LPRC - CrimeScience – The Weekly Review – Episode 155 with Dr. Read Hayes, Tom Meehan & Tony D’Onofrio

Episode Date: July 20, 2023

This week, our hosts discuss the rapid departure of businesses from Portland, how one typo has caused national defense secrets to be compromised, and a comparison of car theft to retail thefts. Also this week, a quick look at inflation as well as more current events! Retail Theft vs Auto Theft Article Listen in to stay updated on hot topics in the industry and more! The post CrimeScience – The Weekly Review – Episode 155 with Dr. Read Hayes, Tom Meehan & Tony D’Onofrio appeared first on Loss Prevention Research Council.

Hi, everyone, and welcome to Crime Science. In this podcast, we explore the science of crime and the practical application of this science for loss prevention and asset protection practitioners as well as other professionals. Welcome, everybody, to another episode of Crime Science, the podcast. This is the latest in our weekly update series, joined by co-hosts Tom Meehan and Tony D'Onofrio, our producer, Diego Rodriguez. And we're going to kind of go around the world and talk about retailing, commerce, and the role that crime plays in creating friction for communities, for enterprises, and for places and people. And I'll just talk briefly about, we are, our team is growing. We've added, because of the adding and now up to adding more retailers, we're now up to 83 retail corporations,

plus all of those corporations divisions, not including those divisions. We are under increasing, not pressure, but being pushed certainly like everybody else to be innovative and collaborative and conduct as rigorous research and development as we can to help them deal with that fraud and violence across the enterprise, but especially clustered in more extreme areas. In those areas, though, seem to be growing in the number of communities and then the areas that they're affected in those communities. So it creates a lot of opportunity as well for everybody to work together. Our team correspondingly is growing. We've added two research scientists, criminologists and cognitive psychologists. We're getting ready

to add another criminologist and a data scientist and possibly another geographer in the next six to nine months or less as our team grows in capability. And the venues that we work in, we've talked about the four square blocks, safer places lab area that ties in with our six internal labs that we've got, ideation, the security operations center, the activation lab, the simulation lab, and the engagement lab, and then finally the parking lot lab area. So, we've continued to add more technologies to be tested and to be integrated in a lot of enhancements to the existing ones. So I'm not sure the number. I think the engagement we'll have is just about 250 different protective technologies. And we've got just, I think, over 350 across our enterprise, our suite here.

And with retailers coming in to work with us on strategy sessions just about weekly. Last week, we had two major corporations in one week. So, that's going on. But also, like today, we've got another solution partner in installing and upgrading technology across the engagement lab that does incorporate computer vision and a whole lot of integration with other people's tech. So LPRC, I think our labs are a place to think and to do, to showcase, to demonstrate during our events, but also for our frequent VIP visitors and during our webinars. We're going to increase the flow, the frequency of our webinars

to get some of this information out. We're to the point now where we are probably will if we will have seven research scientists plus myself and everybody germ generating at least one research in action brief a month. So just, you know, kind of wrap your head around the flow of information. So what we've got to do is we're working to sharpen our pencils here as far as creating much more actionable, much shorter go-to-work briefs for the practitioner, whether you're the solution partner that needs to know or to do something or to improve what you are doing. Of course, the LPAP practitioner on how to deploy. We see a whole lot of adoption of the five zones of influence, of course, in the red and green actor concepts. Red, we don't want here. Green, we do. And how do we affect both? But I think that with the double bow tie or even just a single bow tie, that kind of graphic

is playing pretty well with our membership to understand and explain what they're doing out there, how they're doing it, most importantly, why, and getting the funding, the resources they need to execute that. But to understand individually and as a group, whether you're the AP team or working with your partners in the business like operations and store design and layout, logistics, partners in the business like operations and store design and layout, logistics, certainly finance, and IT and so forth, to understand that there is a baseline here. And that's really based in the psychology of decision making, you know, the choice opportunity structures and how people notice and pick up on them and decide within those. And that's what we've got to do, create these unique dilemmas for an offender as they ideate and start to plan or coordinate or at least move to and attack and from a particular target or, you know, whether it's a person, place or thing. So that's important to break things down.

We think down to the bottom line and then build back up from there and have that strategy and operational design to carry out that strategy. And then the tactics, specific tactics, they're adapted and adjusted based on each and individual place and how things are rolling out or taking shape in those specific places and so on. The mapping continues. We've now mapped, extensively mapped, multiple, multiple layers. The Gainesville area is almost a safer community lab, working with the Gainesville Police Department and the city, even the mayor's office, and UF campus with the University of Florida Police Department. And there's a director of security team there as well. There's a security team operating thousands of cameras and other technology so that now we, in addition to our labs and our four square blocks, we set up Eastside Initiative. Safety Institute is a new lab complex for us where we can work with things like gunshots that we can't necessarily do on campus or in the rest of the normal community.

They have a street set up that simulates, you know, a normal street. There's a bar there and restaurants and stores and things like that. So that's going to expand or has already expanded what we can do and how we do it. We're setting up terrain walks or rides in this case with Gainesville PD, and places attract people, and co-located places create unique dynamics and opportunities, as well as the roadways and biker footpaths, and all these things come together. What happens at a place didn't start there, and probably, unfortunately, unless the offender is caught or killed, we'll end there. So, just the idea that working with research scientists,

engineers, technologists, you know, 106 solution partner organizations, 83 retail corporations, all the law enforcement, all the different strata, we can get some stuff done in this community. So we're excited to coordinate with the retail associations, the trade groups out there for the shopping centers and stores to put together a strategy, execute the strategy, and try and at least move the needle. So that's a little bit of the grand strategy. Again, look for the impact conference where all this will be revealed. A whole lot of studies discussed in depth with takeaways. Each and every session at MPAC is based on research and at the end helps us specify this year next steps. Now what? What other research is needed? How do we use this?

It's not just talk at LPRC. There's a lot of testing and moving forward. So that's a little bit about the LPRC. First week in October, lpresearch.org. And so let me do this. Let me turn it over to you, Tony, and let's talk about what you're learning and where we're headed. Thank you very much, Reid. And again, great updates. And I appreciate all the great work that's being done at the Loss Prevention Research Council. Let me start this week with some bad news, actually, in terms of projections in terms of what usa retail industry is going to do in terms of school spending and these were reported by retail dive according to research conducted by deloitte and reported in retail die families with students in kindergarten through 12

grade will spend 10 percent less on back toschool items this year for an average of roughly $600 per child. Spending for the season will be just over $31 billion. 70% of parents will spend the same or less as last year, and over half of those are spending less, citing lower disposable income. With discounts in mind, 80% of back-to-school shoppers are headed to mass merchandisers, 60% are going online, and 33% favor off-price retailers and dollar stores. Spending on traditional school supplies is up 20%, but down 14% for apparel and down 13% for technology per the research from Deloitte. Still six in 10 parents are willing to spurn on better quality products or treat their child when it comes to apparel and technology. Inflation is the issue, although as the U.S. Bureau of Labor Statistics said,

inflation was down to its lowest level since March 2021 at 3% in the last report. But here's the issue. School supplies have actually risen nearly 24% in cost in the last two years. In the latest report, they did drop nearly 3%, but they've risen, again, an amazing nearly 24%. So the reason I follow these trends is these are the early shopping in the second half of the year. Does this in any way forecast what we're going to see at the holidays, which is one of the critical seasons? Don't know yet. I'm actually studying that very heavily right now in terms of what happens on the holiday season. in terms of what happens on the holiday season let me uh switch topics and actually summarize a brand new article that i just published across a whole bunch of platforms i called it the rise of this uh faster smarter machines continue and as i wrote in that article the two hottest uh buzzwords

in all industries these days seems to be digital transformation and linking these two words has really been an evolutionary process has been going on along since the 1970s what's interesting is uh some interesting statistics in terms of uh what's happening with digital transformation so 70 percent of organizations either have a digital transformation strategy or are currently working on one. Global spending on digital transformation is expected to reach nearly unbelievable $6.8 trillion by 2023. 87% of businesses are thinking that digital transformation will disrupt industries. Digitally mature companies are 23% more profitable than their less mature peers. And this is the one that disturbs me.

The success rate of digital transformation is below 30%. I've been tracking these kind of trends for a long time. And for retail, I've actually defined three mega trends that the retail industry has gone through, and they were all driven by technology. Post-World War II, efficient production lines concentrated the power of retailing in the hands of manufacturers. This changed in the 1970s with the introduction of the barcode. with the introduction of the barcode. And the actual date was June 26th, 1974 at 8.01 AM, a 10 pack of Wrigley chewing gum was scanned as the first item at a Marsh supermarket in Troy, Ohio.

Those simple black lines that now we're all used to that appear on all consumer packages actually shifted the power of retail into the hands of retailers. And the third megatrend really that happened not too long ago, and the exact date is June 29, 2007. That's when Apple released to the market the Apple iPhone. The Wall Street Journal called it the beautiful and balanced handheld computer.

Time magazine named it the invention of the year, but few really understood at that time. And I named it this quite a while ago that what the smartphone then is a shift to the power again of retail into the hands of the consumers because they could walk into any store with basically a supercomputer and decide where to shop, whether to shop in the store or shop somewhere else. Innovation is not, of course, isolated to the retail industry. We've been on this innovation cycle since the Industrial Revolution has been going on. It goes back all the way to railroads, and there's these waves of innovations that we've been going through. Right now, if you look at my disruptive future of retail presentation that I do, this keynote, we are in the sixth wave, which includes artificial intelligence, Internet of Things, robots and drones, and clean technologies.

And what's interesting is each of these waves, as they happen, are getting shorter. So they used to take a lot longer for these new waves to emerge. Now they're getting shorter and shorter. In my view, two trends are actually doing this, two major levels of innovation. It's the global internet and it's really mobile devices. Those are actually connecting the world much faster through mobile devices. By 2020, 64% of the global population will have access to the Internet. And that, to me, is a major opportunity, especially when you consider that 92% of those connections are on smartphones. So think about it. You now have the ability to shop on a smartphone anywhere in the world for 64% of the population. So it's a major opportunity for retail.

And then the other big, mega trend in terms of the technology disruption is, again, the devices and connecting to the internet. It's connecting things. We are connecting devices by the billions now, and that will continue and will accelerate. And again, let me just give you an example of that acceleration. It took the airplane 68 years to reach 50 million users, while the Pokemon Go, which we all remember, some of us us only took 19 days. And then now it's getting even faster. Think about this. ChatGPT achieved 1 million users in just five days. And in two months, they had 100 million. Threads just broke that record, which is a

competitor to Twitter that was just released by Meta. It reached one million users. Are you ready for this? One hour and 100 million users in a stupefying, amazing five days. So as I concluded in the article, retail has got a lot of opportunities as this digital transformation accelerates, but it also carries risk. In fact, the analysis done by IDC shows that retail doesn't do the best job in terms of getting the best ROI. The best job in terms of digital transformation is actually being done by the manufacturing sector. It takes a lot of clear strategic planning, incremental investments that build on the value of each wave that you're actually focused on.

And never forgetting what made you successful in the first place if you want to stay above that 30% failure rate. So I said earlier I had three megatrends that changed retail. I think we're just about ready for the fourth, which I'm going to announce soon. So I think we're actually having really headed to a very, very bright future. What I really like is the Loss Prevention Council is actually involved in a lot of this through the Innovate Group and the types of technology that they're helping retailers adopt, because I think these are much more critical in terms of where retail goes next. So those are just my thoughts this morning. So let me turn it over now to Tom.

Thank you, Tony. Thank you, Reid. It's good to hear everybody's voice. I want to cover just a couple different things. I wanted to start with an interesting story that isn't a cybersecurity breach or anything like that is necessarily000 emails were inadvertently sent to the country of Mali addresses. So sounds kind of crazy, but the importance of checking that email when you're sending it out. As the Internet has grown, there are just a tremendous amount of extensions and names that look and sound very similar. tremendous amount of extensions and names that look and sound very similar and just one character off could let you send a potentially very important confidential email. The U.S. government's aware of

it. They're working on it. They haven't really come up with a systemic way, although it would be fairly easy to do, to deal with this. But the report suggests that the emails are related to everything from HR data to just general information. They've not said whether they're classified emails, but we often talk about, you know, breaches and cyber instances, and we forget just the human input of a lot of things of how easy it is for these mistakes to happen. So just thought it was an interesting article to share for all of us. Want to switch gears to a little bit of the bomb threats that we've been seeing. Scammers are targeting stores with bomb threats to extort Bitcoin and gift cards.

They basically create a panic and demands a ransom payment and exploit the opportunity, you know, to try to get cryptocurrency and gift cards. Law enforcement is working directly with a lot of the retailers that are members of the LPRC collaborating to combat this issue. The scammers really use two different types of tactics to maximize their chances for success. different types of tactics to maximize their chances for success. First, they issue bomb threats to create panic and urgency among the store employees, customers, and law enforcement. The threats often are sent through email, phone calls, and anonymous messages. So they're not just taking the old route of phone calls. I remember when I was in retail, every year, a few times a year, we would get a bomb threat and we had policies to how to deal with it. But it was always a phone call.

These calls sometimes are very specific and sometimes they're almost game like where they're saying there's a bomb in one of some stores. that there's a presence of explosives on site, and they're really trying to lead to get to an evacuation with the end goal of trying to collect a ransom. They're taking advantage of the situation to demand the ransom in form of Bitcoin or gift cards, and they are really trying to leverage the relative anonymous of cryptocurrencies. It's what we see with ransomware. I have no knowledge and there's nothing that suggests that anybody has paid in these ransoms. They've been extremely disruptive. There was some reports of smaller businesses trying to negotiate with folks, but the larger retail audience, as far as I know, is not paying

ransoms. Luckily, these are all threats without any actual explosives. And this creates kind of a hectic challenge because there could be something that occurs. Again, law enforcement's working very closely with agencies to try to collaborate and work on strategies to identify and apprehend these folks. But to date, there hasn't been a heck of a lot of success in that. I have seen a couple of reports of some folks being apprehended, but nothing more to this. The Wall Street Journal put up a pretty good article, but this kind of, as long as I can remember being in retail, comes up from time to time. But it's important that, you know, we're really re-looking at our policies and how we approach these things when they happen.

This really is about the, for me, the rise in scammers, you know, trying to target retailers. So today it'll be bomb threats. We know it'll be phishing scams tomorrow. And that retail is a target for scammers, which creates kind of this threat vector of what's real and what's not. So I think it's very, very important. There was a recent article in the Wall Street Journal also that really talked about sales seeing a gain in June and pointing to the fact that there is growth in the economy. The data suggests that consumer spendings, you know, in some cases is rising and retail plays a crucial role in the economy. The report really talks about the sales rise exceeding what some of the analysts expected in some areas. And then much like a lot of things in other areas, we did see a slight decline. This is a good sign for us. And I know Tony and I and Reid talk about

this all the time is that the unstable economy creates hectic kind of shopping patterns in the summer, in some cases, traditionally lower because people are spending more experience type things like vacation. But we are seeing, while I wouldn't say it's a huge surge, a surge in some sectors of retail. So that is showing that the state of the economy is getting better. And the CPI was down again. We'll have to continue to watch it. It affects all of us here. I think we still have a lot of uncertainty with the inflation piece.

The supply chain disruption outside of the U.S. is very real. Outside of the U.S., inflation is rising in some countries. So we continue to see some of those challenges where shipping costs have not necessarily come down and some countries really, really struggling. countries really, really struggling. Overall, the June month serves as a really good indicator for us that retail is kind of bouncing back or coming back to what we would say a relatively normal state. I think it's important to note that while some retailers performed well, some are still struggling, and it has a lot to do with the category of merchandise to sell and the seasonality of it. ChatGPT AI is something I feel like we'll be talking to for a long time. There's a new cybersecurity or actually really not cybersecurity, a hacking tool called WernGPT.

It's an AI tool that really raises concerns because it's an automated way to generate malicious code. So just like ChatGBT can help coders work exponentially faster, this tool is designed to do the opposite where it can write malicious code in real time that would before take days, weeks, sometimes even months, could take minutes here to allow a much greater potential threat to systems and networks. This is something that I think we've been talking about here on the podcast really since the beginning is as the good actors create things to help the bad actors take advantage of that same technology, this particular Worm GPT utilizes advanced artificial intelligence techniques. particular worm GPT utilizes advanced artificial intelligence techniques, and it's really specifically based on chat GPTs or OpenAI as a language model to generate computer worms.

These worms are self-replicating malware that can spread rapidly across connected devices, causing really significant damage. The tool is kind of, it's frightening because of the fact that it streamlines a process that before would involve a lot of actors. This is something that a single actor could do or a group of actors and generate several different strands of malicious code. When we talk about malware or worms, the idea here is it's self-replicating. I send an email with a worm in it to Tony. It then sends it to everybody in Tony's contacts, hypothetically, and it creates a much more sophisticated net. This is creating a really significant challenge for cybersecurity researchers because this code is written in real time and may be new. So while I think we've talked about it here, a lot of experts are alarmed. I have felt for years now with AI-powered tools,

as we continue to drive the good, the bad guys take advantage of it. The risk with Worm GBT is an extremely large-scale attack that could be perpetrated in very, very quick times. perpetrated in very, very quick times. As we continue to develop AI measures to protect the bad guys are doing that. So I think this is a cat and mouse game that we always talk about is the more AI you use to defend, the more AI is being used to attack. So this is not necessarily emerging threat, but I think because it's using chat GBT, it is an emerging threat. So AI in hacking has been around for a few years. And just I think the easiest way to say this is you hear a bot attack. You know, if you ever hear that terminology, that's AI. It's a computer replicating human behavior.

This employees a little bit different because it's using that large language model. employees a little bit different because it's using that large language model. And why there's astonishing risk here is as chat GPT gets better, as Anthropod, as all of these get better, those large language models could be used for nefarious action. So we'll continue to watch this. Worm GPT is somewhat of a game changer in the realm of cyber threats. It's essentially chat GPT for the cybersecurity community. And yes, I'm sure as you're probably thinking, can't you limit open AI and all of the generative AIs are trying to figure ways around this. this. Unfortunately, when we talk about malicious code, the difference between good code and malicious code is generally just a line or two. So if you want to use it for coding in the good, the bad guys can take advantage of this. This is definitely something that will continue to plague us as generative I comes out. Speaking on the other side of chat GPT, chat GPT has faced a decrease in traffic in June for the first time.

So it had exponential traffic, and we're now starting to see a traffic dip, which is, I think, something that we talked about also in the show as some of the other chat bots and chat bots that are large language models are out there. So you now have a pretty crowded landscape if you think about ChatGPT's OpenAI, Claude's Anthropod, and Google's BARD that doesn't include the Meta Engine and some of the other engines that haven't gotten a lot of attention. So you now have a very, very competitive landscape. And to make it more competitive, you have different versions of each of these. So ChatGPT, Microsoft Bing uses that same language model. And what we're starting to see is a decrease in traffic. This is something that I think was an obvious assumption that was going to occur. The question is what what will happen with the traffic going forward. I think one of the things about generative AI is that people are starting to identify what it's actually useful for. There was one other phenomenon that's a

little bit early to say that it's causation or there's actually a true relationship. It could be coincidental is that search engine traffic is down also. So there is some theories out there that these large language models are limiting search traffic. I can tell you my personal use of ChatGPT, I do use it as opposed to a search engine when I'm trying to get a definition of something or trying to get a little bit more technical information. So I can see how that is. Additionally, ChatGPT specifically, when it first came out and was open to the world, everybody kind of played with it. I think now we're starting to see what are real use cases that are functional use cases. So proofreading documents, things of that nature, I will continue to see the growth. The other theory is that chat GBT was largely used by the student community who were now in summer. So these are all theories, but at the end of the day, there is a traffic decline, which was expected. I still think this will be a hot topic for everything that we're doing. But one of the things that we are seeing specific to traffic with chat gbt in june is

that you do see an increase in uh google's bard um and then also microsoft bing although that is the same back and then you're starting to see some of the market share shifting as these engines change um i think it's really, really an interesting topic and something we will continue to monitor here. I wanted to just end with an article written by Bill Schimmick. It's the cost of retail theft in America, a concerning issue. And I really thought it was interesting because this is an investor article and it's a Berkshire, retired Berkshire investor. So a little bit different than what we're used to reading. And one of the things that the article emphasized is the sheer size of retail crime, whether it be organized retail crime or just retail and shoplifting. And when you think of, regardless of what survey you read, a $125 billion problem, a $90 billion problem, one of the things that we often don't talk about is, and this article highlights the $39 billion in lost wages, the 685,000 jobs that potentially

would be lost because of this, and the $14.9 billion in local and state taxes. I think that's often left out in a lot of things that we talk about. The other thing that I really, for me, although I knew it until I read it, it really highlighted here is that when we think of auto theft in the United States, it's a $25 billion problem. So when people talk about retail loss and go, it's just shoplifting, yet when people hear auto theft, they say, oh, it's a massive, massive problem. As a matter of fact, I was at dinner with some folks the other day that flew into Newark airport and they said, oh, well, Newark is one of the largest by capita places where auto theft occurs. And I kind of cited, did you know? And they were all astonished. But if you took

any of the survey numbers and even numbers from years ago, car theft, which is predominantly something people really talk about a lot more, is significantly less of a problem in the United States than retail theft. It's a great read. I encourage every listener to give a read on it. I'll probably do a post on social media on it, but it really talks about it differently. And it's an investor's point of view, and it really pushes the fact that when you think of what the sheer impact is, and I'll leave you with this note. In the United States, there's a car stolen every 30 seconds. So when you think of auto theft and how significant is that, realize that that's $25 billion versus retail theft of over $100 billion. And with that, I'll turn it over to Reid.

All right. Especially awesome from both you, Tom and Tony. It's kind of scary. And but great information. And Tom, you know what? I'm going to ask if you would send that link to that article by the former Berkshire investor, that executive, because I know, you know, and our listeners know we're working a lot on total crime harm. And we've been doing dives on Portland and Seattle and some of these very heavily afflicted areas, if you will, and trying to understand how these decisions are made and over what time period that has led to these conditions, right? And how different some of these places are than others. And the retailers we're working with, they're operating in multiple states, if not all states. And they can see very, very clear differences between states and between communities within those states. Eastern Washington or Oregon and California, for that matter, are dramatically different than the western parts of the states, according to them and others. But the crime data, again, we talked about is so incomplete that the law enforcement agencies have or even report. Only about 50 plus percent of law enforcement agencies report their crime numbers, their calls for service,

but their arrests and by type via NIBRS or much less than 50% by NIBRS, which is much more complete and granular than by the Uniform Crime Reports or UCR. So we don't know. And again, law enforcement only knows what people tell them normally. It's rare that an officer stumbles up on something and then documents that that does happen. So that's a big part. And I think we're interested. And we were listening to these local governments talk about, well, the people are leaving these

communities because they can't or are afraid to compete with Amazon or online, which in many cases is not even true. When you look at REI closing two of their top and oldest locations, you look at REI closing two of their top and oldest locations, REI, it's my understanding, does not compete with Amazon, maybe certain low-level camping supplies or something like that, but they're a service place. They're sort of a culture and a community. The same thing with Nike when they close their flagship location. And when you look at some of these other places, they're not and are not trying to compete. Walmart's not necessarily competing with Amazon, and they're closing a lot of locations, and they're not doing it because of Amazon. They're doing it because of crime, the fear of crime, and the financial distress. And some of the retailers we're meeting with are operating multiple stores in a specific community, and they are completely in the red and have been for months, if not now over a

year, completely in the red. And so they have their own dilemma. We talked about creating dilemmas for criminal offenders as they make choices, but the retailers have serious, serious dilemmas, and the community leaders do as well. So we'll have to see how this shakes out. One other thing, Tom, I wanted to point out was you mentioned the bomb threat. You know, our senior research scientists here, Dr. Coria Lowe's working with FMI, they've generated a very short instrument or questionnaire survey on these threats, as you talked about, to get a better idea of description. Are they persistent? Was this a spike? You know, but what do they look like? Who, when, where, why, and how? So, and what does it look like? What was the outcome? So with no further ado, I want to thank everybody for tuning in and listening. Appreciate it from both the co-host and

our producer, Diego Rodriguez. And on that article, Diego, if you could post that when we put out this podcast episode and when we put it out on LinkedIn and Twitter and Facebook and so on. So everybody be safe and stay in touch. Thanks for listening to the Crime Science Podcast presented by the Loss Prevention Research Council. If you enjoyed today's episode, you can find more crime science episodes and valuable information at lpresearch.org. The content provided in the Crime Science Podcast is for informational purposes only and is not a substitute for legal, financial, or other advice. Views expressed by guests of the Crime Science Podcast are those of the authors and do not reflect the opinions

or positions of the Loss Prevention Research Council.