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Retail switch

IP video will reach a global tipping point in retail sector across EMEA during 2015. Why are so many retailers making the switch? asks Henrik Høj Pedersen, Business Development Manager, Retail, EMEA and APAC at Milestone Systems.

One of the key reasons for recent evidence of an increased investment in open standards and IP-based video management systems by the retail sector in EMEA has been the fact that technology providers are now able to demonstrate rapid return on investment (RoI). Put simply, a new breed of video management software (VMS) offerings (including XProtect product line by Milestone Systems) can integrate very effectively with retail point of sale (PoS) systems to deliver high resolution video recordings on-screen, alongside known ‘high risk’ transactional events. This makes discovery and analysis of irrefutable evidence much easier than it used to be.

Rapid ROI can be achieved in this market because, frankly, there are a lot of losses to prevent. On average 1.49 per cent of retailers’ sales turnover is lost in retail shrinkage, or $119 billion globally, according to Global Retail Theft Barometer 2011. The largest source of loss, 43pc of total shrinkage, comes from theft by shoplifters.

However, employee theft is not very far behind at 35pc and yet, until recently, it has received a much smaller share of loss prevention resources and attention. It is worth noting that if you look at the number of thieves apprehended, according to this same study, 85pc of them were shoplifters, while only 15pc were employees. Is retailers’ lack of focus on catching employees with their fingers in the till, the main reason why retail shrinkage remains stubbornly high around the world?
Take the UK as one example. The latest UK retail crime figures (2012-13), published by the Centre for Retail Research, reveal that UK retail shrinkage losses actually rose last year by 6.8 per cent to a total value of £4,699m. Over a third (35.77pc) of that loss was due to employee theft.

We now know our software can reduce employee theft considerably, having devoted research and development (R&D) to developing a series of sophisticated investigation tools to help retail customers to search known ‘fraud scenarios’ and find evidence of such events very quickly. Milestone has helped one of our customers to reduce its shrinkage from 0.81pc to just 0.44pc within the first two years after installing the system and in so doing, the number of employees caught in the act improved fivefold. How is this accomplished?

Tight integration
The starting point is to enable seamless integration between PoS systems and XProtect Transact or XProtect Retail. We developed these two products as add-ons to our standard VMS software. The second key to our success stems from our open architecture that allows for our solutions partners (or eco-system partners as we prefer to call them) to integrate their own software solutions. The combined solutions make it possible to tackle retail shrinkage head on, while future-proofing the investment as new issues emerge. We’ve been working closely with our partners to garner a detailed understanding of how specific retail ‘scams’ operate. We now have eco-partners that can analyse various modes of behaviour which are often early indicators, hot spots if you will, of employee theft. Here are a few examples:

Zero transactions or voids

The majority of retail theft is still out of the till or cash drawer. So if tills are opened without an associated transaction, it is important for retailers to be able to isolate these events and if till rolls do not reconcile with actual cash (or vouchers or cheques) in the till; then managers need to be able to investigate these events more closely. It is possible to pull up each such event in Milestone XProtect Retail and run sequences of video recordings associated with them.

Returns

Another regular source of fraud is returns. A typical scenario runs as follows: an employee takes an item off the shelf and simply scans it in as a returned item. Once this has been done he or she can open the till to provide the refund for the apparently returned product. However in reality that money goes into his/her own pocket. This not only generates a loss to the business but also messes up the retailer’s inventory records because a new product that really should be sold at top price is now likely to go through a secondary returns process which might lead to it being sold at a discount.

Loyalty card abuse

With the rise of the use of loyalty card bonus points given out as a reward for doing more shopping with specific retailers, employees have also been cashing in. A common scenario in recent years has seen cashiers collecting the bonus points of customers that fail to bring their loyalty cards with them into the store. In some cases this has led to points from hundreds of transactions being assigned to employees or friends’ loyalty cards in a single week. Again, systems can be set up to recover and view events associated with specific loyalty cards. By viewing video recordings alongside these suspect transactions, it becomes clear very quickly if an employee is pulling out their own loyalty card if the customer does not produce one.

Modified or manually entered item prices

Events like modification of pricing or manual entering of prices offer opportunities for cashiers to pocket the difference between the full price and the discounted price the customer should have received, for example. Again searches can be made and corresponding video evidence displayed alongside the relevant transaction data.

Events outside business hours

All too many fraudulent events happen first thing as tills are being stocked or last thing before cashiers head for home. It is important to be able to search on the first transactions of the day and last transaction of the day for each cashier. Many retailers also want to be able to analyse all transactions done outside business hours – just before customers come in and when most employees are focusing on doing their specific job to make sure they are ready for the opening of the store.

Gift cards

Gift card payment processing is another area rich with opportunities for employee fraud. Many customers rely on the cashier to inform them how much credit is left on a gift card after a specific transaction. What if the cashier tells the customer their card is now out of credit and asks for some additional cash to cover the remainder owed, when in reality there is still credit on the card? They can potentially pocket the gift card with credit still on it and any additional cash given over by the customer. For this reason gift card transactions are often checked for anomalies. Milestone XProtect Retail offers 20 pre-defined queries designed to enable rapid recovery of video relating to the above and many more types of transaction events which could also show evidence of employee theft. Search results are displayed as a transaction list, with corresponding video recordings. Retailers can configure their own searches if they are concerned about loss through new behaviours like ‘sweet-hearting’ for example. This is when employees give staff discounts to friends and family.

A global trend

With such advances in IP video systems and retail analytics it is perhaps no surprise that the August 2012 ‘CCTV in Retail’ survey of 700 UK retailers, by the Centre for Retail Research, found that 58pc of UK retailers plan to migrate from analogue-based CCTV to a new network video system in the coming years. IHS Research’s own estimates show the CCTV to IP video ‘tipping point’ will arrive during 2015. So by end of next year 51pc of video-based systems running in retailers globally is expected to be IP-based.

We believe that the primary driver (and source of funding) for the move to newer and more feature-rich technologies like the XProtect product range, is to have an open platform software that allows for implementation of professional analytic software used both for loss prevention and physical security. However, once this investment has been made and RoI delivered through reduced shrinkage; these new systems can deliver a raft of operational benefits which may not have been considered when the new video systems were first specified.

People counting

One of the more obvious analytical applications for VMS is people counting. People counting (or ‘footfall’) used to be carried out by standalone devices but increasingly the surveillance camera which covers the entrance to a shop is being fitted with people counting software to capture the image of the visitor as well as log the entry and exit.
The people counting software produces a stream of metadata which can be easily shared with stakeholders and cross-referenced with sales receipts for the same period. This sort of cross-referencing is a useful way of determining how efficient a given outlet is. If store visitors are rising, but sales at the tills are static or falling, this may point to a sub-optimal store layout, issues with stock volumes or type, or some other management issue.

Dwell-time analytics

New IP video systems can also be integrated with dwell-time analytics software to help analyse which aisles and displays are working best to attract and retain shoppers. Systems can also analyse dwell-time alongside images of customers actually picking up products and putting them in their baskets. Again it is valuable to cross-reference dwell-time data with customer action – normally resulting in purchase. However if lots of customers are stopping to look at an offer or display and then walking away, this is a fair indication that something in the offer on display does not work for them. Managers can use this business intelligence to investigate further and make improvements.

Facial recognition

It is also possible to use images of customers to analyse visitor demographics, specifically collecting age and gender profiles of customers. Milestone’s open platform software also integrates with facial recognition software providers, to help retailers to determine engagement levels of specific groups with specific displays. This software is increasingly used to establish the number of unique visitors to a store or display. The resulting facts and figures can give added leverage to buyers when they are cuttings deals with suppliers wanting to display their goods in favourable locations.

Heat mapping

To support this type of intelligence, store owners are increasingly deploying IP video systems integrated with heat mapping analytics software offerings. Heat maps determine areas of most activity and highest footfall in the store. The maps can be used to help direct managers’ discussions about the need for better store design to reduce ‘black spots’ where few customers venture, and also to stimulate customer flow through the store so they naturally travel next to some of the higher-value displays. Heat maps can be cross-referenced with till receipt data to confirm the effectiveness of new store layouts.

Queue management

Systems today can generate real-time alerts when queues exceed pre-defined thresholds. These alerts should then trigger the opening of additional tills and the acceleration of stock replenishment cycles – thus addressing the one customer experience that we could all do without. Some smarter queue analytics software can also integrate with footfall data at store entrances so that additional tills can be opened before that fresh rush of new visitors reaches the checkouts.

Summary

Upgrading to centralised video management software (VMS) like Milestone XProtect VMS, together with XProtect Transact or XProtect Retail, is still considered a grudge purchase by some retailers. However, retailers need to bear in mind that three-quarters of all their retail shrinkage comes from shoplifting combined with employee theft. With this in mind, it’s clearly worth taking a closer look at the benefits of gaining access to easily searchable, time-stamped video evidence, alongside specific transactions and till receipts. We know that this capability reduces loss prevention as we have seen it in action across many high profile customers around the world.

Global fashion retailers such as Paul Smith [pictured] and Prada have invested in Milestone VMS in their stores around the world to help reduce shrinkage and provide a platform for tapping into additional operational efficiencies in the future. One large Danish chain, has reduced shrinkage across all its stores while also increasing staff job satisfaction and morale because they are now able to determine who is consistently loyal and honest at work.

Loss prevention benefits aside, when retailers consider the business intelligence that the latest video management systems deliver the business case becomes clearer still. Your investment in Milestone VMS and our analytics software eco-partners can now deliver extremely valuable business intelligence day-in/day-out, to improve the customers’ in-store experience and help retailers realise (as yet undreamt of) additional operational benefits long into the future. So if you have not already considered using your IP Video Surveillance system to deliver business benefits beyond loss prevention then it is high time to do so.

Visit http://www.milestonesys.com.


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