AI is helping retailers fight back against organized theft – Yahoo Finance

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Preventing retail theft before it happens — it sounds like a fairy tale, but artificial intelligence could make it a reality.

Videos and images of organized “smash-and-grabs” at stores and malls across the country have gone viral online, and some of the nation’s biggest retailers are turning to technology to stem the billions in losses and keep employees and customers safe.

And they’re doing it together.

Companies from Target (TGT), Walmart (WMT), and Home Depot (HD) to Walgreens (WBA) and T.J. Maxx (TJX) are collectively investing big bucks in AI, real-time heat maps, and other advancements in an unprecedented effort to fight against the issue of organized retail theft.

“We’re seeing this groundswell of collaboration,” Mike Lamb, a former Kroger (KR) loss prevention executive, told Yahoo Finance for NEXT. “I’m seeing more of this collaboration than perhaps ever in my four decades plus of being in this space.”

Shrink is the word

Beyond the shocking images seen on news reports and social media, mentions of organized retail crime during retailer earnings calls increased by 43% between January and August of 2023, according to Yahoo Finance reporting.

The industry uses the term “shrink” to describe any hit to inventory, including from retail theft, employee theft, vendor fraud, damage, administrative errors, and other causes. And it’s a big problem — in 2022, losses from overall shrink surpassed a staggering $112 billion, according to the National Retail Federation, a prominent lobbying group.

However, flawed data make it hard to quantify how much organized retail theft contributes to shrinkage. Last year, the National Retail Federation retracted a false claim it made in a 2021 report that attributed nearly half of retail shrink to organized retail crime.

Accounts of retail crime were also complicated when Walgreens CFO James Kehoe backtracked on his assessment of retail theft, saying the retailer “cried too much” about organized retail crime.

In a 2023 congressional testimony, Trevor Wagener, a chief economist at the Computer & Communications Industry Association, gave a more muted assessment, noting that organized retail crime is responsible for around 5% of total retail inventory losses, though that still adds up to billions in losses.

Still, shrink was the earnings call buzzword for retailers last year, and that has continued to some degree through the most recent earnings season, with Target CEO Brian Cornell noting on the company’s most recent call that “growth in shrink remains a significant financial headwind.”

Packing heat maps

That has led Target and other companies to do what once would’ve been unthinkable: partner with their direct competitors on high-tech solutions.

For example, an AI-driven heat map allows retailers to share real-time data with each other, in the hope of stopping large-scale smash-and-grab sprees before they happen and protecting consumers and employees in the process.

The heat 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 hot spots for potential criminal activity that participating companies can see on the map’s dashboard.

The longer-term goal is to equip participants with two-way radios and an app that dings if a crime happens nearby so that stores can be prepared.

Finding the balance between preventing theft, curbing losses, and keeping employees and customers safe is precisely why retailers are working to find solutions. More than 50% of retailers said they’re spending more on theft prevention, according to a recent NRF report.

Over 90% of retailers plan to increase AI investments this year, according to software company Lucid.

“We’re figuring out, how do we collaborate better for everybody’s safety?” said Dr. Read Hayes, lead researcher with the University of Florida’s loss prevention lab, which is spearheading the effort to develop new types of technology to thwart retail theft.

The lab, funded by the university and the Loss Prevention Research Council, houses more than 400 anti-theft technologies and evaluates how effective the tech could be in the real world. A who’s who of the country’s most recognizable retailers pays an annual membership fee of $6,500 to access the council’s research.

FaceID technology could someday be used to unlock cases in stores.FaceID technology could someday be used to unlock cases in stores.

FaceID technology could someday be used to unlock cases in stores. (Yahoo Finance)

To improve the shopping experience, retailers are also exploring customer-centric solutions like using FaceID or biometric technology to open locked cases that would typically require an employee to open.

“We’re looking at a whole lot of other AI plays here,” said Hayes. “Picking up on what people are saying, like threatening words or victims’ words, things like that, that we think we can also map more in real time.”

Shrinking privacy

However, the preventive technologies strike a nerve with privacy advocates, who argue that obtaining that level of detail without the knowledge of those who are being surveilled is illegal.

At the end of 2023, the Federal Trade Commission banned Rite Aid from using AI facial recognition technology in its stores, saying Rite Aid’s practices contributed to the risk of consumers experiencing discrimination.

The FTC and Rite Aid reached a settlement in the matter, with Rite Aid agreeing to “enhance and formalize the practices and policies of our comprehensive information security program.”

At the same time, employing technology like listening devices or facial recognition that have privacy restrictions attached to them makes the data harder to parse for retailers.

Mike Krol, a special agent in charge of the Department of Homeland Security’s Operation Boiling Point, a unit created to address organized retail theft, told Yahoo Finance that fighting organized retail crime and respecting personal privacy continues to be a struggle, especially with challenges in how and where information can be collected.

“Law enforcement needs to be smart about where it’s collecting information from,” Krol said.

To help track the severity of retail theft, Krol’s team has created an AI-powered analytics tool called RAVEN that uses machine learning to consolidate crime data across multiple jurisdictions. The tool helps to find links between individual crimes and disrupt the crime rings and affiliates that support them.

Krol, who recently testified to Congress on the exponential rise in organized retail crime, said Operation Boiling Point saw a 200% increase in investigations in 2023, with his unit receiving leads from retailers “every day.”

“No one wants to shop in a store that they feel unsafe in,” Krol said. “Our primary ambition is to provide that safe environment for both customers and associates, and technology — AI in particular — is going to help us along that journey.”

Madison Mills is a host and reporter at Yahoo Finance.

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