Building Business Value in Loss Prevention
By Bill Zalud
“Doug once told me, there were no cash registers in his office or mine,” says Keith Aubele, president and CEO of Retail Loss Prevention Group, Bentonville, Arkansas, a consulting practice he formed after a long career with high-profile retailers such as Walmart, where Carl Douglas “Doug” McMillon is president and chief executive officer of Walmart Stores, Inc. Aubele, vice chair of the ASIS International Retail Loss Prevention Council, adds that the question to always ask is what value are you adding to the business. And he sees adjustments impacting the industry, too. “These are business leaders now although dynamically rooted in asset protection (AP) and loss prevention (LP). Today’s strength is business planning, taking a 360-degree view of the business with no preconceived ideas.”
“The silo environment [in retail organizations] is critically doomed,” Aubele contends. Numerous colleagues as well as technology solutions mirror his view that marketing, merchandising, operations, store management, real estate and especially IT are collaborating with such emerging tools as LP’s enhanced exception management, smarter video analytics, smartphone beacons that personalize with shoppers inside and walking past a store and use of big data. Such tools help “optimize the omnichannel,” adds Jammy DeSousa, with long-time retailer tech source Tyco Security Products.
DeSousa and others interviewed for this article believe omnichannel strategies overturn the separate and different sales channels – online, brick and mortar or even mobile. By integrating these channels, consumers can buy what they need and choose how they get it. And retailers again can collect and analyze more customer data.
Collecting Data like the Online Stores
The trick for the brick and mortar stores is undermining the advantage that onliners have in collecting user data, analyzing it in minute detail while boosting the customer experience and, by the way, selling more products. Retailers have discovered that they can almost beat online stores on their big data game by combining security cameras, video analytics, point-of-sale data, mobile tablet-based point-of-service systems (which can also display security video, among other things) to count, identify and track customers, as well as by using electornic article surveillance (EAS) and radio frequency identification (RFID) for merchandise tracking on shelves, out the door and throughout the supply chain.
And omnichannel models – where customers can order something online, pick it up at a brick and mortar story or personally shop there all seamlessly – are attracting attention of retail marketing and merchandizing executives.
Research firm IDC in its Worldwide Retail FutureScape Report predicts retailers will invest more in analytics, higher performing systems and security for customer data, not just for loss prevention but to better understand consumer behavior both online and offline.
No doubt, there continue to be security risks: internal fraud and theft, shoplifting, supplier fraud and theft. There is increased concern over violence in apprehension of shoplifters. There is increased emphasis on emergency response plans. There is increased attention to protecting customer data.
Challenges with Organized Retail Crime
Just as troubling is organized retail crime. “ORC is the cancer that is causing significant problems,” says Aubele, who encourages more outreach with law enforcement and retail competitors. Different region have their own types of organized retail crime, so partnering with local law enforcement as well as fellow retailers and mall management is critical. One unique strategy: patrolling social media as ORC perpetrators use these channels to quickly sell off stolen goods.
As growing risks, emerging technology and omnichannel models create new opportunities, more retailers understand the value of what AP and LP bring to the table.
That was a rallying cry at the National Retail Federation (NRF) Protect 2015 event in June and highlighted by Joe Toth, vice president, loss prevention, at Guess?, Inc. and David Johnston, senior director, loss prevention, at Dunkin’ Brands, Inc. In their presentation, “Making the Shift – Transitioning Loss Prevention from a Support Role into a True Business Driver,” the two LP executives led a roundtable that spotlighted how colleagues can:
- Use their department’s unique skills to expand into a broader spectrum of the business;
- Enhance AD and LP departments’ overall value; and
- Evolve to play a larger role in the profitability of the organization.
One path to a larger role is “Using Video Intelligence to Realize Positive Financial Impact in Retail,” another crucial NRF Protect presentation by Chris Nichols, vice president, National Stores of Los Angeles. In analyzing his task at hand, Nichols centered on what he viewed as important “must haves” criteria:
- Fast for finding theft
- POS data integration
- Powerful exception reports
- Proactive, automatic identification of potential theft via email alerts and notifications
- Click-through to video from alerts, notifications and reports
- Remote access to live and recorded video including tablet and smartphone
- Cloud-based archival of important case video clips and data
- Includes all of this in one single online application
Nichols picked technology from Envysion. The bottom line: Wildly more efficient process pre-filtering target cases using exception reports. It allowed growth of the team. It enabled field team remote usage and with the results being a dramatic increase in volume of confirmed cases, saved money in locations where installed and significant ROI (many multiples on the cost of system), he reported at the NRF Protect event.
Impacting Employee Behavior
Bernie Quintero, director of operations at D-Carr Investments, sought out Envysion to address two major business objectives: decrease theft and fraud at each location, and directly impact employee behavior through recognition and positive feedback. Quintero, a forward-thinking operator of 10 KFC locations in Florida, knew that he could use video and audio integrated with KFC’s reporting system – Oracle’s Micros-Retail XBR Loss Prevention, an exception-based reporting and loss prevention solution that lets retailers quickly and easily identify, track and respond to store events to gain insight into what was happening inside each of his stores. “Other people use mystery shoppers, but you don’t get the same results. With Envysion, we have 100-percent visibility,” Quintero says.
Quintero used the video and audio solutions for immediate impact. One month after installation and putting a loss prevention staff member in place, Quintero quickly identified theft, efficiently gathered the supporting evidence and swiftly dealt with the staff members at fault. Just two weeks after the installation, Quintero also closed three false claims with customers quickly by turning over video to the insurance company that was able to refute each claim.
Other retailers have gone farther down the video analytics path.
A case in point: The Strand at Coolangatta in Queensland, Australia, is a shopping center comprising boutiques and shops on the ground floor and level one, and office space on the two levels above. There are also two levels of underground parking. It sought to upgrade the surveillance system to support security, safety and insurance challenges, but also sought a video analytics solution to shed light on footfall statistics and site traffic.
Systems integrator Chris-Tech Security Alarm Systems installed savVi, Israeli-based Agent Vi’s unified video analytics solution. Of the 60 Sony cameras deployed around the facility, feeds from 26 cameras – those above the facility’s entrance and exit points and along the street-front shop entrances – are analyzed by the system’s business intelligence capabilities.
Now there is automated statistical analysis and extraction of data from surveillance video, thereby providing easy and rapid access to important operational and business information captured within the stored video. Users can view traffic volumes, movement trends and motion patterns through advanced visualization tools including charts, graphs and heat maps. The site employs Milestone XProtect Professional as their VMS recording and viewing application, which is fully integrated with savVi.
Specifically, there is now an understanding of how many shoppers move from the retail area on ground level, which hosts boutique shops, to level one, and how many ascend to level two and three which host office space. This is achieved by counting the flow of people traveling on the escalators between the floors. There is also insight into how many people are present on each floor at any time, allowing security staff to manage insurance concerns related to the maximum occupancy limits of the site.
Business Intelligence Insights
The marketing and operations teams of The Strand also benefit from the business intelligence insights offered by the solution. The video feeds analyzed offer valuable information indicating dwell time of customers in the window displays and traffic into stores, including the street-front stores which have premium positioning.
Ken Howell, the facility’s operations manager says that the “video analytics solution provides an accurate measurement of people movement which gives our marketing manager the analytical capacity to develop plans to drive retail within our facility…[the business intelligence] application provides additional features for traffic flow analysis including heat maps and target paths, which allow us to align our services and support to control risk and meet the center’s security and operational demands.”
Firms researching and consulting retailers are starting to believe that analytics and big data may prove make-or-break.
Retailers will not be able to compete in the digitalized marketplace without advanced analytic capabilities, according to researcher Gartner, Inc. Retail organizations should look to invest in advanced analytics providers that specialize in retail solutions.
“Consumers have taken control of the shopping process, and there is no sign that they plan to let go,” says Robert Hetu, research director at Gartner. “As the Internet of Things (IoT) continues to expand over the next five years, the effects on multichannel retailers will be more disruptive than anything seen to date and will require advanced analytics capabilities to cope with this disruption.”
Gartner defines advanced analytics as the analysis of all kinds of data using sophisticated quantitative methods (for example, statistics, descriptive and predictive data mining, simulation and optimization) to produce insights that traditional approaches to business intelligence – such as query and reporting – are unlikely to discover. These advanced analytics tools enable deeper insights and discovery that will challenge business assumptions.
Hetu describes four stages of advanced analytic evolution:
- Descriptive – reporting and dashboarding focused on what did happen
- Diagnostic – reporting and query focused on why it happened
- Predictive – modeling focused on what may happen
- Prescriptive – decision-making based on what will happen
The Old Days of Analytics
Darren Wieder of integrator Convergint Technologies remembers a time when a bank would every so often send a person to a retail banking branch to sit and count traffic. For many facilities, that time is over thanks to use of people counters, video cameras, analytics and big data. Working with companies such as 3VR, Wieder enables bank branches to better understand their customers and customers’ behaviors and experiences. Unlike most traditional retail security video setups, these installations are often separate from the security cameras as Wieder adds technology such as video-based people counters and software-enabled dashboards to retail branches for customer counts per hour, average customers in a branch, average wait times for service. “The wait goal is less than two minutes. We can even provide counts for males and females and individuals by age,” he says.
More useful demographics, reports and maps are rolling out or on the horizon. For example, Uma Welingkar, 3VR’s senior product development manager, was at NRF Protect 2015 talking about directional heat maps.
Building upon traditional heat maps which indicate how many people visit each area of a store, directional heat maps provide additional information about how customers move through a store as they shop for merchandise. These insights can help retailers create effective store designs and make better merchandising decisions. Welingkar also agrees that video analytics can bring loss prevention closer to other retail departments, such as marketing, merchandising and operations, by offering them information that LP already has for their use. Directional heat mapping can, for instance, help store managers rearrange layouts for more effective sales and customer experience.
Focusing on loss prevention, the 2015 National Retail Security Survey (NRSS), released at NRF Protect, makes the point that there is no one “silver bullet” – policies, procedures, staff, technology, partnership, analytics, big data – to preventing losses. Security magazine played a lead role in establishing the NRSS about two dozen years ago.
It Takes a Combination of Strategies
Jon Rosman, president, retail vertical market solutions at integrator Stanley Security Solutions, concurs when it comes to not depending on just one avenue for asset protection and loss prevention. Success comes from a combination of things and technologies, he says, pointing out a diversity of tools including EAS targeting, security video at POS, analytics and intelligent exception reporting. No matter if the outcome is loss prevention or for elsewhere, the bottom line, according to Rosman, is actionable data and useful business intelligence.
With internal IT and IT-savvy integrators more involved in physical security solutions as well as data protection, Rosman sees a growing attraction of storing video in the cloud. Whether the cloud is inside or out, more retail executives can view images and video analytics from wherever they are and for their specific needs, adds Rosman.
Regarding tracking merchandise and people in retail surveillance, tech experts share confidence in analytics and big data. DeSousa adds another layer: customer engagement. As customers opt-in to receiving store messages through smartphones or Bluetooth applications, it opens another channel of communication with the client base.
Concerning the migration to IP and high resolution cameras, DeSousa sees loss prevention first installing the technology in critical areas, such as over cash registers, doors or high-value or high-risk merchandise or items, especially in response to ORC threats. There is also use of public view monitors at certain types of retailers, which alerts customers to the use and reach of security video, he comments.
Specific to tracking merchandise, for many years retail loss prevention has had electronic article surveillance. And EAS continues to improve and now more seamlessly integrates with analytics, big data, POS, smartphone and security video, points out Dan Reynolds, vice president of sales and customer service North America at Checkpoint Systems.
EAS Integrates Seamlessly through Smartphone Apps
One example, a real-time app (Evolve-Store) for smartphones and tablets that supports real-time EAS and ORC event management. Such an approach helps ensure that store associates leverage EAS investments appropriately, comply with store shoplifting policies and have EAS systems always turned on and operating properly.
On the analytics side, retailers can measure and improve consumer conversion rates through real-time visibility of the number of shoppers in stores. There is also a staff panic alert to request help from associates for exception management as well as other uses.
Aubele mirrors a recent study by IHL Group, a research and advisory firm specializing in technologies for the retail and hospitality industries, in which there is high anticipated spending for exception-based reporting with 54 percent of retailers expecting to make a purchase decision in the next two years. Likewise 54 percent over the next two years are planning to buy new traffic-counting software, but it is more back-loaded in the second year than in this first year. Finally, video analytics is also a huge investment area over the next two years at 52 percent with 20 percent of that coming in the next year.
Aubele says that AP and LP must intelligently “respond and react to exceptions. Post-activity investigations are also important” to better understand “the depth of impact. You have to know how far deep, how many people involved and for how long incidents have been going on to better fashion a prevention strategy.”
Without a doubt, Aubele observes, LP and IT are converging. Typically, emerging IP video, analytics and big data most often run on IT’s infrastructure. Compared to LP, IT, merchandising and marketing have more significant budgets, he adds.
Aubele also urges retail loss prevention and security executives to network regularly among themselves. “Members of the ASIS International Retail Loss Prevention Council hold monthly conference calls and meet in person six to eight times a year at conferences.”
SIDEBAR: Tech Partnerships Add Unique Analytics Value
Analytics is coming to loss prevention from myriad directions: Embedded into security video systems and at-the-edge cameras as well as from point of sales, electronic article surveillance and exception management systems. Another way is a partnership between camera makers and third-parties that specialize solely in retail analytics.
One example: Technology partners Oncam and Video Analysis Solutions (VAS) have built a partnership by incorporating Oncam’s award-winning video surveillance cameras and software analytics from VAS that provide business information that appeals to loss prevention directors as well as store performance and retail operations directors. Together, Oncam and VAS have developed cameras equipped with software and tools.
Nigel Ashman of Video Analysis Solutions says such solutions need to be useful for all aspects of the retail business. Uniquely at times, adds Scott Brothers of Oncam, the 360-degree technology cameras are run separately from security video through a dedicated network. Retailers can use a tablet computer with access to the partners’ server over Wi-Fi, and get more information about the store’s operations through the 360-degree camera.
In years past, retailers would have to rely on their hunches to determine the best shelf positions and improve customer service. With analytics, they have actionable intelligence to drive those decisions, comments Ashman.
SIDEBAR: As IT and LP Converge: New Headaches
Without question, data breach protection and Payment Card Industry (PCI) certification take up a significant part of the IT budget related to LP activities, according to a study by IHL Group, a research and advisory firm specializing in technologies for the retail and hospitality industries. The research firm estimates that, overall, 5.4 percent of a retailer’s IT staff is dedicated to loss prevention efforts.
So it is not surprising that data protection aspects of loss prevention dominate the focus of the LP efforts within the organization. PCI and data breach take 35 percent of the overall LP focus for the organization. This is not necessarily budget or staff, but simply focus on losses.
But there are issues that can keep IT and LP apart.
When IHL Group asked about internal barriers that get between IT and loss prevention, it was interesting to see that the two sides viewed things roughly the same way. Both seemed to think the greatest barriers were overall business priorities, systems integration and growth objectives. This is not a big surprise as LP and IT are often considered cost centers rather than revenue centers. So it is natural that their primary issues are due to an overall organization focus on growth. However, this is good news economically because it means retailers have moved past primary cost control and continue to move forward with growth objectives.
However, Pete Pouridis believes that data security is a fast and dangerously growing concern for both IT and LP, working apart or more often these days together. Pouridis, principle owner of the consulting firm the Pouridis Group of Flower Mount, Texas, and former vice president of loss prevention, information security and data risk management for The Neiman Marcus Group, sees retail urgency in omnichannel payments and fraud risk, fraud detection platforms and resources, including developing and implementing fraud detection system infrastructures, information security and data risk programs, inventory asset control among other data-related threats.
These days, “you have to think outside the box,” advises Pouridis. “With online credit fraud it takes an investigative discipline. Behavior monitoring – look at that behavior that is often databases with rules. This doesn’t look like behavior of a customer of mine. There are other threats contend with such as money laundering, denial of service attacks and intellectual property crimes.”
As retail loss prevention professionals now work more closely with internal IT as well as an integrator or dealer, “don’t be a binary switch. Manage the risk. Dial the risk up, or dial it down. But let the business make those decisions,” observes Pouridis.
SIDEBAR: Lowe’s Team Won’t Be Left Behind
Loss prevention plays an integral role in driving strategic initiatives around technology. At National Retail Federation Protect 2015, Scott Draher, director of loss prevention process and strategy for Lowe’s Companies, and Kris Douglas, business relationship manager, discussed how Lowe’s collaborates to stay ahead.
Douglas represents the IT department inside Lowe’s, a business unit Draher admitted his team used to be wary of working with. But improving this relationship made it easier to use video surveillance information as actionable insights. Traffic patterns and insights on customer engagement have helped teams at the store level.
This efficiency ties back to the challenge of optimizing its stores as a major distribution channel and embracing the Internet of Things. Many loss prevention processes and systems have been integral to tackling the opportunities and risks that come with initiatives like flexible fulfillment.
“If we don’t keep up with the rapid rate of change we’re going to be left behind,” Douglas was quoted in NRF coverage. “Keeping up is a tall order as the waves of change keep getting bigger. It could come back to integrating loss prevention people and perspectives across the organization that gives retailers the best chance to effectively embrace technology, and ultimately, protect.”
SIDEBAR: Retailers Estimate Shoplifting, Fraud Incidents Cost $44 Billion in 2014
According to the National Retail Federation/University of Florida National Retail Security Survey , retailers say inventory shrink averaged 1.38 percent of retail sales, or $44 billion, in 2014. The report was sponsored by The Retail Equation.
Specifically, retailers surveyed estimate that shoplifting accounted for the largest part of reported shrink in 2014: 38 percent, followed by employee/internal theft (34.5 percent), administrative and paperwork errors (16.5 percent), vendor fraud or error (6.8 percent) and unknown loss (6.1 percent).
When it comes to loss prevention budgets, 39.4 percent of those surveyed say their budget for 2015 increased over last year; just over one-third (36.6 percent) said their budgets would be similar to what they were last year – leaving 23.9 percent of respondents with decreased resources.
SIDEBAR: Get Ready for the Internet of Things
Loss prevention professionals and their retail firms are now facing a new world called the Internet of Things (IoT). It will impact security technologies as well as operations along the supply chain. It will also impact data security, too.
Basically, the Internet of Things is the interconnection of uniquely identifiable embedded computing-like devices within the Internet infrastructure. It’s expected to offer advanced connectivity of objects, devices, systems and services covering a variety of protocols, domains and applications. Internet-connected objects sense, communicate, compute and potentially actuate as well as have intelligence, multimodal interfaces, physical/virtual identities and attributes.
Nearly one third (30 percent) of businesses worldwide have already begun limited IoT deployments, according to the Strategy Analytics IoT 2015 Deployment and Usage Trends Survey.
Key findings from the survey:
- Some 32 percent or one third of those polled said their firms plan to deploy IoT compared to one in four survey respondents – 26 percent – that said their companies currently have no IoT deployment plans. The remaining 42 percent of survey participants are still studying the issue and are undecided.
- Current and potential IoT customers plan to deploy the technology to solve pragmatic and pressing business issues that impact daily operations. These include: security of both the corporate data assets and physical facilities; receiving proactive alerts to avoid service disruptions; and remote control of equipment.
- IoT security, integration and interoperability with existing and legacy systems and the potential confusion arising from the need to deal with multiple IoT vendors and platforms were cited by survey respondents as the biggest impediments to IoT deployments.