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THE IMPACT AND CONTROL OF SHRINKAGE AT SELF SCAN CHECKOUTS AN ECR EUROPE WHITE PAPER JANUARY 2011 January 2011 This publication has been compiled by ECR Europe representatives from their membership and Adrian Beck the academic advisor to the ECR Europe Shrinkage Group The document is intended for general information only and is based upon the experiences of retailers in the UK only
January 2011, This publication has been compiled by ECR Europe representatives from their membership and. Adrian Beck the academic advisor to the ECR Europe Shrinkage Group. The document is intended for general information only and is based upon the experiences of. retailers in the UK only Companies or individuals following any actions described herein do so. entirely at their own risk Readers should bear in mind that due to the wide variety of companies. and organisations involved in the preparation of this publication and their specific requirements. the views and opinions expressed should not be taken as specific advice. Companies or organisations making use of this publication are advised to take professional. advice regarding their specific needs and requirements prior to taking any actions resulting from. anything contained in this publication Companies are responsible for assuring themselves that. they comply with all relevant laws and regulations including those relating to intellectual property. rights data protection and competition laws or regulations. This publication has been produced by ECR Europe with the assistance of Adrian Beck. Department of Criminology University of Leicester For further information please contact the. author directly at bna le ac uk,ECR Europe All rights reserved. The Impact and Control of Shrinkage at Self Scan Checkouts. Published by,ECR Europe,9 avenue des Gaulois,1040 Brussels. ecr ecreurope com www ecr all org, ECR Europe is a voluntary and collaborative retailer manufacturer platform with a mission to. fulfil consumer wishes better faster and at less cost It is a non profit organisations which aims. to help retailers and manufacturers in the consumer goods industry to drive supply chain. efficiencies and deliver business growth and consumer value. ECR Europe Shrinkage Group iii,iv ECR Europe Shrinkage Group. Executive Summary, This study aimed to contribute to the debate concerning the potential impact self scan checkouts. may have on retail shrinkage, It adopted a multi method approach retailer case studies a survey of self scan supervisors and. interviews with self scan technology companies loss prevention practitioners and product. protection providers,Key findings are, Limited evidence from the retail case studies suggested that the introduction of self scan. technologies had little or no impact on levels of shrinkage One retailer found that. manned checkouts operators are three times more likely to not scan an item than a. customer using self scan, A survey of 955 self scan supervisors did not identify widespread concerns about. customers abusing this system with the majority not having caught anybody stealing. through this method nor suggesting that the non scanning of items was widespread. The research identified the need for retailers to create zones of control within which. self scan checkouts operate to ensure that potential thieves perceive it to be both. difficult to steal and that it was highly likely that if they did offend they would be caught. These zones of control should be created through careful design where possible. creating a separate self scan space controlling the movement of customers and limiting. means of entrance and exit and generating overt forms of surveillance supervisors and. other staff constantly being highly visible and near to customers the use of CCTV and. public view monitors and technological monitoring through till based alerts and alarms. Where possible one supervisor should be responsible for a maximum of four self scan. checkouts this maximises their ability to be vigilant and to effectively respond to. customer queries and system alarms and alerts, Certain elements of self scan systems should be reviewed including. o the number of alerts generated compared with the ability of staff to act as. guardians of control identification of products that persistently create scanning. problems for customers barcode not reading and ameliorative action taken. either by the retailer or through negotiation with the product manufacturer. review of location of the receipt function improved customer notification of. change including location of scoop review of loose item description interface. and how discount vouchers are handled and verified. Training of self scan supervisors is critical they need to be aware of the importance of. maintaining vigilance and keeping in close proximity to customers They also need to be. aware of all the well known self scan scams, The providers of product protection equipment need to work much more closely with. the manufacturers of self scan technologies to ensure that the current problems being. experienced with devices such as EAS tags false alarms because customers are not. deactivating tags consistently can be addressed, There is a need for further research to understand the level of losses being experienced. through traditional checkouts to better understand whether the levels of loss are similar. or indeed higher than those occurring through self scan checkouts. The emerging nature of self scan technology and the growing public acceptance of and. familiarity with suggests that this subject should be reviewed in years to come to see if. levels of abuse are the same level,ECR Europe Shrinkage Group 1. 2 ECR Europe Shrinkage Group,Introduction, The purpose of this report is to contribute to the debate concerning the potential impact self. scan checkouts may have on retail shrinkage1 Since their first introduction back in the US in. 1992 they are increasingly becoming a familiar part of the modern retail space particularly in. supermarkets and this market is seeing remarkable growth across the globe with sales expected. to triple between 2007 and 20112 For some they provide another opportunity to give the. consumer even greater convenience and choice coupled with an attractive return on investment. ROI model for the retailer that potentially reduces their biggest recurrent cost staff3 For. others they are seen as the start of a slippery slope towards less and less customer service adding. yet further complication and irritation to the average consumers shopping experience4. Within the world of loss prevention views have been equally mixed Some have viewed this. development in horror fearing that it introduces an enormously easy way for customers to steal. product from stores particularly through the selective scanning of items These doomsayers. worry about the lack of control over the customer at a critical stage in the purchasing process. payment arguing that there is relatively little to stop them simply putting some of the products. in their bag without paying for them when not being actively supervised by a member of staff. However others have argued differently coming out in defence of the self scan checkout. revolution Some have suggested that trained checkout operators already regularly make errors. not scanning items either on purpose to benefit friends and family sweethearting or because. they are poorly motivated and or trained to do their job properly Their argument goes that losses. through this type of activity will be about the same as those caused by the customers who decide. to exploit the self scan systems or make errors Indeed some have gone further to suggest that. customers will actually be more accurate as many will be keen to make sure they do not make a. mistake when using these systems driven by a concern not to be caught acting dishonestly and. their relatively irregular use compared with retail staff will minimise any degree of laziness lack of. 1 For the purposes of this report the term shrinkage will be used to describe those losses suffered by retailers due to. internal and external theft process failures and inter company fraud including both known and unknown losses. For a more detailed discussion on the way in which shrinkage is defined measured and combated see Beck A. with Peacock C 2009 New Loss Prevention Redefining Shrinkage Management Basingstoke Palgrave Macmillan. 2 Retail Automation Bulletin 2009 Self checkout to drive growth in EPOS hardware spending Retail Automation Bulletin. Volume 1 3, 3 Providers of self scan technology send out a mixed message concerning this depending upon the intended. audience some such as Fujitsu suggest that large retailers could save up to 150 hours of staff time per week. Fujitsu 2006 U Scan The Fujitsu Self Checkout Solution Frisco Fujitsu while others prefer to couch the staff saving. as an opportunity to redeploy staff to yet further improve customer service IBM 2008 Shrink and self checkout. trends technology and tips New York IBM Not surprisingly most retailers employing this technology do not openly. admit that they are introducing self scan technology to cut back on staff costs preferring to frame their decision. more in terms of providing the customer with greater choice and convenience. 4 A recent report for the Sunday Telegraph suggested that self scan checkouts were actually slower than traditional. manned checkouts for the same sized basket of shopping while the Union of Shop Distributive and Allied. Workers USDAW have described them as a potential flashpoint which may cause frustrated shoppers to attack. shop workers http www telegraph co uk finance newsbysector retailandconsumer 7957800 Self service. checkouts have not cut supermarket queues html One commentator has also noted the negative impact self scan. checkouts can have on impulse purchases particularly those that took place at traditional checkouts one retailer. experienced a 30 40 reduction in snack items batteries gums and soft drinks after installing self checkouts and. wryly described it as the self checkout diet plan Evans J and Dayle E 2009 Self Scanning Profit or Loss. Presentation at the RILA Auditing and Safety Conference Orlando Florida. ECR Europe Shrinkage Group 3,Introduction, attention that may be exhibited by disenchanted employees sometimes to the point where they. may end up scanning and paying for items more than once 5. A third group have suggested that while shrinkage may go up due to some customers exploiting. the opportunities presented by self scan checkouts these losses will be more than offset by the. staff savings that accrue through their introduction typically a bank of between four and six. self scan checkouts will be monitored by just one member of staff and take up the equivalent. space of two typical checkout lanes While costing more to purchase in the first instance self. scan checkouts the argument goes present a very persuasive business model particularly if their. impact on shrinkage is either neutral or even slightly negative6 This argument is further bolstered. by the manufacturers of the technology who claim that the checks and balances they have. designed into their systems such as product weight confirmation plates limit the opportunities. for theft to take place and therefore make the business model even more persuasive. While there is a considerable amount of research and published material in the public domain. focusing on the various ways self scan technologies can be utilised their benefits known. operating problems and realisable ROI7 there is virtually nothing published of any note on their. relationship with shrinkage Numerous public sources reference8 a 1995 report by NCR one of. the main providers of self scan technology on shrinkage which apparently suggested that this. technology actually reduced shrinkage losses but it has proven to be an illusive document to. uncover and the researcher has failed to track it down one of the retailers that was apparently. consulted for the report was contacted but they could only say that they did not provide any. evidence to support the view that self scan checkouts were associated with lower levels of. shrinkage Another report again by a self scan technology provider IBM makes a similar. statement Research has found however that shrink is often either the same or less in self. checkout lanes but the report does not go on to explain where or how this research was. undertaken9, There is evidence from some unpublished research undertaken by Evans and Deyle in the US on. the potential impact of self scan checkouts on shrinkage which was presented at the RILA. Auditing and Safety Conference in Orlando Florida in 2009 This study was based upon a. perception survey of six retailers together with an analysis of shrinkage data from a Sub section. of 39 retailer share group which accounts for 259 billion in annual sales sic on differences in. shrinkage between stores with and without self scan checkouts While the results from the survey. of six retailers is of limited value due to the size of the sample the data presented from the 39. retailers offers some interesting insights10 They concluded that inventory shrinkage was slightly. higher in stores with self scan checkouts compared with stores that did not employ this. 5 This point is often supported by various surveys which show that perhaps as much as 70 per cent of all losses due. to shrinkage are due to internal factors staff theft and error and process failures and not the customer see Beck. with Peacock 2009 ibid, 6 This was the general conclusion from the study undertaken by Evans and Dayle which was presented at the RILA. conference last year 2009 op cit, 7 Visit a site such as www selfserviceworld com to get access to a wide range of articles and reports on the use of. self scan technologies, 8 For example see http www gokis net self service archives 000762 html accessed 30th July 2010. 9 IBM 2008 op cit, 10 The presentation does not offer any detail on how this data was collected the timeframe it covers nor the types of. retailers that participated As such it needs to be interpreted with some caution. 4 ECR Europe Shrinkage Group,Introduction, technology They went on to say that external theft activity in self scan stores was between 20. per cent and 65 per cent higher and inventory shrink in theft related items was approximately 20. basis points higher Also of interest was their conclusion that the rate of EAS alarms was 28 per. cent higher in self scan stores compared with stores not using this technology11. The only other sources of publicly available information on shrinkage and self scan checkouts. have been sporadic mentions in the media typical of which is a piece in the 2007 edition of. Supply Chain Digest entitled Retail Supply Chain Shrinkage Causes Wal Mart to Adjust Self. Service Process which noted how some Wal Mart managers in the US had noticed an. unbelievable increase in shoplifting due to the introduction of self scan checkouts although they. were using a system which did not weight check items12 However none make reference to any. verifiable data that can confirm the impact if any of self scan systems on rates of shrinkage. Given this lack of clarity on the issue and the increasing speed with which many retailers around. the world are introducing this technology the ECR Europe Shrinkage Group decided to. commission this piece of research The aim of this study was to try and contribute to this debate. on what impact if any self scan checkouts might have on shrinkage in the retail sector In. particular it was proposed to try and develop if possible a series of guidelines on how to. minimise the risk of shrinkage when introducing self scan checkouts and also explore the. implications of their use on product protection technologies used in store such as Electronic. Article Surveillance EAS tags It is worth highlighting that this study is only interested in self. scan checkouts and not other variants of self scanning technology that currently exist To clarify. in this study self scan checkouts refer to systems whereby customers use a checkout machine to. scan items they have selected from the store themselves including selecting categories for loose. items such as fruit and vegetables and make payment via cash or a credit debit card This may. also include some functionality to deactivate Electronic Article Surveillance EAS tags For all. the retailers taking part in this study there was no process for carrying out a post scan audit of a. customer s purchases to verify accuracy13, The concept of getting customers to perform more and more of the tasks that make up the. shopping experience is not new Back in the early parts of the last century supermarkets began. moving away from a system whereby all the goods in a store were held behind counters. accessible only by asking a member of staff for assistance to the now familiar concept of self. service with goods being on open display Customers were now free to select the goods they. wanted and browse goods they might be interested in and only interact with a member of staff. when they wanted to pay with the associated development of the checkout station A similar. change can be seen in the way in which petrol stations now increasingly operate where there is an. expectation that the customer will take responsibility for using the refilling equipment themselves. and then pay at the end Equally the rise of the ATM machine has seen a remarkable change in. 11 Evans and Deyle 2009 op cit, 12 http www scdigest com assets newsViews 07 10 01 2 php cid 1270 accessed 29th July 2010. 13 Some variants of self scan system randomly select customers for a post purchase check to reconcile purchased. items with the receipt Some retailers argue that this audit process produces a higher degree of risk and so acts as a. valuable deterrent to would be thieves,ECR Europe Shrinkage Group 5. Introduction, the way in which people now gain access to cash from banks they are no longer required to. present themselves at a bank at proscribed times but instead can use a widely available. technology at their own convenience This changing model of business is considered a win win. development the provider reduces costs you need less staff to serve and the consumer is. given greater freedom to access a broader ranges of goods and services at their convenience Self. scan checkouts are a logical extension of this process. There are essentially two main types of self scan system Stationary Self Service Checkouts and. Portable Self Service Platforms14 The former is a fixed device where customers bring their. goods scan them and arrange payment themselves The latter is a hand held device whereby the. customer scans goods as they move around the store and then when ready to pay approach a. designated member of staff with the device that is then used to arrange payment There is. considerable variance in the way each of these systems are designed and developed by the. technology providers and operated by the retailers using them For instance some retailers insist. upon the use of random audit checks whereby every nth customer is selected to have their. shopping checked by a member of staff This is seen by some as a valuable means of generating. deterrence as the random element of the process makes all those using the system aware that they. could be checked at any time For other retailers this is regarded as too time consuming. preferring to rely upon other means to reduce the likelihood of customers stealing goods through. self scan checkouts, Early adopters of this technology have primarily been large volume retailers such as. supermarkets hypermarkets and DIY type retailers although the technology providers claim that. it can work in most retail environments With approximately 80 per cent of supermarket labour. costs being incurred at the checkout it is perhaps not surprising that this environment has been. an early adopter any innovation that can make an inroad into this cost is likely to be taken. seriously15 In addition surveys have shown that while it can be slower to use a self scan. checkout than a manned checkout customers think it is faster due to the lack of queues and the. act of doing it yourself and about 50 per cent suggest they like the choice of different ways to. check out16 While few Return on Investment ROI studies have been published manufacturers. of the technology suggest that adopters can realise a profit in about 1 2 years or less17. Before going on to discuss the methodology used and the limitations of this study it is worth. providing a brief summary of the problem of shrinkage as it affects the retail sector The subject. of shrinkage or shortage as some prefer to call it is a difficult subject to get conclusive. information about companies rarely publish or share shrinkage results Most available. information on the scale and extent of the problem come from various surveys that are. undertaken across the globe Beck and Peacock recently brought the available data together and. concluded that globally shrinkage is costing the industry 278 billion a year or 1 65 per cent of. retail turnover figures which ignore the additional cost of lost sales due to shrinkage created. 14 Self Service World 2009 Self Checkout published by NetWorld Alliance. 15 http kn theiet org magazine issues 0911 machine for shopping 0911 cfm. 17 http www ampmservice com products grocery pos storenext u scan. 6 ECR Europe Shrinkage Group,Introduction, out of stocks estimated at a further 0 2 of retailer turnover 18 When this is related to the. overall impact on retail sales they suggest that if the cost of shrinkage could be halved then most. retailers would see their profits grow by 36 per cent. Traditionally the key cause of shrinkage has been seen to be external thieves although globally. estimates vary considerably on the proportion of loss accounted for by them For instance the. annual surveys undertaken by the University of Florida regularly conclude that internal theft. makes up the biggest proportion of loss while the various Global Retail Theft Barometer surveys. suggest that external theft is the largest single contributor19 If an average is taken across the. various recent surveys then it would seem to be that external theft accounts for 35 per cent. internal theft 33 per cent with process failure and inter company fraud making up the remaining. 32 per cent20, What is unclear from any of the existing literature on retail shrinkage is the extent to which losses. at the checkout contribute to overall loss it is an unknown figure although numerous. practitioners have speculated on how significant it might be to the point of investing in a wide. range of technologies to try and detect and deter its occurrence21 Certainly the available research. on staff dishonesty would suggest that the checkout provides an attractive opportunity for. deviant behaviour it is difficult to monitor certainly in terms of non technological. identification of non scanning and brings employees into regular contact with the hottest. product of all cash An earlier study by ECR Europe identified the extent to which dishonest. employees found it relatively easy to steal from the checkout which supports to a degree the. earlier hypothesis that customers using self scan checkouts will steal and or make errors at about. the same rate as employees therefore overall rates of shrinkage will not be affected22 What is. required however is more detailed research which quantifies the actual level of losses occurring. at manned checkouts compared with other areas where losses occur such as by external thieves. stealing products members of staff doing the same and the whole panoply of losses relating to. process failures Until this is achieved then it will not be possible to confirm whether customers. do indeed steal and make errors at about the same rate as members of staff. At the outset it was proposed to use a number of different methodologies to try and achieve the. aims of this study including retailers acting as case studies to try and provide data on the impact. the introduction of this technology had had on levels of shrinkage in their companies a survey of. self scan supervisors to find out their experiences of these systems interviews with various. technology providers both self scan systems and those who provide product protection. equipment and interviews with loss prevention practitioners This wide range of methods was. used because it was not clear at the beginning what information if any would be available from. retailers themselves on the actual impact on shrinkage of these systems this sort of data is. 18 Beck with Peacock 2009 op cit see also ECR 2010 Packaging Design for Shrinkage Prevention Brussels ECR. 19 Hollinger R C Adams A 2008 2007 National Retail Security Survey Final Report Gainsville FL University of. Florida Bamfield J 2008 Global Retail Theft Barometer 2008 Nottingham Centre for Retail Research. 20 Beck with Peacock 2009 op cit, 21 See for instance recent develops in a range of technologies such as data mining and CCTV based systems for. observing and monitoring check out operators, 22 Beck A 2006 Staff Dishonesty in the Retail Sector Understanding the Opportunities Brussels ECR Europe. ECR Europe Shrinkage Group 7,Introduction, notoriously unreliable when trying to measure relatively nuanced changes to retail spaces More. often than not retail shrinkage numbers are based upon relatively unsophisticated modes of. measurement annual store audits being an example where some losses will not be identified for. up to 12 months after they have happened making it impossible to ascertain the cause of the loss. In addition in the periods when self scan systems have been introduced into retail stores there. are often a range of other changes that have occurred at the same time such as other retail. systems being introduced changes in store layout product ranges types of product protection. used etc many of which are virtually impossible to isolate within the overall shrinkage data. Therefore while retailers may record changes to shrinkage data that in the first instance are. correlated with the introduction of self scan technologies there is a significant difference. between correlation and causation the former measures similarity the latter explains why one. factor affects another In the dynamic and fast changing world of modern retailing trying to. undertake experiments to test for causal changes when new technologies or approaches are. introduced is notoriously difficult and in this instance it is further compounded by the relatively. unsophisticated nature of the main variable the rate of shrinkage So while the retailer case. study data was seen as a potentially important way of trying to understand the impact of self scan. technology on shrinkage other approaches were also adopted to generate different types of data. that could also help to meet the objectives although by their nature they inevitably become more. indirect and require a greater deal of interpretation. Four retailers agreed to act as main case studies for the first part of the study All of them were. UK based and together represented a significant proportion of the supermarket sector23 Each. had introduced self scan at different times in different ways across a range of store formats and. at different speeds of roll out One retailer had had experience of a different form of self scan. system in the past hand held barcode readers that enabled customers to scan as they moved. around the store and then at the end of their shopping they presented the device to a member of. staff who organised payment, Each company was contacted with a request for specific information relating to shrinkage and. the introduction of self scan checkouts in particular whether they could identify a group of. stores 40 that previously had not had self scan and then had had it introduced approximately 12. months previously The idea was to try and measure changes in shrinkage over time as these. stores moved from not having the technology to then having it installed In addition the retailers. were requested to identify a group of stores that matched the profile of those that had self scan. introduced to act as a control group This exercise proved very difficult for the companies to do. with any degree of accuracy In the end just one retailer was able to provide any form of data that. came close to this requirement The results from this are presented in the next section For the. others they were simply not able to either provide the historic data with any accuracy or identify. sufficient stores where the transition could be readily ascertained For one of the companies. agreeing to take part the introduction of self scan checkouts coincided with the introduction of a. 23 Because of the confidential nature of some of the data shared with the researcher it has been agreed not to name. the companies that took part in this study,8 ECR Europe Shrinkage Group. Introduction, home delivery service in the same stores making it impossible to know whether any changes in. shrinkage were due to self scan home delivery or a combination of the two. In addition to the main case study companies a US retailer also agreed to make data available to. aid the study This company used a relatively new and innovative technology that enables the rate. of non scanning at the checkout to be monitored along with other forms of deception and. mistakes 24 The retailer was able to provide the rate of non scanning for manned checkouts. compared with self scan checkouts for a 12 month period covering 47 stores which included 554. manned registers and 63 self scan registers Of itself this is groundbreaking data as prior to this. it had been virtually impossible to monitor error rates at the checkout on such a scale However. it does only measure one aspect of malicious and non malicious activity at checkouts and so the. data needs to be used cautiously For instance non scanning at self scan checkout is not the only. one way in which thieves can steal products they can scan product and then simply not pay. they can use incorrect product identification codes for weighed items and so on Neither of. these scams would be captured by this data Given that it is still some of the strongest published. data enabling a comparison to be drawn between rates of non scanning at manned and self scan. Because it was predicted that shrinkage based data from case study companies was likely to be. unforthcoming with any degree of accuracy it was decided to undertake a survey of those staff. that had responsibility for monitoring the checkouts on a regular basis Given their role it was. felt that their insights to the way in which the tills were operating the problems they encountered. and the ways in which customers were using and abusing them would generate some valuable. data Once again only UK based retailers were used to collect the data The responses came. from 6 UK retailers with a combined retail turnover of 94 5 billion representing 52 5 per cent. of the grocery market The data was collected in two main ways Four companies agreed to. collect the data within their own businesses by distributing a self complete questionnaire to. stores where self scan was in operation Those selected were simply available at the time of data. collection in those particular stores no effort was made to stratify the sample within each of the. companies adopting this approach All four companies selected stores across the UK for. inclusion The data from the two remaining retailers was collected by a third party company that. visited their stores on a regular basis for the purposes of merchandising The stores were selected. based upon the rota drawn up by the third party company for a given month and covered all of. England Scotland and Wales the researcher identified those stores that had self scan from lists. provided by the retailers Upon entering the store the representative went to see the store. manager and requested that one member of staff who was currently not working on self scan. checkouts but usually had responsibility for them completed a questionnaire Once completed. the questionnaire was returned to the representative who then forwarded it to the researcher. A total of 978 questionnaires were eventually returned through the two methods of which 955. were ultimately usable Given the way in which the data was collected some caution has to be. 24 The company is called Stoplift and uses CCTV and software linked to the EPOS system to identify malicious and. non malicious activity at the checkout see http www stoplift com.