In response to the escalating challenge of retail shrink, which rose to over $112 billion in 2022, retailers including Target (TGT), Walgreens (WBA) and Home Depot (HD) are investing in AI-powered technology. The goal? To preserve a good shopping experience while also fighting theft, a problem that’s impacting margins and causing safety concerns. The scope of the theft problem is hard to measure, though mentions of organized retail crime rose by 43% on earnings calls in the first half of 2023. To find clarity on this issue, Yahoo Finance explores a first of its kind, AI-driven heat map that could empower retailers to share real-time crime data with each other, and gets an exclusive look at the Department of Homeland Security’s response to the rise in organized retail crime, which they say is about much more than petty shoplifting.
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One of the buzzwords on those calls was "shrink," an industry term to describe any hit to inventory. Shrink-related losses hit $112 billion in 2022.
Organized retail crime isn't just impacting margins. Retailers say the theft is more violent now than ever. In response, they're doing what once would have been unthinkable, partnering with their direct competitors to use an AI-driven heat map that will enable retailers to share real-time crime data with each other. All in the hopes of stopping theft before it hits any store.
But if theft creeps in anyway, AI-powered surveillance will be listening in. This is what's NEXT in Retail Theft Prevention.
MADISON MILLS: That's Read Hayes he's the head of the University of Florida's Loss Prevention Lab, which has taken in more than 400 anti-theft technologies from dozens of companies.
- Customer service is on the way to your aisle to help you immediately.
MADISON MILLS: The Lab evaluates how effective the tech could be in the real world.
READ HAYES: We set up this simulation, or Sim Lab as we call it, to allow us to do more rapid research and learning. We put active criminal offenders in here. We put shoppers. We put employees. And we can look at different areas, and we can do it much more rapidly, and we can do it without disrupting the actual store.
MADISON MILLS: Read and his team are funded by the University and by the Loss Prevention Research Council. That's a group of nearly 100 of the most recognizable retailers. They pay an annual membership fee of $6,500 per year to access Read's research.
What is the next big technology that retailers have gotten really excited about when they visit the Lab?
READ HAYES: Really, artificial intelligence, AI, computer vision that can spot somebody that might be concealing goods, obviously bringing a firearm or a cutting instrument into the store. They're interested in AI that can pick up screaming, glass breaking, gunshots, but also, helping us analyze activity at a more macro scale using mapping and AI.
MADISON MILLS: Read says he's using AI-powered mapping in a way it's never been used before. And in a way that encourages retailers to collaborate with their biggest competitors.
READ HAYES: The redder that they are, the hotter they are, the more crime risk in that area.
MADISON MILLS: The map uses AI to predict future crime events by pulling in data from as many sources as possible, from law enforcement to the retailers themselves. That data creates hotspots on the map, which participating retailers can see.
The next step, equipping stores with two-way radios and an app that will automatically notify managers if a crime happens at a nearby store.
Could something like this prevent theft from happening at all?
READ HAYES: It better. It should.
MADISON MILLS: The theft problem is a difficult one to quantify. One report from the National Retail Federation attributed nearly half of shrink for 2021 to organized retail crime. The NRF later retracted that claim. In congressional testimony, one economist said organized retail crime is responsible for just about 5% of total retail inventory losses.
Where do you think the disconnect is in that data?
READ HAYES: What we do is we look at retailer data. So if we rely on public information, law enforcement information, that's very inaccurate. Not their fault. They only know what people tell them.
MADISON MILLS: Retailers say it's hitting company profits. In 2022, Lowe's lost nearly $1 billion, more than 1% of their net sales. Target projected a nearly $500 million hit, all due to shrink.
And retailers are paying up to try and stop it. One survey showed that more than 52% of retailers say they're spending more money on theft prevention, and for good reason. Over 60% of people called their most recent experience with locked cases, the primary tool for theft prevention, inconvenient. 20% said they'd rather order online than wait for an employee, and that's a problem for retailers that are already competing with e-commerce.
That's why retailers are increasingly interested in giving the customer more autonomy through innovations like face ID technology. I put in my cell phone number, I would get a code to my phone, and then I would type in that code here, and now the case is open. But I have to give up my cell phone number.
READ HAYES: That's right. But think about how much we give up online. We give our name, our address, our credit card number. All this information-- phone numbers, email-- just to buy online.
MADISON MILLS: Could this eventually be face ID technology?
READ HAYES: Yeah. That way, you can say, hey, here I am. I'm not in a database of stealing from here. It opens for you.
MADISON MILLS: To find better solutions, retailers are coming together at events like the NRF's annual Big Show in New York City. That's one of the biggest retail conferences. There, I caught up with Read again. This time with one of his Lab members.
MIKE LAMB: We went down to visit Dr. Hayes in his lab. We set-- we had an ideation meeting for a day or so, and great takeaways from that.
MADISON MILLS: That's Mike Lamb, who's done asset protection for decades working for Home Depot, Walmart, and just before retirement, Kroger.
MIKE LAMB: I'm seeing more of this collaboration than, perhaps, ever in my four decades plus of being in this space. And it's so refreshing to see that.
READ HAYES: That's why we exist as the council. 94 retail corporations now, and they want to collaborate. And are figuring out, how do we collaborate better for everybody's safety?
MIKE LAMB: Our primary ambition is to do just that. Provide that safe environment for both customers and associates. And technology and AI, in particular, I think are going to help us along that journey.
MADISON MILLS: Experts in loss prevention we've spoken to say the future of safe shopping lies in AI's ability to prevent a crime before it even happens. The goal for retailers is to not impede the shopping experience. So this is the type of technology shoppers won't see, but it will be there listening and watching.
READ HAYES: We're looking at a whole lot of other AI plays here. Picking up on what people are saying, like threatening words or victims words, things like that, we think we can also map more in real time.
MADISON MILLS: Over 90% of US retail respondents to one survey plan to increase their AI investments this year, but questions remain about the legality and privacy of AI-powered surveillance. At the end of 2023, the Federal Trade Commission banned Rite Aid from using AI facial recognition technology. They said Rite Aid's practices contributed to the risk of consumers experiencing discrimination.
The FTC also issued a general warning to companies using biometric surveillance, indicating that they'll be cracking down on misuse of that technology, which retailers, like Rite Aid, implemented to curb theft. And it's not just about retailers collecting information.
MIKE KROL: I think we just, as law enforcement, need to be smart about where we're collecting information from, and how we would traditionally collect that information. Whether it be through legal process or not, we always say responsible use of machine learning and data analytics and different technologies will help us be better at our job.
MADISON MILLS: That's Special Agent Mike Krol, who oversees the Department of Homeland Security's Operation Boiling Point, an effort aimed at fighting the rise in organized retail crime, which he testified on in front of Congress.
MIKE KROL: HSI initiated Operation Boiling Point 2.0, to effectively communicate the severity of organized theft groups involved in retail crime.
MADISON MILLS: To help track the severity of theft, Krol's team created an AI-powered tool called RAVEn that uses machine learning to consolidate crime data across multiple jurisdictions. All in an effort to find links between individual crimes.
MIKE KROL: So I think last year, we had about a 200% increase in our investigations related to organized retail crime.
MADISON MILLS: Is it fair to say that the scope of retail theft reached somewhat of a boiling point, where the Department of Homeland Security needed to get involved?
MIKE KROL: The threats we face are well beyond your traditional brick and mortar stealing of toothpaste and health and beauty products. We're into sophisticated networks, many Chinese organizations, who have taken to the cyber realm to conduct intrusions and other technical methodologies to steal information, to steal items, and then to turn that into a prophet. People just want to make money.
MADISON MILLS: How often are you getting leads from retailers?
MIKE KROL: Every day.
MADISON MILLS: As retailers work to address a problem that HSI says is increasingly severe, Read says consumers' privacy concerns will still need to be prioritized by retailers and law enforcement.
READ HAYES: When it comes to pushback, I don't know that we've had any pushback from a current or potential crime victim, but there are people outside that are concerned. I think, more and more of the retailers are saying we've got to safeguard our people in these spaces. So now, they're putting things that would arguably invade someone's privacy, but nobody goes to jail based on an alert on any kind of AI technology. It's a heads up, decision-maker, and then you make the call what you want to do.
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