Stop, Thief!
By Al McClain
Want an easy way to dramatically grow your profits at retail? It’s as simple as reducing your shrink, according to Larry Miller, president of Trax Retail Solutions, who gave a presentation on the subject at the recent NGA (National Grocers Association) convention.
For many retailers, profit margins are thin enough that controlling shrink can be the difference between being in the black or in the red. And, Miller says that 68 percent of shrink is preventable; 86 percent of supermarkets mask or understate the problem; and the problem is 90 percent dependent on changing employee behavior. (Many of the statistics cited in this discussion are from a recent study of 30 retail companies with 10,400 stores, conducted by Trax and The National Research Group.)
According to Miller, 56 percent of retail shrink is employee-driven, versus 21 percent for shoplifting, and 10 percent due to receiving problems. Only 5 percent is related to pricing errors, 4 percent accounting problems, and 4 percent caused by damage.
In order to get a handle on the biggest part of the problem, Miller advises a comprehensive approach that starts with a pre-hire honesty orientation talk, and includes regular reinforcement, with some key elements:
- ASK employees to be honest
- TEACH what needs to be done and why
- WARN — get a commitment to follow policy
- REMIND — via awareness meetings, etc.
- PROMOTE shrink awareness via in-store signs, etc.
The key seems to be making a company-wide commitment to reducing the problem, using persuasion and education, combined with the plethora of new technology that can be used for reporting and monitoring. As an example of the possibilities, here are some of the statistics that Trax cites:
- Automated cashier monitoring systems can reduce shrink 16 percent by measuring cashiers versus others in the same store, providing clarity of performance
- Integrity/honesty surveys at hire can drop shrink up to 13 percent
- Formal loss prevention training for store employees can reduce shrink 22 percent
- POS data mining software can decrease shrink 6 percent
There are other ideas from Trax, along with whitepapers that detail best-practices, available at http://www.traxretail.com/whitepapers.htm
Moderator’s Comment: What do you see as the keys to reducing shrink?
One idea mentioned that really appeals to me is engaging potential shoplifting customers. The idea is that you train employees to go right up to possible
shoplifters in your store, greet them, and let them know that they are so important; you’ll be attuned to their every move. This is all done in a very positive, friendly way.
If the person is a shoplifter, they will probably go elsewhere. If not, they’ll be appreciative of your personalized approach to customer service. –
Al McClain – Moderator
Loss prevention is a big headache to every retailers. Educating staff is always good and helps the organisation. Just educating the staff will not give any major advantage to the retailers.
This is my view: inform the staff that “whoever is going to bring down their loss” to a minimum level (retailers have to use a grid), that particular store staff will get an interim cash gift.
Personally, I tried this step on my floor and got a massive result. Without the staff support, bringing down loss will never happen.
Getting a handle on the many faces of shrink is key to increasing profits. Training the employees and teaching them about areas that cause shrink are keys to minimizing it. The IDDBA has created two free downloads that can help (www.iddba.org/pdfs/Aug05.pdf). One is a “Customizable Pricing Audit Log” and the other is a “Pricing Exercise for Staff Training.” There are many tools from a variety of sources but they won’t help if the corporate culture doesn’t actively promote shrink reduction as a profit center. The other side of this is to teach the customer about your business. If they understand that “shrink” in all of its forms can hurt them, they’ll help monitor the problem. Signage that teaches customers and asks them to report “unusual” activities or products out of display or incorrect pricing will make them part of the solution.
Education is key. To Carol’s point, customers would be less likely to participate in practices that cause shrink if they had an understanding of what it was and how shrink effects price. Snacking on a handful of nuts or tasting the bulk figs cost the store and them money.
Checkout personnel are so important to the store’s profitability. Yet, one gets the impression that they are deemed a necessary evil and if everything were automated life would be so much better. I continue to go on record stating that these individuals leave a lasting impression on the shopper. Employees that efficiently handle price checks or price discrepancies are deemed as professional. Employee training and recognition for accuracy are clearly two tactics that should reduce shrink.
The experiences I have had with cashier monitoring point to attitude as the number one culprit. The installation of the tools and the awareness that they will be used to monitor and address performance issues goes a long way to address the 16% of shrink associated with employees. I was simply amazed at the number of times the answer was “everyone is doing it.” This attitude, whether it was right or wrong, had a snowball effect on everyone in the store. By emphasizing shrink as an issue and taking a few actions, we were able to change the attitude. I am glad to see the largest factor (22%) is training. That means that the right processes and applications in the store or warehouse can go a long way to fixing things. I would rather believe that people only need to be trained than to think they are naturally thieves.
But another huge problem with shrink is the accurate calculation and reporting. Especially if the retailer is still on the retail accounting method, a lot of “shrink” can be caused merely by poor tracking of retail changes, markdowns, and targeted discounts. This also opens a way for the clever store manager to use the accounting system to hide an actual shrink problem. Since this is one of their primary performance measures, they are encouraged to “do all they can” to avoid reporting a shrink problem. Only when item level inventories and sales histories are used to calculate shrink based on actual item movement can a true shrink amount be determined.
Shrink is often 2% to 4% of sales, which is often 50% to 100% of pretax profit. Staff errors are usually the leading cause, unless the retailer has a “high shrink” assortment (music, movies, costume jewelry, etc.) or an embezzler. Best way to reduce staff errors: reduce turnover. Second best way: simplify and automate every procedure possible.
Regardless of the method chosen, corporate efforts to reduce shrink must avoid becoming “flavor of the month.” In retail, there are always new “top priority” programs being introduced to employees, each losing attention as a new one is unveiled. The secret to successful shrink reduction is consistent management emphasis.
The problem of shrinkage with employees will never be significantly reduced until people are punished for causing it. The same holds true for shoplifting. Even the term shoplifting disguises it for what it really is – stealing. If you look at drinking and driving as an example, it never started to be curbed until penalties and enforcement of those penalties substantially increased. We could cure all of societies ills if we recognized the age old practice of punishment and admitted it as still being relevant in today’s world.
I agree with Mike Dollar. I work at one of the big two home improvement boxes and the thieves know that they are impervious to punishment. We can follow them through the store watching them pocket merchandise…then watch them walk out the door without interference, because of ridiculous LP rules. We have regulars who steal hundreds of dollars worth of merchandise a week; know it, have them on tape as well, and management does nothing. We even had an employee terminated last week because he confronted a thief with a pocket full of hundred dollar circuit breakers.
Although the suggestion to greet “potential shoplifters” with a smile and increased personal attention has appeal, it also risks potentially ruinous lawsuits. Giving the individual employees the authority to identify certain shoppers as “potential shoplifters” risks giving certain people a carte blanche to stereotype and greet people with an attitude that can easily be de-coded. True, 99% of employees will not misuse it, but with a retail organization’s staff level, any company is bound to have a few who misinterpret the directive or misuse it. Even the filing of a lawsuit alleging discrimination or mistreatment based on race or ethnicity could cause huge losses in sales, even if the suit has no basis. I’d avoid using this as a policy.