No retailer can afford rising shrinkage at the moment, but tackling theft isn’t just a job for specialists – everyone from store staff to the chief executive can help. Joanna Perry explains how
Staff are considered part – though normally a small part – of the problem for retailers when they are thinking about loss prevention. But it is possible to also make them part of the solution.
Speaking at a loss prevention event in London, Best Buy head of loss prevention Paul Stone explained how the electricals retailer combatted sharply rising shrinkage rates by introducing a loss prevention culture that extends across the whole of its US business. As a result, its shrinkage rate is now below 0.5 per cent of sales.
Best Buy’s journey to create a loss prevention culture began after a shocking six months between 1994 and 1995, when its shrinkage rate more than doubled from 0.7 to 1.5 per cent of sales.
Stone explained that problems existed throughout the operation – in stores and within its supply chain – but it did not know how or why the problem had got so bad so quickly.
The asset protection team was given just a year by Best Buy’s management to turn around the situation, and shrinkage control was given a high priority within the retailer’s plans for the next financial year. 59 programmes were rolled out in the following six months, many of which failed. After that, the asset protection team went back to the business to ask for help.
Best Buy created benchmarks around shrinkage results in collaboration with staff, and ran round tables where staff at all levels put forward suggestions for improvements.
As a result, a company-wide shrink reduction plan was put in place that is still used today, more than a decade later. Stone said: “Everyone from the chief executive downwards knows their role in reducing shrink. Our shrink plan is not a big secret.”
But can this holistic approach work for retailers in the UK, or is it a phenomenon that is unique to Best Buy?
Loss prevention consultant Peter Just has worked for retailers including Marks & Spencer and Sainsbury’s.
He firmly believes in the importance of building a loss prevention culture in order to create a deterrent for both internal and external thieves, as well as making staff aware of procedural failings that can lead to loss. He has worked in profit protection teams that were 80-strong, but even those with big resources can benefit from harnessing the support of the whole organisation.
He says: “It is good to try and empower all your staff to have some ownership of loss. It is important to listen to everyone, as they will see things that you can’t see. In Marks & Spencer and Sainsbury’s we had a dedicated telephone line that people could use to report things confidentially, such as theft or procedural problems, and we investigated some really big cases that we became aware of this way.”
Get store managers involved
In particular, it is vital to use store managers to assist with all types of profit protection programmes, although it may not be suitable for them to be involved with all kinds of cases.
Just says that there can be benefit from rolling out data mining and loss prevention systems at store level, but even if a retailer chooses not to give store managers access to the data, less major cases and procedural issues can be passed to them to deal with.
He says: “You can split loss down into crime and procedural issues. We did that at Sainsbury’s and it enabled the right team to go in and deal with particular issues. When you find a procedural source of loss, store managers will know how to make a difference. They know how their store works, and they should be responsible for ensuring that it operates as efficiently as possible.”
At Best Buy, prospective managers are shown the rules they will be expected to work within at their third interviews, and Stone said some people have walked away at this point saying that they don’t think they can do it.
In addition, each Best Buy employee is expected to know and think about the potential shrinkage problems in their department or store. And shrinkage is measured on a weekly basis through reports and cycle counts, so the retailer knows by location what the shrinkage figures are. The focus of the asset protection team changed to an employee-centred approach when Best Buy began its shift in culture, with the team expected to be change managers.
Just adds that staff at all levels, and in all parts of the business, should be given visibility of key performance indicators relating to loss and shrinkage. He says people can’t act on things they don’t know about, and if using the figures is positively promoted internally it can boost morale.
Just says that till losses of between 2p and 3p per £100 of sales is considered a good rate, but in some stores it can be as much as 12p to 16p. He adds that some inner city stores will need to be given different benchmarks, as it is likely that the rates of till theft and external theft they see will be higher.
Loss prevention data mining system provider Sysrepublic works with retailers including HMV, Tesco, Marks & Spencer and Asda. It has also set up an alliance that its retail customers are members of, with the mission of combatting the shared problems of shrinkage.
Sysrepublic head of business development Kevin Eley says retailers can really benefit from sharing a level of information from the system at store manager level – even if they don’t want to give store staff full access.
He says that a balance must be struck between encouraging a focus on shrinkage reduction across the business and compromising investigations into fraudulent activity.
As well as a key performance indicator showing shrinkage as a percentage of sales, Eley says other measures can be taken using the system and used for benchmarking, such as the percentage of voids or refunded transactions. He says that not only do these metrics highlight where improvements can be made, but they also introduce an element of competition between stores to minimise suspect transactions.
HMV is considering extending its use of the Sysrepublic system from its stores to its website too, and Eley says that increasingly retailers are taking a more joined-up approach to profit protection across the business. They are recognising that fraudsters will cross channels, and multichannel process failures can also lead to loss.
However, Just warns that once you create a loss prevention culture and engage staff to help with particular projects, it can be easy to lose momentum. Knee-jerk reactions may yield some quick wins, but if you want to maintain low loss levels, you need to be consistent about reviewing what you are doing and let people see the results in their stores.
Just adds that, ideally, ongoing collaboration should also extend to loss prevention technology suppliers, and they should not treat the IT exchange as just a sale, but more of a relationship.
He says: “I had this relationship with Sysrepublic both at Sainsbury’s and Marks & Spencer, where I can remember going to them with an example of a suspected refund exchange fraud. We worked together to turn an event into a query, which returned many other instances of where this was happening, highlighting the potential loss of hundreds of thousands of pounds of suspected fraudulent activity – we went on to make a change to the printed receipt and refund exchange process.”
Stone’s advice to other retailers that want to adopt something similar is that if you listen to your employees, they will be able to tell you an awful lot about how to tackle the specific shrinkage problems your business faces. He said Best Buy’s employees came up with its overall plan, and localised it to make sure that it works every day in stores.
One store manager pointed out that Story text,000 computers were being displayed at floor level in stores, while $300 monitors were on high racks. The products were swapped around and it had a huge impact on Best Buy’s shrinkage rate.
While employee theft will never disappear completely, there can be big gains from trusting staff to play a part in the protection of your profits.