the single biggest overhaul of IT systems in retail history right now,” said Buzek. “The big thing that is happening is they are trying to get the entire channel together, so whether it is online or at the store, they are trying to integrate all of those systems to provide a single view of the customer. That takes precedent over some of the security initiatives. It is a factor of limited resources.”
Buzek believes that going forward, LP, IT and these other business units within retailers are going to have to find an effective way to share surveillance technology.
“I think the biggest takeaway is that where much of the retail business on how do I streamline and get things to work together, LP has traditionally been on an island. And yet we’re not going to put in cameras for the marketing side and cameras for the LP side, we’re going to be looking at things for dual purposes,” concluded Buzek. “That CIO and that IT department are going to be acting more as a resource, someone that is managing the resources and dividing up the time for those resources based on the priorities of the business. Much in the same way that you would throttle bandwidth to different departments or applications so that one application doesn’t steal all of the internet bandwidth, the same thing is going to be true for cameras.”
