The battle against retail theft and loss
Grocers live in a world of high inflation, rising costs and already-thin margins, so it’s especially painful when profits just walk out the door. Whether from sticky fingers at the self-checkout or sophisticated organized crime rings, theft and loss has become a big problem for retailers. According to Statistics Canada, rates of shoplifting jumped 31% in 2022 compared to 2021. The Retail Council of Canada (RCC) says some of its members are reporting a 300% increase in thefts since 2020, pegging the losses at $5 billion a year. In the United States, the National Retail Federation found that shrink – primarily driven by theft and organized retail crime – represented US$112.1 billion in losses in 2022, up from US$93.9 billion the previous year.
“[In general], loss is on the rise, more so with external theft, although some retailers report an uptick in internal theft,” says Rui Rodrigues, executive advisor, loss prevention and risk management at RCC. Beyond physical theft, with the move to e-commerce and omnichannel retail, “organized criminals also now perpetuate more fraud crimes on the online space,” he adds. “So, there’s an increase across the board and it really started to escalate coming out of COVID.”
In the grocery sector, higher food costs are undoubtedly driving some Canadians to steal. “There is desperation out there, for sure. A lot of people are struggling,” says Sylvain Charlebois, a professor in food distribution policy and senior director of the Agri-Food Analytics Lab (AAL) at Dalhousie University.
But, it’s not always about stealing a loaf of bread to feed your starving family – some thieves are seeking revenge. “I do believe a very small portion of people want grocers to pay because they think they’re profiteering,” says Charlebois, pointing to a recent AAL survey that found 82% of Canadians believe profiteering is somehow associated with rising food prices.
RCC’s Rodrigues notes that during the pandemic, there was an increase in brazen, aggressive behaviour in retail stores. “People were wearing masks and getting more confident with concealing their faces,” he says. “We also saw a reduction in response from police and courts to prosecute those offenders.”
READ: Grocery shoplifting on the rise in Canada amid inflation, industry insiders say
Now, the right side of the law must play catchup. “We recognize police resources [and prosecutors] are stretched trying to make up for lost time and getting through a back channel of cases,” says Rodrigues. “But what we’ve seen is this confidence rising in the criminals, knowing there’s less and less consequences for their actions.”
When it comes to organized retail crime, thieves are taking advantage of the popularity of resale marketplaces. “[Organized retail crime] is definitely on the rise because the number of outlets is on the rise,” says Rodrigues. Social platforms, for example, allow criminals to sell directly to end users.
There’s also “fence operations,” which are physical locations used by organized retail crime rings to sell stolen merchandise. Rodrigues notes many mass retailers stock electronic goods, housewares, tools and other goods that can be easily taken and sold in a fence operation.
Generally, though, everything in the grocery store is fair game. “[Some] items might get targeted because they’re more in high demand on the black market, but I think in grocery, everything gets targeted,” says Rodrigues.
Defending against theft
Amid the rise in retail theft, grocers must find new ways to mitigate risks. Stephen O’Keefe, president of retail consultancy Bottom Line Matters, notes that in the past, any type of security system was generally a standalone feature – a camera here, a security gate there. Now, “retailers put pressure on security-solution partners to get together and share knowledge to come up with a better solution: an integrated one,” says O’Keefe. “The outcome has been described as more of a security ecosystem.”
READ: We all pay for grocery theft
For example, if a security gate system is breached by a thief, the incident notifies security cameras to begin recording and an audio message is relayed to a company executive that a breach is underway.
“Additionally, technology is being used to collect evidence for the purpose of prosecuting offenders,” says O’Keefe. “While we hear of complaints that employees are restricted from doing anything when they see a shoplifter, the truth is the company doesn’t want the employee hurt and, behind the scenes, video evidence is being compiled. There are cases where a person is charged with multiple counts of theft when they thought they got away with it.”
In O’Keefe’s view, using technology to combat theft is essential. “First, it provides the type of deterrent measure that would prevent a first-timer from doing something dishonest,” he says. “Secondly, it allows for a safer interaction with a hardened repeat offender.”
For pharmacy chain Rexall, its approach to loss prevention has evolved because of the rise in organized retail crime. “It is what our focus is around, it’s what’s keeping us up at night … and it’s the biggest challenge we face,” says Daryl Blackmore, director of asset protection at Rexall.
In Rexall pharmacies, the categories most targeted by organized crime rings are health, beauty and accessories, including shaving, oral health and baby products. Organized crime rings do what’s called “shelf sweeps,” where they empty sections completely. “That’s what makes them so much more damaging to us than the petty thieves who take one or two items for personal consumption,” says Blackmore.
READ: How grocers can safeguard against shrink
To combat theft, Blackmore says Rexall put more resources towards it, including hiring staff to lead investigations and work with law enforcement and other retailers. The other big piece was leveraging technology. Rexall uses a retail crime intelligence and loss prevention platform by Auror. Among its features, the platform allows retailers to report detailed theft incidents, observe patterns of repeat offenders, spot organized retail crime groups, and receive real-time alerts of offenders from nearby stores.
“At the store level, it’s an awareness platform – to have our employees know who the bad actors are before they walk through the door,” says Blackmore. “It’s meant to give them information so as not to have an interaction, other than calling the police, because they already know what this person is likely to do.”
Bobby Haskins, vice-president of retail partnerships at Auror, says the key to preventing theft is having intelligence and robust data that shows retailers “the top 10% of people who are responsible for (up to) 80% of your loss.” They also need to make the intelligence actionable, getting it to the right person so they can make the right decisions.
“That’s a huge tactic [used by a lot] of our retailers that are having success in this space, as they’re making sure their frontline teams are empowered with knowing who the individuals are that are stealing from them over and over again,” says Haskins. “Then, they can either take action if they’re approved and signed off to do that, or they can be the best possible witness and observe, report and get that information to their loss prevention teams.”
While technology is a powerful tool, good old-fashioned people skills can also be a deterrent, especially at the self-checkout – a hotspot for theft. Last year, Auror collected self-checkout theft data based on 2.5 million events across 10,000 North American grocery stores, not including specialty, big box or department retailers. The research found that 39% of all thefts within grocery stores occur at self-checkout, with an average dollar amount of US$120.
To deter theft, Haskins says having a high-quality cashier in the self-checkout area who engages and interacts with customers makes a huge difference. “It’s the people and the process piece,” he says. “There isn’t a silver bullet of technology. It’s putting them all together and empowering your teams to make the right decisions. That’s the magic sauce that we see a lot of the time for retail.”
Don’t ‘X’ the customer experience
In the battle against theft, retailers must balance their risk mitigation measures with the customer experience. Some retailers, for example, are locking up certain products, which can cause frustration for shoppers and result in lost sales.
Rexall’s Blackmore notes that many big-box stores are starting to put products such as toothbrushes and deodorant behind lock and key. “That is not the direction I want us to head in,” he says. “It’s about finding solutions that take away some of the risk, but don’t take the accessibility away from our customers because we all know what the end result of that is going to be. It’s not a long-term successful play because it is going to impact sales considerably.”
READ: Canadians divided over retailers' anti theft measures, poll finds
A recent survey on retail security by Leger found Canadians are divided on retailers’ anti-theft measures. A wide majority support the implementation of security cameras (88%) and electronic anti-theft alarms (85%), and there’s also support for having security guards (78%) locked display cases (74%) and security mirrors (73%). However, Canadians are less on board with measures such as store employees checking receipts upon exit (52%) and requiring customers to scan their IDs to make a purchase (17%).
AAL’s Charlebois observes that loss prevention technologies tend to be more visible in the United States compared to Canada. “They don’t shy away from putting tags on products you can see. In Canada, it’s more subtle,” he says. “I think grocers in Canada are very conscious of the fact that they don’t want to compromise the experience for most people who are [acting] in good faith. So, why compromise the experience for 99% of the people when you’re just looking for the 1% who may be tempted to steal?”
Another piece of the loss puzzle: Cybercrime
Theft of inventory isn’t the only loss grocers are contending with. Their data is also at risk with the rise in cybercrime. Many cyberattacks target customer information, which criminals can sell on the dark web or use to commit fraud and identity theft. Cyberattacks are also costly. According to an IBM survey of 26 victimized organizations, the average cost of a cybersecurity breach in Canada is $6.94 million.
Like physical theft, the rise in cybercrimes against retailers goes back to the pandemic, when retailers accelerated their digital transformations. That meant implementing several new technologies that expose them to risk.
Dishank Rustogi, national leader, cyber risk management and transformation at BDO Canada, says when retailers implement emerging technologies such as point-of-sale systems, cloud-based systems, IoT devices, interactive digital signage, mobile applications and generative AI, it essentially increases their overall attack surface. “[That means] the way an attacker can come in—and the opportunities for them to come in – have increased because of all these new, additional technologies,” says Rustogi. “The challenge [for grocers] is the rate at which the technology has grown is not the same as the rate of pace at which the appropriate risk mitigation measures have been implemented.”
There are a few reasons for that. Rustogi says a shortage of cybersecurity professionals, budgets not keeping pace with technology and a general lack of awareness at the executive and board level all contribute to the problem.
While there’s no easy solution for cybercrime prevention, there are many ways to mitigate exposure. For grocers, it’s vital to secure their point-of-sale systems, which include credit card and personally identifiable information. “In most cases, grocers are working with third-party point-of-sale system providers,” says Rustogi. “So, they need to make sure there is adequate due diligence performed before they get into that relationship.”
Other tactics Rustogi recommends are securing cloud-based applications, identifying regulatory requirements and ensuring compliance, encrypting data and implementing a zero-trust access strategy, which maintains strict access controls and denies access by default.
“The last one is awareness and training. It’s extremely important,” says Rustogi. “You can have all the appropriate measures from a technology perspective to safeguard your information … but people are always the weakest link because they have access to information and they can be deceived into giving that information out.”
While it may seem that losses are coming from all directions and there’s no end in sight, there are positive developments. A year and a half ago, RCC formed a loss prevention advisory committee, which identified key priorities such as addressing increased organized retail crime, increased violence in stores, and collaborating with police, justice and government. It’s also working to create a joint-force operation across the country to facilitate information-sharing with retailers and the police.
Rodrigues is optimistic. “In my 30 years, I’ve never seen the level of people at the table talking together than I have now,” he says. “So, just bringing police, justice and members of government to the same table to meet every single month and talk about the issues is an amazing step.” Certainly, grocers will be hoping thieves take note.
This article first appeared in Canadian Grocer’s November 2023 issue.
