Natural Foods Merchandiser

Surveillance: Trust, but verify

Forget about the fancy technological gadgets you?ve been reading about: self-checkout, hand-held scanner guns or RFID—those radio-frequency chips that track your stock from factory to cashier.

The most effective new use of a small store?s technology dollar is a digital video surveillance system, says Brooklyn, N.Y.-based technology consultant Mark Lilien.

Fifteen thousand dollars will buy a PC-based surveillance system for a 5,000-square-foot store, he says. It would include about 25 cameras, a PC with digital storage and a CD burner, plus the wiring and networking gear to hook it all up.

Amortized, that?s $3,000 a year for five years. ?If you can?t find $3,000 worth of waste in a million-dollar store, I?d be astonished,? Lilien says.

After dropping for three years, employee theft rose in 2004, according to an annual survey by Fruitland Park, Fla.-based loss prevention firm Jack L. Hayes International. Hayes says one in every 27.8 employees gets busted for theft on the job, adding that only 2.74 percent of retail theft losses are ever recovered.

Industry-wide, shrink averages about 2 percent of sales, says retail consultant Danny Wells of Vacaville, Calif. About 80 percent of that is related to employee theft or mistakes, both of which can be reduced with monitoring.

Although Wells says that it?s his experience that natural stores ?do have a somewhat higher moral ground when it comes to employee integrity,? the employee who cheerfully signs on to the store?s mission statement of community and sustainability may also be stealing your face right off your head. ?I had a four-store client who was achieving 42 percent [gross profit margin] in three stores and 37 percent in the other,? Wells says. ?After analysis, it looked to me like theft.? At Wells? suggestion, the store owner met with employees at that site and told them that ?product [was] leaving the store without going through the registers.?

As a result, the owner planned to do monthly inventory in all departments until the margins reached target levels; install security cameras with recorded video; and prohibit employees from checking out their own purchases.

?Two weeks after this meeting, both the manager and assistant manager quit,? Wells recalls. ?Within one month, the store margins hit 42 percent, like the other stores.?

Those two employees had worked at the store for five years, skimming an estimated $30,000 a year from an operation that grossed $600,000 annually. It took $150,000 out of the owner?s pocket, Wells says.

Lilien agrees that the mere existence of a video system can be enough to deter problems. ?Word gets around real fast,? he says. ?That?s the way the IRS scares people—you only catch one crook out of a thousand? but the other 999 opt to behave themselves.

An older surveillance system can be upgraded to record onto computer hard drives instead of videotape. Similar to a TiVo digital recorder, the device is random-access, allowing hours and hours of video to be reviewed, analyzed and burned onto a CD for the police if need be.

The whole thing can be managed and monitored with a regular PC or laptop, inside or outside of the store.

Some systems network with front-end point-of-sale data to help owners spot cashier mistakes and fraud. If a checker is scanning one item while bagging five, ringing up bananas while weighing organic ginger root, or issuing refunds without receiving merchandise, integrated POS and video will document the details.

More sophisticated products do constant data mining and analysis on POS data, looking for patterns that suggest fraud. For example, if one cashier posts lower net sales per hour than his or her co-workers, that could signal a productivity problem, but it?s also a red flag for ?sliding? merchandise without scanning it. Video synched to the POS can immediately look at that cashier during those hours.

Other systems audit back door receiving or direct store delivery vendors. Video systems also allow managers to keep an eye on customer service patterns, store traffic and stock levels.

Natural products retailers are more vulnerable than many to systematic theft, in part because so many products are both expensive and small, Lilien says.

Shoplifting from high-end personal care and supplements sections are the first departments most people think of, but theft can happen anywhere in the store, from back door receiving to the front office.

And it adds up. Employee theft incidents average $671, while shoplifters take merchandise averaging about $100, according to the Hayes study.

In a 30-employee store, ?if you only have two who have a mind to do it, they can put you out of business,? Lilien says.

Natural Foods Merchandiser volume XXVI/number 12/p. 12, 14

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