Retailers Heart New Theft Detection Software

Billions of dollars are stolen from grocery stores every year, but it's not because of shoplifting. The money walks out the door right at the cash register, where employees are using a scheme called "sweethearting," or giving away merchandise by not scanning it. Now, there's a video security system that can stop it. Malay Kundu, CEO of StopLift Checkout Vision Systems, explains.

What is StopLift?
StopLift is a system for watching all those cameras that are recording the checkout lines at the grocery store. They're there, but no one's looking at them.
So our sofware watches the cashiers. It analyzes the body motions of the cashier. It watches and analyzes how the items move across the scanner, or don't move across the scanner.

The software, which constantly monitors 100 percent of the security video, flags the transaction as suspicious and quickly reports the incident, identifying the cashier and the date and time of the theft.

The simplicity of what we do is a huge selling point. We're watching what people are doing at checkout. What they're doing is sweethearting, and we can catch it. If you can't sell more in this economy, you can focus on losing less.

Why is it called "sweethearting"?
This kind of theft is called sweethearting because you do it for a friend or family. Retail store employees steal $20 billion worth of merchandise a year - $13 billion of it due to sweethearting at checkout. Cashiers pretend to scan merchandise, but deliberately bypass the scanner, thus not charging the customer for the merchandise.

Since supermarkets' profit margins are so thin, sweethearting has had a major impact on the increasing cost of food. Supermarkets are particularly vulnerable to sweethearting, which has accounted for an almost 35 percent profit loss industrywide. We actually have video in which the customer high-fives the cashier.

Where'd you get the idea?
I worked on facial recognition technology for airports, pre-9/11, in the '90s. Then I realized this could be applied to supermarkets. Now we are in about a dozen chains. Some are 1,000+ stores. Retailers are happy. And investigators love it.

What's ahead?
We want to make this standard for any store, just like security cameras became standard. Wherever there's a camera, our software should be there.

How did you get started financially and are you looking for investors?
We bootstrapped in the beginning, and had an angel. We are doing pretty well right now. But we may be looking for more funding in the future.

Supermarket chains currently using StopLift include Safeway , Hannaford's and Big Y. StopLift Vision Systems grew out of Kundu's Harvard Business School research study "Project StopLift" on Retail Loss Prevention. With technological research insights Kundu developed while at MIT, Project StopLift concluded that video recognition could be used to automate, and thus, make possible the comprehensive examination of surveillance video.

The 2006 National Retail Security Survey reports that $41.6 billion a year is stolen at U.S. retail stores, which is 1.6 percent of total retail sales in the United States. The survey, now in its fifteenth year, is a collaborative effort between the National Retail Federation and the University of Florida. According to the survey, 47 percent or nearly half of the $41.6 billion retail theft is committed by employees, compared to 32 percent by shoplifting, 18 percent by vendor and administrative errors, and the remainder unknown. That means employee theft at retail stores is almost 50 percent more prevalent than shoplifting.

© 2009 CNBC.com