From grand theft to grand retreat

 

Last year, I wrote about the expected downside of deploying self-checkout technology in retail stores (link). Since then, many retail chains have announced cutbacks in self-checkout tech.

The latest to join the exodus is Dollar General (link). DG operates 20,000 stores. They have installed self-checkout registers in 14,000 stores. Because of rampant theft, the retailer is admitting "there is no substitute for an employee presence".

Here is the new policy: In 300 stores, the self-checkout option will be removed entirely. In 9,000 stores (64%), self-checkout will be relegated to an overflow option during rush hours. In the other 5,000 stores, self-checkout will be limited to five items or fewer.

These changes are very telling. The theft is so widespread that the changes affect every store. Limiting usage to five items caps the potential loss.

Target, Walmart, Five Below, Costco, etc. have all announced changes to self-checkout operations in the last few months.

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This is not the first time removing humans backfires. I see the same problem every week in the NYC subway. Some travelers jump over turnstiles, enter through emergency exits, or use various tricks to evade the fare. Since switching to self-serve ticket machines, most stations have zero staff presence. No one is around to stop fare-evaders, not even to look them in their eyes. (Fare evaders are not limited to the stereotypes; I have seen amongst them families with kids, professionals in suits, and people of all colors and ages.)

I'm guessing that something similar is happening with automated toll collection on highways. Just like self-checkout, there are obvious ways to fool the technology (e.g. remove license plates, cover them, or fake the plate numbers). Like most businesses that deliver a service and collect money later, I'm guessing highway operators face a "non-payment" problem, which requires an expensive collections operation. Contrast this to the past: few drivers ran through toll booths with human toll collectors without paying; tolls were collected before the service was rendered.

For sure, these technologies bring benefits as well. The hidden cost is unfair distribution of costs. The NYC subway is constantly in grave financial trouble. Eventually, they must raise prices. The people paying higher prices are the ones paying the fare! In effect, they are paying for their own tickets, plus the tickets of the fare evaders. For self-checkout, the ones not stealing will eventually pay for those abusing self-checkout. Those opting not to use self-checkout also will pay for the groceries of the self-checkout thieves.

This state of affairs may last for a while. Over time, more and more customers will migrate to the cheating segment, as it is the rational thing to do, given the rules of the game. The more people cheating, the smaller the remaining group of customers bearing the cost, the greater the incentive for them to cross over.

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There is one other thing that these retail executives are going to discover soon, something that is just as predictable as self-checkout theft. This problem will be particularly acute in those stores that choose to combat theft by deplaying staff as monitors. The reintroduction of humans has transformed their roles from servicing with a smile to policing with a scowl. Customers find themselves between machines and police, not the most inviting environment. (The machines will likely also be equipped with surveillance tools.)

As some of these retail chains have learned, there is still a place for human-rendered services.

Comments

[Mickey Droy]

For sure, these technologies bring benefits as well. The hidden cost is unfair distribution of costs.

Surely the hidden Cause is the unfair distribution of Wealth.

Here in UK and Europe there are similar but much milder issues but then wealth distribution is severe but not as severe as US.

A flight London - NY one way could cost anything between $120 and $1500. It is pretty clear which people buy the £1000 tickets and which wait until a $120 ticket becomes available (and these people are of average wealth, not poor).

Why is it surprising that a form of two - tier pricing has evolved on the NY metro? Or at Dollar General?

[Kaiser]

MD: Initially, it is a split based on wealth as you said. Later, it is a split based on values. As I'm trying to say, the law abiding people end up paying for those who evade payments - and from my subway experience, I can tell you that the fare evaders are not limited to the poor.