Beyond Shrink Control
By Ron Margulis, Managing
Director, RAM Communications
We all know the numbers: average supermarket shrink
is about 2.5 percent of retail sales, and even "best in class" retailers
are at 1.5 percent of sales. We know that, overall, shrink costs retailers
and their shoppers more than $60 billion each year. And, we know that loss
prevention always becomes a bigger challenge for retailers when the jobless
rate grows or stagnates at high levels. What attendees at a workshop during
the National Grocers Association 2010 Annual Convention held last week in
Las Vegas heard is that the current economic downturn also creates a significant
opportunity.
Larry Miller, president of Retail Control and a loss prevention
expert, said that shrink control starts from the top corporate and store
levels and must permeate the entire business. He then listed the following
best practices for controlling shrink:
1. A disciplined manager store walk
2. Backroom security, inventory control and organization
3. Inventory turnover goals by department. (Perpetual
Inventory)
4. Cashier KPIs and targeted goals
5. Empty perishable coolers on receipt of delivery
6. Cutting lists and production planning
7. 9am perishable readiness / 6pm MIC perishable walk
8. Loss prevention night visitations
9. Store manager loss prevention checklists
10. Sanitation standards and practices
11. HR/LP training, orientations, "The Coaching Culture"
12. Customer service
Kevin Weatherhill, president & CEO of The Markets,
a chain of 21 supermarkets based in Bellingham, WA, reported that by following
this series of practices, focusing on training the store team and supporting
the store manager, his stores reduced perishables shrink by up to 30 percent
and increased profit in the departments by 30 percent. In addition, refunds
were cut in half. "We did it by making shrink a team sport," he said.
A factoid that sums up the importance of loss prevention
is that a 10 percent reduction delivers the same bottom line benefits as
an 18 percent increase in sales, according to Mr. Miller.
Discussion Questions: Do you agree with all the suggestions on Larry Miller’s
list? What loss prevention strategies do you think are most effective today?
All very good strategies to adopt. But why is “Customer Service” listed as the last one on the list? Thieves don’t like to be waited on, so having some staff presence and awareness on the floor is likely the best defense. Are we again making the same mistake of putting staff at the bottom of the ‘food chain’ in developing our retail strategies?
At the Glendale Galleria in Glendale, CA, the cops march all shoplifters through the two levels and all around showing the results. I thought it helped put a face to consequences–shoplifting was nil.
The practices listed are all good and will likely have a positive impact on shrink. I think to truly be effective, all should be implemented.
Cashier KPIs and others can now be analyzed by software freeing the management to focus on the human factor. One of the tools not mentioned is WIIFM What’s In It For Me. I have found that sharing the increase in earning can be a very powerful tool to reduce shrink.
Larry Miller’s recommendations are very thoughtful and on-target, as usual. However, the focus is on perishables and theft. A silent shrink lives in shelf-stable inventory as well. Maybe that is covered in the “perpetual inventory” management recommendation. I would prefer to call it out and give it the same level of attention as perishables and theft. I’m talking about reclamation, unsaleables, returns, etc. Shrink is margin erosion. There is no way to avoid margin erosion on inventory that exits the store through the back door versus the front door.
This is all about culture. Taking action that drives out any incentives to shoplift. There should also be product handling ideas here to minimize shrink from that aspect of store ops.
Nice list, but Larry is missing the most critical item… Identify where shrink is occurring. Integrating sales information is key. Identify zero scans. Bucket zero scans so you can determine items that haven’t sold in certain time frames. Leverage store level data in EDI files and flag items and stores where issues exist. This will narrow down your focus and pin-point where shrink is occurring.
Further integrating this information with other information such as orders and shipments will identify, pinpoint and greatly reduce shrink. The last thing a company wants or needs is for shrink to cost them even more by using employee time to track it down. Products like POSmart can pay for itself in weeks when used to pin-point stores where shrink is an issue.
I agree with Janet. RSR’s benchmarks consistently identify employee theft of cash and employee theft of merchandise, along with customer theft of merchandise as the top three sources of shrink.
They also consistently say “better business intelligence” as their best opportunity to control shrink. I’m not going to list the technology vendors that can help, but think about real-time analysis and reporting about cash overrides, voids, and video surveillance to observe sweethearting as real opportunities. After the fact is too late. Catch theft while it’s happening.
Shrink can be divided into two categories, product loss through operations and theft. The two are quite different and should be handled differently. Some operational cures will also lower sales so be careful about what you wish for….
I recommend two things to my independent retail clients to discourage shoplifters and heighten awareness amongst the staff. First, every customer must be greeted when they enter the store, and at appropriate intervals thereafter, in a friendly, non-intrusive way. This both alerts would-be shoplifters that the staff is on the ball and reinforces customer service discipline and loss-prevention awareness with those on the floor.
Second, I recommend that an on-going cycle count program be put in place, with scheduled and unscheduled counting taking place a least once a week. This further reinforces the importance of loss prevention, leads to cleaner, crisper merchandise displays and good housekeeping habits, and identifies operation errors at a very early point.
(Scanner note: I was one of the early users of Larry’s products and remain a huge fan of his consistent and thorough insight into shrink management and control.)
There are a lot of great comments, though I have to admit, not surprisingly, some include a bit of self-promotion, but that’s okay too.
Larry’s list is a great one. Is it all inclusive. No. Is it likely 95% of what retailers aren’t doing? Yes. Shrink control is culture. It is basics. It’s a mindset. It’s a ‘You get what you talk about’ thing. The majority of retailers think they are good shrink managers, but like most else, they aren’t consistently doing half of the list–not to mention doing it well.
Larry is an extraordinary talent at delivering ways to accomplish blocking and tackling in shrink control. Motivational? That’s an understatement. Yet, for sure, the short list is not all inclusive, nor is it in order of importance. As I am sure he would tell you, it’s these things along with many others that provide great returns in the war against shrink. Sure, that’s a harsh word, war. Isn’t it? Yet, the numbers are staggering.
These few items along with hundreds of other ways are the simplest way to get profitable and remain profitable. This is especially true during flat sales growth periods. All of them are ways that don’t add cost, sophistication, expensive data analysis, or huge management efforts to implement or maintain. In fact, pick any two of the ten, and implement them well, they pay the dividend on implementing them all.
Sure, software analysis, theft control systems, cameras, integration, data mining, etc, all help too. Its a multifaceted battlefield. You can be sure he knows them all at a level greater than all of us combined.
My advice. Do the ten. Live these, work these, and reap the benefits. Then, you just might have all the money you’d need to implement the sophisticated costly methods.