Canadian retailers have 3.6 billion reasons to battle tech-enabled theft

A broad range of criminal activities are eating away at retail profits and causing Canadian merchants to lose as much as $3.6 billion each year, according to a recent survey.

While employee and customer theft continue to be the biggest threats, stores also battle numerous technology-enabled activities such as pin pad tampering, debit and credit card fraud and supplier fraud, according to a survey conducted by PricewaterhouseCoopers (PwC) for the Retail Council of Canada (RCC).

The survey titled: Canadian Retail Security Survey 2007, is based on information collected and analyzed between October 2007 and March 2008.

Researchers conducted Internet and phone polls, as well as and face-to-face discussions with 22 top level officers and managers with loss prevention and security responsibilities in large and mid-sized retail organizations across the country.

The top two sources of inventory loss are still theft by customers (62 per cent) and theft by employees (32 per cent), the survey found.

However, it revealed that stores are also the victims of other types of criminal activities. The types of crimes and percentage of retail stores polled that were affected are:

  • Employee theft – 95 per cent
  • Customer theft – 95 per cent
  • Credit card fraud – 90 per cent
  • Break and enter – 81 per cent
  • Counterfeit banknotes – 76 per cent
  • Merchandise theft by organized crime groups – 76 per cent
  • Debit card fraud – 62 per cent
  • PIN pad tampering – 38 per cent
  • Vendor/contractor fraud – percent
  • Armed robbery – 29 per cent
  • Customer information theft – 29 per cent

“The battle against retail crime has been waged for years, but today the playing field is much larger than ever before,” according to Ian Booler, Montreal-based manager with the performance improvement and risk advisory service of PwC.

From break-ins to cyber-crime, he said retailers are being hit at so many different spots that they have to deploy diverse measures to fight this menace.

One reason why employee theft is rising is there are fewer supervisors monitoring a far greater number of staff, according to one Toronto-based retail expert.

“As stores increase the sales rep to manager ratio, vulnerability to employee theft rises because floor supervision is compromised,” said Tim Richardson, professor of e-commerce, marketing and international business at the Seneca College and instructor at the University of Toronto.

The survey did not specify how much stores were spending on loss prevention but indicated that no less than 90 per cent of retailers install close circuit cameras on their premises; 81 per cent of stores use merchandise alarms; and 38 per cent use silent alarms.

Retailers have become more vigilant in screening employees.

About 91 per cent of retailers also conduct employee background checks before hiring people and 48 per cent require workers to submit to a police background investigation report.

All the respondents said they provide theft prevention training to store staff, but more than 68 per cent of the retailers indicated they would like to obtain more information about loss prevention and appropriate technology.

Surveillance cameras and alarms appear to be the number one security expenditure, but retailers are also increasingly employing business intelligence (BI) software tools, said Booler.

By implementing BI tools such as real-time or near real-time online fraud monitors, risk rating tools, exception-based reporting and case management applications, retailers can improve data mining, analysis and performance management, he said.

He said BI application can be programmed to “trigger a flag” when suspicious transactions occur and can also serve as a reporting tool “for building a case against suspects.”

Radio Frequency ID (RFID) tags, typically used for merchandize tracking and management, can also be effective in reducing inventory loss, Richardson said.

“Pallet and individual RFID tagging eliminate time-consuming manual counts and [alert] merchandize handlers to how much inventory enters or leaves the warehouse or shop floor.”

The systems also enable administrators to track where and when discrepancies or possible theft occurred, he added.

When coupled with a global positioning system (GPS), RFID can extend asset tracking to the actual transportation of goods, Richardson said.

For example, GPS devices can determine if a delivery truck deviated from a set route while RFID readers at designated stations can determine if stock has been removed without authority from a vehicle.

“By comparing GPS and RFID records, administrators can determine where and the loss occurred.”

While the incidence of customer information theft and PIN pad tampering may be relatively lower than the other types of breaches, these crimes can cause the biggest headaches for retailers, according to Richardson.

“One only needs to look back to the TJX Companies data breach, to get a handle on the public relations nightmare resulting from these types of crimes.”

TJX has already ceased collecting customer driver’s license numbers and retaining these number indefinitely. The chain also converts client information to unique ID numbers so it can track returns without keeping decipherable data in its system.

With PIN pad tampering, criminals replace the original store card readers or attach devices which “harvest” customer PIN numbers. The stolen numbers are used to create counterfeit debit or credit cards.

Perhaps the best defence against high-tech crime is a low-tech response, said Richardson.

Store owners must educate staff against these activity and direct clerks to guard PIN pads as though they were cash registers.

“The pads should be out of reach or protected when not in use so that criminals can not slip on a harvesting device,” he said.

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