Jan 23 2023

NRF 2023: How AI Is Helping Retailers with Loss Prevention

With inventory loss costing the industry nearly $100 billion a year, retailers are investing in artificial intelligence-based systems to limit theft.

At this year’s NRF 2023: Retail’s Big Show, experts noted that creating a seamless, secure customer experience is highly complex. That’s why retailers are leveraging in-store automation, artificial intelligence and data analytics to help orchestrate digital experiences while monitoring for theft in the background.

Every year, inventory loss is “a nearly $100 billion problem for the industry,” according to the National Retail Federation’s 2022 Retail Security Survey. As a result, retailers are turning to a variety of artificial intelligence-based solutions, including video analytics at the point of sale or self-checkout, radio frequency identification heat maps, autonomous security robots and more. Here’s what IT leaders need to know.

Click the banner below to receive exclusive industry content when you register as an Insider.

The Various Forms of “Retail Shrinkage”

Loss of inventory, or retail shrinkage, can happen in the form of shoplifting, supply chain and delivery theft, fraud and even organized crime. Products can be stolen in an instant, but AI is working faster to prevent losses.

Shoplifting

According to Forbes, 37 percent of retail shrinkage stems from external theft, when an item is stolen off the shelf. “We have a sophisticated security system in place, but we’re still seeing a lot of rob-and-run cases. If you have valuable products, people will want them,” said Antoine Tessier, CTO of Louis Vuitton Moët Hennessy Americas. Shoplifters are going for “products that have high street market value, such as power tools,” noted David Shoop, senior vice president of technology, stores, corporate services, pro and services at Lowe’s Home Improvement. And even though theft increased during the pandemic and with hard economic times, “some products are just more susceptible to theft. They’re hot items,” he added.  

Employee Dishonesty

Experts at NRF noted that employees are stealing cash more frequently by ringing up fake returns, improperly using employee discounts and stealing cash from point-of-sale systems. There’s also a new trend called “sweethearting,” in which an employee steals an item to give favorable treatment to a repeat customer or crush. The NRF survey explains that this typically happens through ticket or product switching: An employee scans a less expensive item while gifting a more expensive item without scanning it.

Supply Chain and Delivery Theft

On a given day, products travel through a long and elaborate supply chain, reaching three to 10 distribution centers, depending on the retailer’s size and number of stores. Often, employees and third-party delivery workers steal items while the products are in transit. And Tessier noted that delivery theft is another form of inventory loss. “Even with tracking, a lot of our deliveries are getting stolen now,” he said.

DIG DEEPER: Find out how retailers are using AI video to prevent loss at checkout.

Antoine Tessier headshot
We have a sophisticated security system in place, but we’re still seeing a lot of rob-and-run cases. If you have valuable products, people will want them.”

Antoine Tessier CTO, Louis Vuitton Moët Hennessy Americas

Return and Vendor Fraud

Return fraud is commonly overlooked, but it happens when stolen merchandise is returned after being purchased with counterfeit money or receipts. Experts said vendor fraud, though less common, also still occurs, with employees creating false vendors and invoices to direct payments to themselves.

Organized Crime

“The kind of theft that’s mostly happening isn’t run-of-the-mill shoplifting. It’s organized crime,” said Mark Mathews, NRF’s vice president of research development and industry analysis. Shoop of Lowe's agreed: “There’s no brick-and-mortar retailer out there that isn’t faced with organized crime.”

NRF’s latest survey numbers reflect this assessment, with 52.9 percent of retailers reporting an increase in organized crime. Speakers at NRF encouraged retailers to establish organized retail crime teams that can leverage AI tools and study crime behavior. So far, about one-third of retailers have a dedicated team, NRF reports.

$94.5 billion

The amount of retail inventory lost to theft in 2021

Source: National Retail Federation, 2022 Retail Security Survey, September 2022

AI Technology Solutions That Fight Losses

AI-based video analytics at point-of-sale and self-checkout terminals, sensory heat maps, cash automation technology and autonomous security robots are just a few ways that retailers are combatting these threats. “It’s a game of triage, and we need to put protective efforts in place,” said Takahiro Tambara, CIO of Fast Retailing.

But Andy Szanger, director of strategic industries at CDW, is hopeful that AI advancements will allow retailers to fight defensively and proactively. “AI is helping us make better, faster decisions,” he said. “The technology is also enabling retailers to take something like cameras, which have always been in retail stores, to the next level."

Andy Szanger Headshot
AI is helping us make better, faster decisions. The technology is also enabling retailers to take something like cameras, which have always been in retail stores, to the next level.”

Andy Szanger Director of Strategic Industries, CDW

Here are some areas experts have identified to help retailers enhance their loss prevention efforts:

  • Cash automation technology. Using smart safes and cash recyclers with individualized employee PIN access, retailers can monitor the movement of cash in near real time through their advanced reporting capabilities. When machines do the counting, end-of-day sales reports are more accurate.
  • AI video at the point of sale. Strategically placed AI at checkouts can capture the weight and size of an item and detect whether a lower-priced item is scanned instead. Retailers can also use enhanced video surveillance cameras, which combine AI with data analytics to monitor behavior and in-store movements. “By linking video data to point-of-sale transactions, we can prevent theft and leverage more insights,” said Szanger.
  • RFID systems. With embedded sensors, radio frequency identification tags can alert retailers to theft.
  • In-store heat maps. Retailers are testing new heat map systems powered by thermography, using thermal technology to map emotions onto the body with colors. For instance, red indicates angry or anxious. Retailers can also see the most heavily trafficked areas of the store to count customers, identify popular products and track patterns.
  • Autonomous security robots (ASR). Some retailers are testing out automated guards for surveillance and security tasks. Combining self-driving technologies, robotics and AI, ASRs can patrol areas, report, monitor, investigate and detect intruders.
  • License plate readers. License plate readers can scan, track and identify whether a car made repeat visits to a store and record whether different people came out of the car to steal. This is particularly useful in detecting organized crime, indicating when certain people may be connected.

DISCOVER: Learn the hottest retail tech trends for 2023.

Takahiro Tambara headshot
We cannot stop innovating in retail. These prevention systems can count as another kind of innovation or step forward.”

Takahiro Tambara CIO, Fast Retailing

Embracing Intelligence-Based Loss Prevention Systems

Intelligence-based loss prevention systems are helping retailers fight theft, and many of them are increasing their budgets to invest in this technology. For Tessier, this investment is crucial because it’s a matter of protecting the customers as much as the products. “It’s important to preserve a sense of security and safety in our stores,” he said.

For these reasons and more, experts at NRF urged retailers to embrace intelligence-based loss prevention systems, a trend that is expected to continue in the future. “We cannot stop innovating in retail. These prevention systems can count as another kind of innovation or step forward,” Tambara said.

Keep this page bookmarked for articles from the event, and follow us on Twitter at @BizTechMagazine and the official conference Twitter feed, @NRFnews.

metamorworks/ Getty Images

aaa 1

Register