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The future of ‘shrink’: the increase of shoplifting

Tom Howkins

Shrink is the term used for lost inventory such as items that left a store or warehouse without being paid for including stock that is damaged, stolen or wasted. Shrink has always been a problem for retailers, but in recent years it has become more endemic with a greater impact on profitability. The recent rapid increase in shoplifting coincides with the cost-of-living crisis experienced in the last couple of years, but theft was also trending upwards in the years before COVID. Retail losses are up by 33% across all categories compared to pre-COVID levels, with theft now at a 20-year high. In 2023 UK retailers lost £7.9bn to stock theft alone. One UK premium grocery retailer accounts for ‘shrink’ as a £100 million a year problem with theft accounting for £40m. Another Dutch retailer sees annual stock theft alone as a €100 million problem.

Several factors have been driving the rise of retail crime including the cost-of-living crisis, the increasing number of self-checkouts, anti-social behaviours and the rapid growth of targeted organised crime. In part crime in retail has been facilitated by the lack of custodial sentencing for shoplifting to act as a deterrent in the UK. The prison population is at an all-time high resulting in magistrates preferring community orders to prison sentencing. Theft by staff from warehouses and distribution centres has also seen an increase of about 40% with more organised crime by employees especially around small yet expensive electrical devices such as smartphones.

Retailers can address the problem through their ‘profit protection teams', physical infrastructure, body worn cameras or self-checkout e-gates (SCO), which use technology such as till receipt scanner or Visual AI to identify and control customers who have not paid for their shopping. The technology industry has been responding to the growing issue of crime with new digital technologies helping retailers to protect their business against losses due to theft.

Source: "Disturbing" rise in supermarket losses - Western Grocer

The ‘in ‘convenience of self-checkouts

Most customers do not like queuing for checkout. Retailers are always focusing on ways to make the customers journey through their store frictionless, including the introduction of more self-checkout tills. However, there has been an increase in loss at self-checkout or mobile scan solutions which include apps and handheld scanners. Supermarkets see about 20-25% of loss through self-scan and checkout technology with this figure rising to near 40% for mobile ‘scan and pay’ solutions. ‘Just Walk Out’ (JWO) technology gives greater control over entrance and exit from the store via controlled gates, weighted shelves and visual AI to identify what products the customers select. Payment is then automatically taken from the digital wallet on exit from the store. JWO is well established but has never been adopted at scale, mainly due to the overhead investment and the customer base not always sure about the experience. Amazon has recently decided to pull back from JWO in the USA however, it intends to replace it with SCO and its own dash cart (a traditional looking cart/trolley with an in-built weigh scale, bar code scanner, visualAI camera, geo-fencing technology). Meanwhile in Europe, Netto in partnership with Trigo has opened the largest frictionless grocery store.

Good v bad actors

Research suggests that a fair percentage of self-checkout loss, circa a quarter (23%), occurs from shoppers unintentionally misscanning a product while thieves tend to lift the products directly from the shelf and walk out, representing about half of total store losses (48%). Retailers need a solution that offers customers a low friction checkout experience while preventing or reducing theft.

Regarding theft from staff, retailers need to manage the fine balance of the need to trust staff while implementing acceptable deterrents.

The challenge from within

Overall, 40% of retail theft is committed by employees – with theft at distribution centres having significantly increased in recent years and representing 42.6% of total employee theft. This is believed to be an under reported problem. Recruitment problems have driven a reliance on temporary, transient workers with little or no loyalty. In the UK, warehouse staff can be quite transient, sourced from agencies, with employment history records often not shared, so a malicious agency worker could move undetected between employers. Theft also comes from a small minority of long-term employees who are removing stock from stores and distribution centres, giving away goods to friends or family, or unintentionally misscanning on manned tills in the store.

What can retailers do to address the problem?

Government policy has been slow to respond appropriately, and staff shortages are also impacting police attendance who tend to prioritise violent crimes. As a result, retailers are reluctant to contact the police as this often does not result in a prosecution. Increased reliance on a transient workforce and the lack of prosecution mean that professional thieves will pass from employer to employer, undetected.

Wearable technology, such as body worn cameras can act as a deterrent in retail environments. In the supply chain, options such as GPS trackers or even solutions such as Google Glass could help better track theft, while also monitoring workforce productivity. The rapid rise of visual AI solutions that use machine learning to detect loss will help retailers better protect against loss. The solutions use cameras and machine learning to build a data model of the store stock, which can accurately identify which product the customer has attempted to scan. This helps address misscans and prompts the customer via the screen to correct the issue. At checkout it is estimated that about £20m of lost sales can be prevented for a typical, large national grocery chain. Visual AI can also be used elsewhere in the store to detect and prevent loss on high value product shelves, at the stockroom delivery gate or to exit the self-checkout area.

Facial recognition can be used to identify repeat offenders or known criminals entering store and alert security personnel or even the wider stores network. The accuracy of prediction needs to be, and is, extremely high on such a solution to prevent false positives. High value retail items targeted by organised criminals can be placed behind a transparent secure product display, which requires a staff member to access the product or use Visual AI to alert staff to theft taking place. Other solutions include security tags, RFID, weight-sensitive shelves, visual AI or empty packets which customers exchange for the actual product at checkout.