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Featured article in issue 42 of the Security Middle East Magazine.

COUNTERMEASURES

Nearly a quarter of the video surveillance market is retail. Giles Ortega argues that now is the time for security systems integrators and installers to make IP their USP

For years, selling IP surveillance systems to retailers was simply a matter of addressing their concerns for loss prevention, enhanced security and protection against fraudulent personal injury claims.

These still are the primary reasons retailers purchase these systems. But with the rise of IP video surveillance systems, IT and security system dealers and integrators have much more to offer retailers. Not only does IP video surveillance provide superior technology and cost effectiveness for loss prevention departments, but it also provides substantial advantages to finance, IT, merchandising, and store operations. Your selling points can now include everything from enhancing market research capabilities and operational efficiencies to reducing total cost of ownership (TCO) and providing a greater return on investment (ROI).

Market research firm iSuppli predicts global video surveillance camera revenue will grow to more than USD 9 billion by 2011, maintaining a compound annual growth rate (CAGR) of 13.2% up from USD 4.9 billion in 2006. During this time, video surveillance unit shipments will more than double to 65.7 million units in 2011, rising at a CAGR of 17.1% from 29.8 million in 2006.

This expansion is being helped considerably by the idea of networked video surveillance, which allows for greater flexibility, field upgradeability, increased automation and more intelligence to be incorporated into the overall system. The firm goes on to predict that because of these benefits, network cameras will experience continued growth in surveillance, displacing existing closed circuit television (CCTV) cameras.

Store security and loss prevention

Shrinkage is a cold, hard reality of retail. Nothing can make it go away, but good loss prevention practices can reduce its impact on a store’s bottom line. Here are some of the key things you should know and address in selling IP-surveillance to security and loss prevention departments.

According to the 2006 National Retail Security Survey covering 139 US retailers, retail shrinkage averaged 1.61% of retail sales. Total US retail shrinkage losses for 2006 are estimated at USD 41.6 billion. (Retail shrinkage is defined as inventory losses occurring from employee theft, shoplifting, organised retail crime, administrative error, and vendor fraud.)

Retailers in other countries worldwide face similar shrinkage problems and losses. The European Retail Theft Barometer, the largest survey of retail crime in the world, measures retail crime in 24 countries (16 countries in Western Europe and seven in Central Europe). This study found that the costs of retail crime (value of property stolen plus the costs of security) in Europe in 2006 were USD 45 billion. The average shrinkage rate (stock loss from crime or wastage) was 1.24% of sales, a loss equivalent to over USD 39 billion. What makes these shrinkage losses all the more significant is the small profit margin in retail. For a retailer with profit margins around 4%, which is fairly typical, loss amounts to 31% of profits!

Retailers could significantly increase their profits by reducing shrinkage.

Many retailers live by the rule of 33. A $100 item may only have a $3 profit after all other factors are considered. That means if a $100 item is stolen, retailers have to sell 33 of the same item to pay for the cost of that one theft. This is one reason why loss prevention solutions, such as IP video surveillance, can deliver high ROI.

The 18th Annual Retail Theft Survey conducted in the United States by Jack L. Hayes International, a leading loss prevention consulting firm, reports that video surveillance with remote monitoring is ‘a beneficial deterrent to external and internal theft in the highest loss areas/departments.’ According to the Mark R Doyle, president of Jack L Hayes International, “Those retailers and companies who continue to invest in their employees and in proactive and prevention-oriented loss prevention systems will have the best chance to win the war on theft.”

*The European Retail Theft Barometer Report, the sixth annual review produced by The Centre for Retail Research, reports that the UK has seen a drop in shrinkage from 1.77 percent of revenue in 2002 to 1.33 percent of revenue in 2006. It attributes this drop to the deployment of numerous technologies and processes, including video surveillance, electronic article surveillance (EAS), sales transaction analytics, and enhanced point-of-sale (POS) software.

Evaluating monitor screens

According to a loss prevention survey of 107 major US retailers conducted by the Loss Prevention Research Council: More than onefifth (21.4%) of those with CCTV systems say in-store personnel rarely monitor cameras. Even employees who do monitor cameras are unlikely to be very effective. Experiments performed at Sandia National Laboratories for the US Department of Energy demonstrate that the attention of a dedicated and well-intentioned person degenerates to ‘well below acceptable levels’ after only 20 minutes of watching and evaluating monitor screens.

Since analogue video surveillance systems are so poorly utilised, it’s no wonder loss prevention teams often fail to identify unlawful behaviour and respond quickly enough to catch the guilty in the act. What’s more, analogue video is often too poor (due to limited resolution) for positive identification of a suspect. It thus provides inadequate evidence.

Another area in which analogue video surveillance systems fall short is choice. These systems are proprietary and lock retailers into just a few vendors when it comes to expanding or upgrading the system they have.

Compare this to the IT world, where common components on everything from computers to routers and other devices fuel competition between companies and provide much greater choice and better prices.

A final problem with analogue video surveillance is that it’s a ‘sunset’ technology. It’s on its way out. his means that the manufacturer offering a system today might not offer compatible products in the future.

Network cameras are typically equipped with built-in computers for brains. Programmed to do much more than simple motion detection, they use mathematical formulas to track objects’ outlines and motions, and can even tell if a crime, such as shoplifting, is being committed. Such video analytics, coupled with remote camera control, enable fewer security personnel to monitor more cameras.

Rather than simply watching multiple camera screens for activity, network camera systems enable retailers to get the right information at the right time. With video analytics, instead of struggling to stay alert while scanning a dozen monitors showing nothing interesting 95% of the time, guards can be automatically alerted to areas where cameras are detecting motion or suspicious behaviour. Remote control of cameras lets security watch and control cameras in multiple stores instead of only cameras in the same building. They can pan, tilt and zoom to get a better look at an incident in progress.

Some of the activities video analytics can be used to identify include:

• Gang activity and other suspicious behaviours, such as people taking more than one of an item seldom bought in multiples (such as a specific DVD movie or expensive software product).
• Booster bags (oversized bags lined with foil to defeat EAS tags). Video analytics can recognise these bags and alert you when something has been put in them.
• Facial recognition. Repeat offenders or gangs that have hit other stores in your chain can be recognised as they enter a store.
• Suspicious behaviour outside the store or in the parking lot, such as jumping fences or milling around various cars.
• Unusual motions, such as falls, that can be examined later for proof of fraudulent personal injury claims.
• Spills and other hazards. A network camera can alert store personnel to hazards they need to take care of, such as broken glass, to prevent a potential accident.

Integration with POS and other systems

Much of internal staff theft takes place at the POS terminal. Some analysts believe it’s as much as 80% of internal staff theft. IPsurveillance systems enable you to easily and accurately time-stamp POS transactions on the video to match employees with transactions. This provides solid evidence in cases where employees alter sales tags,charge lower prices, deliberately ‘miss’ items, allow multiple items through, and perform various coupon and return cheats. Video evidence of specific POS transactions eliminates one of the mostly commonly cited reasons for failure to prosecute-the difficulty of gathering evidence to make a case.

IP surveillance systems area also commonly integrated with exit alarm systems. For instance, cameras can be programmed to retain video of a customer walking out an exit a few seconds before an EAS alarm sounded and a few seconds after. This provides conclusive visual evidence of the event.

One reason IP-surveillance is so cost effective is that it enables retailers to centralise monitoring functions for many stores to a single control room. In fact, live network camera images can be accessed over the internet from practically any location and deliver the same high quality resolution available to the store manager. A regional loss prevention manager, for example, can respond to alerts, view live video, and activate pan, tilt and zoom controls from a control room or using a wireless laptop, PDA, or even a cellular phone in a hotel room.

Such versatility makes loss prevention personnel more mobile, allowing them to move from store to store while remaining available for alerts. Fast search and retrieval capabilities enable them to access and view higher quality video more quickly than analogue systems.

IP-surveillance systems are also easier and less expensive to install. Today’s stores are already wired with IP networks for their POS and other systems. Thus, installing an IP surveillance doesn’t mean installing a new network, but rather adding to the existing one. Compare this to the cost and disruption of installing an analogue video surveillance system.

There systems require their own separate network and a dedicated coaxial cable back to the monitoring station for each camera. Another important difference to point out is how the cameras can be powered. Analogue cameras require their own dedicated power source. Network cameras, on the other hand, can be connected and powered by Power over Ethernet (PoE), a technology that enables power to be provided to a camera using the same cable used for network connection. PoE eliminates the need for power outlets at each camera location and enables easier application of uninterruptible power supplies (UPS) to ensure 24 hours a day, 7 days a week operation.

Most retail operations already have analogue CCTV systems. But this doesn’t mean they have to stick with this technology as they expand surveillance in existing and new stores. By taking a staged approach, running a hybrid IP video-analogue system while they wait for their analogue equipment to reach its end of life, they can start making the move to IP video surveillance. Video from the analogue cameras can be digitised for use in the IP video surveillance system, enabling retailers to enjoy many of the IP networking advantages. Once they see the quality of the images of the IP network cameras and what video analytics can do though, many will soon be budgeting for a full transition to IP surveillance.

But video surveillance isn’t just for security and loss prevention anymore. IP networking and video analytics make it easy for other retail departments to use video surveillance for everything from training to market research. This enables retailers to get even greater ROI from their video surveillance.

Improving customer service

Video analytics integrated with network video can be used to count customers in POS lanes, alerting management of the need to open new lanes and can also be used to alert staff on out-of-stock. With video analytics, IP-surveillance systems can do everything from customer counting to identifying searching behaviour. Retailers can use IP surveillance to automate:

• Real-time monitoring of customers per hour, day or week over the network.
• Zone monitoring to match customer traffic with staffing levels and hours.
• POS monitoring to alert more staff when more stations need to open.
• Aisle and end-cap monitoring to improve restocking and customer service in the aisle.

Information about customer behaviour from store managers,employees and mystery shoppers is ‘word of mouth’ and hard to corroborate. Watching hours and hours of unedited video isn’t much help either. But with video analytics, retailers can get their video surveillance system to do market research.

Using IP-surveillance systems with video analytics, retailers can:

• Improve end cap and merchandising display studies by directing cameras to record all customer interactions with a specific display.
• Compare traffic, linger times and conversion rate between stores with and without a particular end cap or different end caps.
• Measure customer ‘dwell’ times to test effectiveness of in-store advertising and signage.
• Study conversion rates by how tracking how many customers come into the store and how many leave with merchandise.
• Record and study traffic patterns to gather valuable information for improving store design.
• Evaluate the effectiveness of local advertising by measuring traffic the week before an ad appears and the week after it appears.

What makes IP-surveillance systems particularly adept at research is their fast search and retrieval features and ability to collect clips that just record customer interactions or movements. This is only the beginning, too. Having centrally controlled, intelligent network cameras that can be programmed to identify specific actions is rapidly spawning new applications that will provide even more information for improving sales and marketing decisions.

Improving employee work habits and training

Honest retail staff can often make nearly as damaging mistakes at POS as dishonest employees that give discounts to friends and perform other POS crime. This is particularly true when an employee makes a mistake over and over again (such as inaccurate staff discounting, improperly voiding transactions, and not following refund policies, etc.).

IP-surveillance correlated with POS systems can catch these mistakes. What’s more, it can be used to discover other training gaps and provide good and bad examples of employees performing POS tasks for training materials. Retailers can even use video analytics to identify and record employee/customer interactions in the store. This is a good way for retailers to monitor customer service, collect video examples for training, and reward employees who do it well.

Advantages for IT

Retailers like Wal-Mart have repeatedly shown the value of using the latest IT to do everything from streamline their supply chain to perfect inventory control. They’ve shown how to use IT strategically to outperform their competition. IP surveillance gives IT another way it can step up and be a strategic part of the business.

For retailers, IP surveillance is more than a change in technology. It’s a change in responsibility. The loss prevention team might be reluctant to share their role with IT in working with video surveillance vendors and designing the system. What’s more, IT may be reluctant to adopt IP-surveillance as another responsibility.

To surmount this hurdle, it’s important to sell the benefits of IP surveillance to both the loss prevention and IT teams, as well as emphasise the advantages of them working together to develop a video surveillance system that delivers maximum ROI and results.

Selling points include:

• IP surveillance systems are part of a bigger trend involving the convergence of information technology and physical security.
• Loss prevention systems such as IP surveillance systems are a critical part of a retail operation. Having this system under the domain of IT makes IT a more important strategic partner in this important aspect of the retail business.
• Open systems are the way to go and IT expertise is essential in making this strategic move.
• Nearly all POS and other store systems are networked. IP surveillance systems simply leverage this existing infrastructure.

This enables IT to show greater ROI from existing infrastructure such as servers, switches and cabling.

• Making video surveillance another part of the IT infrastructure allows retailers to not just take advantage of the cost savings of IP networking, but also leverage existing IT policies (such as authentication, data security, etc.).
• All critical data (financial, defence, etc.) today is run over secure IP networks. It makes sense to add the critical data provided by video surveillance systems to this existing system.
• Network cameras are simply another network device that plugs into the network. They support a host of network security applications and standards, enabling them to fit right into existing network security systems.
• IP surveillance software solutions are designed to run securely on standard IP networks and enable centralised management of cameras, including digital pan/tilt/zoom and other features.
• Surveillance videos can be transferred through the network to offsite storage just like any other data and stored on standard servers.

Advantages for the finance department

Video surveillance systems aren’t generally looked at as a profit centre, but the more effective they are at helping shrink the losses that eat away at profits, finance departments could starting looking at them as one. This is another area where IP surveillance systems shine. They deliver consistently better TCO and ROI than their analogue cousins.

As cited above, 85.7% of shrinkage (customer theft, staff theft, supplier theft and internal error) is attributable to theft, and these losses are equivalent to between 20 to 40% of profits. That has to hurt, especially in an industry known for tight margins and stiff competition.That’s why the focus for ROI with video surveillance systems for years has been security and loss prevention.

IP surveillance changes the paradigm. Not only does it provide greater ROI for security and loss prevention, but it also provides valuable tools for other departments like merchandising, training and operations. No less important, it reduces the TCO of video surveillance by moving it to an open platform.

Here are some of the key selling points you can use with finance departments.

• More effective video surveillance. IP surveillance, particularly when integrated with the POS systems, can significantly help reduce internal shrinkage by capturing much more of it and providing incontrovertible evidence. Gary Sharp, general manager, retail, of BT Global Services, estimates it could help reduce stafforiented shrinkage by as much as 30%.
• ROI for more departments. IP surveillance, particularly when programmed with video analytics, extends the value of surveillance beyond security and loss prevention to include a wide range of uses in merchandising, marketing research, operations, and training.
• Opens the door to more competitive pricing. Proprietary CCTV systems and their components (such as DVRs) are a very risky investment. They lock retailers into a single source and a ‘sunset’ technology - one that is on its way out. IP surveillance systems, on the other hand, are open systems that enable retailers to choose freely from a wide selection of components such as network cameras, switches and servers from many vendors. For example, if a store is already a customer for IBM, Dell, or HP servers, then it makes a lot of financial sense to use the favourable pricing being received from this brand loyalty on the store surveillance system as well.
• Makes additions, upgrades and replacements easier and less expensive down the line. In most retail organisations, IT equipment depreciates a lot faster (3-4 years) than traditional proprietary CCTV equipment (5-7 years). This means that loss prevention and security departments can get new equipment faster and reap the benefits of improved performance sooner.
• Easier integration with other systems such as POS and EAS. Since IP video equipment uses open protocols, retailers can save money by using their own IT departments, rather than more expensive vendors. This means it will cost organsations less to take advantage of the greater loss prevention and security effectiveness possible when these systems work together.

One final point. Ask finance if they were buying a camera for themselves today, what would they buy? Film or digital? IP surveillance makes the most financial sense because it’s where the technology is headed. It’s more versatile, it’s most cost effective, and it’s where all the innovation is going that will contribute to greater ROI in the future.

Giles Ortega is regional manager MENA, of global network camera market leader Axis Communications. For more information visit:www.axis.com andwww.retail-surveillance.com