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Dan Loney: Well, no doubt, if you've been
to your local grocery store or a Target or a Walmart in recent
months, you have seen the rise
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in the use of self checkout.
Companies have been mixing in this technology because they
believe it to be cheaper but
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also more effective for their
consumers. But it appears that there are some issues out there
with self checkout, and in fact,
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in some cases, retailers are
cutting back due to rising levels of theft. So what does
this mean for the technology?
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Pleasure to be joined by
Santiago Gallino, who is an Associate Professor of
Operations, Information, and
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Decisions here at the Wharton
School. He's also an Associate Professor of Marketing. Santiago,
great to talk to you again. How
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are you, sir? Santiago Gallino: I'm doing well. Doing
well. Thank you very much for
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having me. - Okay, so this is an interesting
dynamic at play here, because of what was believed to be just the
absolute ease at which
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technology was going to help the
process of people getting in and out of stores. But I guess, did
we have to maybe see something
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like this coming when you have
to factor in the human component with the shoppers as
well?
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- Yeah, so I think this
is interesting, and as you are hinting to, is probably
also expected to some degree. If
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we think like, what are the
retailers thinking when they decide to bring a technology
into the store, self checkout
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being one of them, they try to
weigh the pros and cons. And I think that in the
early days, it was very clear
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that there was a potential labor
saving component that was to compensate for the investment in
the technology, also allowing for
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mediating the peak demand times
and making everyone happier with lower wait times in the lines
and whatnot. Now, the unknowns of
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that process are, on the one
hand, to what extent customers are going to be frustrated that
now they need to do the part of
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the job. And the other one,
which is what you mentioned earlier, is like, to what extent
we're going to see intended or
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unintended errors in the
checkout point. And that's what we're seeing now, that once the
retailers are starting to
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actually observe those unknowns,
they are kind of recalibrating that decision. - It's been mentioned that, I
guess with some retailers, they
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are limiting the number of items
that people can purchase when they go through self checkout.
And I guess the retailers see
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this as a way to maybe mitigate
some of the potential problems. - That's right. And I think that
this limitation on the number of
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items speaks to this dual
problem. On the one side, the complexity of the task itself,
like we are customers, not
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expert cashiers. And although
the task is simple, you can make mistakes, and these mistakes can
increase with more items. At the
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same time, if you want to assign
one employee to monitor multiple self checkout or you're going to
do it with a video camera, it's
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more accurate and simple to do
if you limit the number of items. So I think that the
simplification of the task, it's
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helping the customer, and it's
helping the retailer to monitor that step too.
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- And this is not an instance
where companies are going to rethink having the technology in
their mix. They're still going
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to have it. It's just -- and this
falls right in line with your work. It's an operational
process that they have to kind
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of work through to see how they
can best run this now. - Yeah, so I
think you're right, that for most
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retailers, this is a question of
kind of recalibrating, not taking the technology away. The
ones I've seen that have kind of
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pushed into removing the
technology altogether, it's more of an argument of missing the
connection with the customer,
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missing that kind of opportunity
of interaction with the customer, making the whole
experience too detached from an
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environment where the customer
feel embraced. And so it is more like, if you want like a more
of a strategic reason with the
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companies that see these still
in the space of, okay, we can make this work, is trying to
mitigate the problem by reducing
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the hours of operation, reducing
the number of items, updating the technology. I think over the
last few years, we've seen new
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technologies like, now, sometimes
you have the possibility to weight the product after you scan
it, and that itself as a
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reinforcement mechanism, and
things like that. - You mention about the
adding in of workers in and
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around a self checkout area to
kind of help monitor it. You also talked about the use of
cameras. I've seen it go as far
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as my local Target here in the
Philadelphia area, to actually have a security person just
outside the self checkout area
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so that if there is a problem.
So the problem of shrink has been one that retailers know has
been there, and now they see
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this as a way to try and
mitigate shrink, at least in this arena. - Yes, no, absolutely. And shrink
is not a new problem in retail.
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I mean, retailers for years has
been dealing with these problem both from customers, their own
employees, and this is something,
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that it's been embedded in
processes over the years. I think that now, because of the
level that this issue has,
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the level that we are
seeing of this issue is where the retailers are making
additional investment once the
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technology is in place. But to
your point, I mean, if you have one employee monitoring two self
checkouts, then you start to
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question, like, to what extent
this trade off of labor for the equipment is actually
making sense, right?
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- So then, do we look then to
advancing the technology even further to be able to try and
help this process out? - To some
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extent, yes, and that's why I
think there are now companies that are offering some
integration with an AI video
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monitoring tool that will kind
of politely suggest that you made a mistake, that there is an
item that you forgot, that
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these are the organic
tomato, not the regular tomato, and so you're kind of making
those savings on the
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checkout step. And I think
that that is something we're going to see, in the same way we
saw the companies incorporating
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in the weight of the product at
the end as an additional checkpoint. I think we're going
to see more and more
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refinements. But I mean, you
don't need to be too creative to think ways around if your intent
is to cause the shrink, right?
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- So now, some people would say the
easiest way to get around this is add more human beings to the
mix, but companies are
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probably not going to do that. - Well,
that's probably part of the story. And I think that
that's why I mentioned that
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companies that have not gone
down that path are retailers that see the value of that
interaction, as something that
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adds value to the customer, to
the shopping experience, and that, I think, is why there are
good reasons to stick to your
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strategy and not necessarily
jump on every opportunity of a new technology coming to the
store. - But it
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does seem like that the use of
this technology will remain, you know, somewhat under control in
terms of the amount that they
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use it. You will still have
checkout lines that have human beings behind them in the cash
registers, because you don't
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want to -- in many cases,
retailers, I guess, don't feel secure enough to have totally,
you know, self checkout
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operations in place. - No, absolutely. And what
definitely is going to happen, and it is
happening, is for those retailers
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that have started to make
investment, remember, these are companies that has, like, thousands
of stores. So to what extent
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they continue to roll this out,
expand. I mean, now that they're seeing the numbers that
are coming up for those
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components that they didn't know
before making the investments are now reasons why they will
probably think twice before
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jumping in, assuming that shrink
is going to be of a level that it turns out not to be, benefit
from the
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customer side, from the employee
side, are not as high as they thought. So I think you're right,
that we are going to definitely
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continue to see the technology
in place, but I don't think we're going to completely remove
the workers from the
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checkout line anytime soon. - Santiago, great to have you with
us today. Thanks very much.
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- Thank you for having me. - Thank
you. Santiago Gallino, Associate Professor of Operations,
Information and Decisions, and of
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Marketing here at the Wharton
School.