Loss Prevention, Auditing & Safety Conference 2009

Title Sponsor:

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Jill EvansErnie Deyle

Self Scanning: “Profit or Loss”

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Overview

History of Self Scan in the retail industry Customer Perceptions of Self Scan RILA Retail Self Scan Survey Results How SC impacts Loss Prevention/Asset

Protection…positively & negatively Future Changes/Focuses

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Where did self service all begin?

From ATMs, airport check-ins, food order kiosks, to self service gas pumps,…customers now have the freedom to control check-in or checkout time.

Self Checkout machines first prototyped by companies such as NCR Corporation in 1997.

By 2003, these automated SCO systems were in widespread use and being supplied by NCR, Fujitsu/ICL and IBM.

Reference: Wikipedia-Self Checkout

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Way the Growth of Self Checkout Usage?

Increase usage of self checkout by retail environment driven by Customer demand.

Perceived cost savings in labor and improved efficiencies.

Due to technological advances – a convergence of improved technology, manufacturer leveraging of industry standards to reduce the cost of equipment, ease of use …brings a growing movement towards self checkout.

Reference: St Clair Interactive Communication- Barry Wise

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History of Self Scan

Driven by customer convenience and speed Early retail adopters of self service registers

were primarily those in the grocery industry. $600 billion in self scan sales in 2008

projected to grow to $1.7 Trillion by 2012 (excludes self service gasoline sales).

Reference: IHL Consulting Group Self Scan survey results reported in 2006.Reference: Retail Solutions On- Line- According to a group study (“2008 North American Self Service Kiosks”)

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Self Scan Beginning…

Started in the grocery business and has moved to the big box retail chains such as Lowe’s, Wal-Mart, B J’s Wholesale and Home Depot.

Due to the higher dollar items at big box chains the average transaction has grown from $25 in 2004 to $35 in 2006.

IHL Consulting Group Self Scan survey results reported in 2006.

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Increased Use of These Types of Self Service Kiosks

Self Checkout Systems: Ticketing Kiosks – airline industry Check-In Kiosks – airline industry ITVM Lottery – instant ticket vending machines Food Ordering – fast food and grocery (deli) Postal Kiosks Photo processing Paper back book distribution – new technology High end electronics – Apple & Sony

All of which orders are placed and payment is taken with little or no associate interaction

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Self Service Kiosks are Changing the Way Consumers Do Business

Studies indicate between 15%-40% of all purchases are made at self checkout machines.

Airlines estimate that 80% of passengers use self check-in machines today.

29% of consumers will only use self scan registers if the lines in staffed registers are long.

Average # of items purchased in SCO is 6.7 per purchase.

Reference: IHL Consulting Group Self Scan survey results reported in 2006.

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Positive Results for Consumer…

Helps develop customer loyalty. Self scan has resulted in reducing customer

queue time by up to 40% with a 20% increase in throughput.

Provides greater privacy and control for customers.

Retailers can benefit from direct marketing such as personal digital advertising, if and when customer uses loyalty cards at the store’s kiosks or checkout to improve sales.

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Positive Results for the Retailer

Suggests reductions front-end labor (1 Attendant to cover 2-6 registers simultaneously).

Provides the retailer the ability to redeploy customer services staff to other parts of the store (areas that require direct service which increases revenue base).

Reported to optimize labor, and increase front-end throughput with a lower level of labor.

Average retailer reports that between 20%-50% of all register transactions come from self scan registers according to an NCR study.

Reference- Article Self Checkout: How successful are they? NCR Corporation- Quotes from Kathy Davidowicz

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Other Positive Results for the Retailer

•Many retailers who have implemented Self checkout rate higher on customer service surveys.

•One of the least expected factor in the growing use of Self Scan machines is the language barrier issues in predominately multi-lingual areas.

•The positive benefit is SCO allows the customer to order correctly without language barrier being an issue.

Reference: Article Self Checkout: How successful are they?

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Customer Perceptions: True or False?

Customers perceive self service registers as faster when in actuality they are slower due to consumer taking longer to complete the transaction vs. a trained cashier Customer believes it is shorter because it is interactive

Self checkout lanes are usually shorter Customers are more conscious of time spent waiting

vs. when they are busy completing the transaction process themselves

Customers like the option to choose self checkout depending on the number of items they are purchasing…

Reference: IHL Consulting Group Self Scan survey results reported in 2006.

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Negative Impact of Self Scan Lanes

SCO reduces retailer to face to face interaction with the customer.

Reported to reduce add on sales opportunities which results in lost revenue.

If SCO equipment malfunctions or is difficult to use this may frustrate consumer .

Loss in revenue of the purchase of “impulse items” displayed at the registers.

Reference: Retail Solutions On- Line- According to a group study (“2008North American Self Service Kiosks

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Negative Impact of Self Scan Lanes

Many retailers experienced a reduction in sales of impulse items (over 40%).

SCO requires the consumer to concentrate on the transaction process thus reducing browse time.

Drops of over 40-50% in sales of snack items, batteries, gum and drinks.

Called a “self checkout diet plan”- estimated the snack sales reduction will save a person 2.5 pounds per year.

Reference: IHL Consulting Group Self Scan survey results reported in 2006

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RILA Retail Self Scan Survey Results

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Conducted a Brief Self Checkout Survey with RILA Members (March 2009)

Only six different retailers responded. Participants from the food/supermarket, chain

drug stores, sporting goods, large format specialty store and small format specialty segments.

Survey took a look at SCO shrink, and theft issues.

Survey also reviewed loss prevention physical security at SCO, staffing and the SCO process.

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Conducted a Self Checkout Survey with RILA Members (March 2009):

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Conducted a Self Checkout Survey with RILA Members (March 2009):

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Conducted a Self Checkout Survey with RILA Members (March 2009):

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Conducted a Self Checkout Survey with RILA Members (March 2009):

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RILA Retail Self Scan Survey Results:

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Increased types of theft issues as a result of Self Checkout:

Use of “Skip bag function” resulting in theft External box stuffing External barcode switching Sliding of product (i.e.: failure to remove or purchase

product for the top or bottom of the basket or cart.) Use of stolen or fraudulent credit cards Check fraud Coupon fraud Not scanning all products Pushing carts through without ever attempting to pay One respondent also commented that burglaries in

stores to obtain cash from SCO units have also increased

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Self Checkout Internal Survey Results

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Physical Security Measures Used at SCO:

These procedures include the use of CCTV cameras and public view monitors, intervention of an attendant when the skip bag feature is prompted, visual verification process of age-restricted items, use of EAS systems, support from remote assistant podiums, and a dedicated self checkout staff

All but one respondent reported that they did NOT use CCTV cameras on the self checkout registers

However, only 50% of the respondents use public view monitors at the self checkout registers

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Types of Operational Shrink at SCO:

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RILA Retail Self Scan Survey Results

Three respondents reported that customers have unlimited access to the skip bag feature without intervention by an attendant, while 2 respondents do not allow this at all, and 1 respondent allows use of the skip bag feature for one item only.

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Self Checkout Intervention Guidelines:

None of the respondents said that they have a dollar threshold that requires visual verification by an attendant.

Only one respondent commented that company policy required a visual verification by attendant. This person commented that it was only on age-restricted items, which are not determined by a dollar threshold.

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Dedicated SCO Staff:

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How does self scan affect your risk model?

Self scan justification typically focuses on one layer of the P&L – labor cost savings.

Self scan business models must include all data directly or indirectly associated with the solution.

This business assessment should be conducted 2 times per year to validate the continued benefit capture associated with this solution.

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Benchmarking on Shrink

Sub section of 39 retailer share group which accounts for $259 billion in annual sales

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POS System Protocol Counter-Measures:

POS system architecture related to TES (transaction event sequences) must be enhanced to reduce the risk model specific to the self check out environment Base counter measures related to each attribute of the customer

check out

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Some Unique Big Box Store Challenges with SCO:

Large items that can not be placed on the counter to weigh.

RAP stand Attendant to intervene and use a wireless scan gun to ring up item too bulky for check stand.

Non-Intuitive deactivation of EAS tag required a sticker to instruct the customer to touch the barcode to the sticker to be placed on the counter to ensure the inventory control tag to be deactivated.

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Self Checkout Layout

Added a PVM & CCTV coverage of the customer registers and the Attendant Stand

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SCO Public View Monitoring

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Self Checkout Customer Notification Sticker- Tells the Customer “How to Deactivate the EAS tag”

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Self Checkout Program- SCO

Deactivator Side Mount Pad (large bulk items (normally Phase 3 tagged) 6” read range

Bi-Level planer to assist customer with scanning and deactivation process

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Self Checkout Shrink Analysis:Non- SCO vs. SCO Stores

EAS Performance at Main Exit 831 Stores with Self Checkout   Stores with SCO average 3.7 alarms per 100

transactions (main exit) 829 Stores without Self Checkout Stores without SCO average of 2.9 alarms per

100 transactions (main exit) Variance 0.80 alarms increase in stores with SCO

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SCO Store Shrink Analysis Data

Inventory Shrink in SCO stores is approximately 10 Basis Points higher than in Non-SCO stores.

In addition to this, the inventory shrink in theft-related items, like tools, is approximately 20 bps higher.

External theft activity in SCO stores is between 20% and 65% higher than in non-SCO stores.

This can be an indicator of theft related issues, as well as a significant customer service issue.

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Best Defense- Trained Attendants

SCO units should be open and staffed from open to close, 7 days a week.

All SCO Attendants are required to complete the SCO hands-on training.

Observe Attendant’s utilization of the Side Mount deactivator on large bulking items to prevent Failure to deactivate or theft.

Add LP specific training and awareness for SCO Attendants.

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Loss Prevention Focus in SCO STORES

SCO Impact Training- Insure the SCO Attendant is responding directly to the customer when an intervention is required (not clearing it from their RAP stand).

SCO attendant must respond to four specific types of incidents (red light):

1. Exceeds 3 skip bags2. Voids3. Weight Mis-Match Attendant must

respond to the customer and verify the issues.

4. Unknown Item (not in a database)

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Types of Common Thefts Self Checkout- External:

Barcode switching to pay less for a similar more expensive item.

Scan wrong item and then hit skip bag. Failure to scan items on the bottom or top of

basket (items to large to place on the scanner). Box Stuffing. Use of fraudulent or stolen credit cards. Check fraud. Credit Card fraud (results in Charge-backs)

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Types of Common Thefts Self Checkout- Internal

• Register Attendant taking change left behind by customers.

• Register Attendant taking customer receipts and conducting fraudulent refunds or having friends conduct fraud refunds.

• Register attendant working in collusion with friends to slide product merchandise.

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Video Example:

Example of customer conducting a barcode scam. (External Theft)

Scans barcode attached to his hand for a tool

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Ways to Make Self Scan Process a Success:

Choose a Self scan machine that is reliable and intuitive for the customer to use.

Establish a clearly defined maintenance program up front to address break-fix to be completed within a few hours & remotely if possible.

Select remotely upgradeable equipment that can be repaired quickly and include software and firmware.

Train employees who monitor the SCO registers so they are competent to assist customers or identify issues and report them to management.

You do not want your worst Cashiers assigned to SCO.

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Potential Future Changes to Self Scan:

Currency and Coin recycling to give change to the customer (received money is re-disbursed as change), Reduces till bank amount.

Personalization of software to be language friendly.

Vendors will find EAS deactivation technology for soft goods/hard tags to make purchases easier.

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QUESTIONS