Despite a difficult second half for most retailers, Stage Stores, Inc. achieved solid financial results during fiscal 2002. A weak economy and declining consumer confidence caused sales to soften over the last two quarters of the fiscal year. However, among other things, an improved inventory shrinkage performance was enough to mitigate the impact of the sales shortfall.
Just three short years ago, shrinkage losses were astronomical. Company executives realized the positive financial impact that could be achieved by a reduction in inventory shrinkage and made it one of their top priorities.
One result of this change in focus was to realign the loss prevention department, which previously reported to the CFO, to report to the executive vice president of store operations. This helped produce immediate operational support for loss prevention programs and approved physical security capital expense dollars, which provided the catalyst to make the difference.
“The key to an effective loss prevention program is the integration of LP into the operational structure of a company,” explains Chris Lauritzen, vice president of loss prevention. “Our loss prevention team is not only a partner with operations, we are an integral piece of the process that takes place in the stores.”
Identifying High-Risk Stores
In order to have the greatest impact on shrinkage in the shortest amount of time, we seized the opportunity to develop a high-risk store program. The first step was to evaluate all stores in order to identify the stores needing the most attention.
Working together with our loss prevention regional managers and the corporate LP manager, stores were divided into groups for assessment. Stores were surveyed on the following factors:
- The current year’s shrinkage performance both in dollars and percent to sales,
- The previous year’s shrinkage performance both in dollars and
- percent to sales, and The percentage of change from year to year.
Other store attributes taken into consideration were each store’s physical location, internal and external theft cases, management tenure, and associate turnover.
This evaluation resulted in identifying stores where we thought we could make the biggest impact on our shrinkage dollars. Originally, one hundred stores were designated as high risk. However, we quickly realized that one hundred stores was too many to effectively manage.
“In determining the number of stores you are going to designate as high risk,” says Lauritzen, “it is important that you have sufficient personnel and resources to give those stores the attention they need without sacrificing your effectiveness in the rest of the stores.
For us, fifty is a manageable number.” These fifty stores became the focus of an intensive high-risk program.
The High-Risk Store Program
The next step was to develop tactical plans for impacting the high-risk stores’ shrinkage results. The result was a comprehensive program that attacked the causes of shrinkage from multiple angles.
High-Risk Assessment and Action Plan.
Working together, the loss prevention investigator and district sales manager performed an assessment of each store to identify and address shrinkage contributors. They met with the store manager and developed an action plan for each store, targeting that store’s individual needs. The top ten shrinkage departments within each store were reviewed, discussed, and researched for any unusually large amount of transfers, damages, or paperwork transactions. The physical placement of that merchandise within the store was also reviewed. The effectiveness of the management team was evaluated, along with provisions for additional training if necessary. Physical security measures in each store were eviewed along with recommendations for enhancements.
High-Risk Associate Interviews.
District sales managers administered high-loss surveys during storewide meetings. Based on survey feedback, associate interviews were conducted in each store attended by both the LP representative and the district sales manager. Most interviews were scheduled in advance and lasted about thirty minutes. During that time, each associate was educated on the causes of shrinkage, how it is measured, and what actions they could take to prevent it from happening. They were informed that their store was considered to be a high-risk store and explained the benefits of reducing those shrinkage losses and how it could affect them personally with pay and benefit increases and opportunity for advancement.
In addition, we asked for their help. We posed the question, “If you owned this store and were having to absorb these losses, what changes would you make?” This led to an astonishing realization: If you want to know how a store is running, ask the associates.
We learned more about the inner workings of a store by sitting down and talking with associates than we ever would by crunching numbers. We had no idea the benefits would be so great by simply spending the time to sit down and visit with associates. The morale in the stores improved. Over and over again, associates told usthat it felt good to know that someone cared enough to come visit them and asked for their opinions. They felt a part of the solution. They became more aware of loss prevention, and the culture of the company began to change.
In addition, as a result of the information received from those associate interviews, a number of associates were terminated for theft and policy violations.
LP Advocate Leadership Certification.
The store manager and one member of management in all high-risk stores received an intensive training program on shrinkage prevention. Managers completed a selfpacedworkbook consisting of six training modules, each targeting a different shrinkage contributor. Topics included
- Internal theft,
- External theft,
- The hiring process,
- Associate orientation,
- Associate training, and How to perform an operation audit of the store.
Each module included a reading assignment, an exam, and a sign-off page for both the manager and the loss prevention representative. Successful completion of the workbook and the final exam earned a “LP Advocate Leadership” certificate. Participants keep the workbook for future reference and as a training guide for storepersonnel.
The program has been so successful that all store managers have now been certified and the workbook has become part of the company’s new store manager development program.
Associate Awareness Campaign.
Posters, monthly newsletters, games, prizes, and recognition contests were created to educate associates and promote the company’s “Associate KeyLine,” a hotline established for associates to report suspicious situations and company issues.
As a result of the awareness campaign and the associate visits, our calls have almost doubled. Over 300 calls were received last year reporting both LP and human resources issues.
Associates know that the call is confidential, and there is no retaliation for reporting a problem.
Associate recognition became a big part of the awareness program. If an associate reported a possible shrinkage situation or provided excellent customer service, they were given an “Associate Thank You Card” as recognition. At the end of each quarter, a card was drawn for a prize. Even small gifts, such as microwave popcorn, were well received by associates as recognition for their efforts in helping us reduce their losses.
In addition, stories were published in the company magazine recognizing employee efforts and many received a personal letter of thanks for their contribution. Again, all these efforts helped make the associates feel a part of the solution.
Operational Compliance Audits.
Audit performance scores were compared to shrinkage results. We learned that the higher the average audit scores, the lower the shrinkage percentage. Conversely, the lower the average audit scores, the higher the shrinkage percentage. Stores with an unacceptable audit performance, also had an unacceptable shrinkage performance. There was a definite correlation between the two.
In the past, failing audits carried no consequences. Now working with store operations, quick action is taken to address and correct unacceptable audit performance.
Surveys were sent out to store managers asking for suggestions regarding the audit process and how it could be improved. The majority of responses indicated the need for more operational training for the management team, particularly with new managers.
Recognizing that need, the LP department underwent a major structural change. A new position of training and compliance coordinator was created. Four of our investigators with the most operational knowledge and the best training skills were selected to fill the positions. The coordinators provide operational training to all new store managers,spending a full day in each store performing the operational audit, and training the entire management staff.
The investment has paid off. The stores now view the operational audit as a positive tool, one to help them improve their daily operation. They also view the loss prevention department as a partner in helping them with that improvement. It has changed the perception of our department from one of being reactionary to one of beingproactive.
Drug Testing and Criminal Backgrounds.
In partnership with the human resources department, all associates in the high-risk stores were subject to both drug testing and criminal background checks.
“Our human resource department is an example of how a department becomes not only a partner, but a critical piece of the entire operational process for the stores,” says Lauritzen. “The LP investigators work daily with the HR department to resolve issues. It is a very symbiotic relationship. Their support is critical to our success.”
As a result, several associates were terminated for cause. Due to the impressive results, both drug testing and criminal backgrounds have now become a permanent pre-employment process in those stores.
POS Exception Reporting.
A full review of POS activity was performed reviewing all voids, refunds, merchandise credits, and no sales to identify dishonesty and operational deficiencies. From stories in the company newsletter to storewide training meetings, a campaign was initiated to make store associates aware of our capability to review register transactions. In addition, a POS Store Exception Profile Report highlighting stores above the company average was given to district managers as a tool to use in managing their stores.
Physical Security Equipment.
A major source of support from the company was the capital-dollar investment to install physical security equipment. EAS systems were installed in thirty-eight stores, while CCTV and public view monitors were put in all fifty stores. Corporate LP manager, Bruce Mahler, headed up the massive project.
According to Lauritzen, “You cannot discount the use of technology in reducing shrink. Bruce has managed to work miracles with our capital expense dollars. He consistently keeps on the cutting edge of technology as well as keeping costs down to obtain a suitable ROI.”
A Flexible Program
While the tactics outlined above became the recipe for targeting shrinkage in our 50 high-risk stores, the program had to be customized for each store. Because we operate three different trade names (Stage, Bealls, and Palais Royal) in 13 states, none of our stores have the exact same footprint. The sizes of our stores range from 8,000 to over 55,000 square feet. Sales volumes range from $500,000 to close to $10 million dollars. Some of our stores are in malls in major metroplexes, while others are in strip centers in small rural towns.
But all the programs in the world won’t be successful without the right mix of people to implement and monitor them. According to Lauritzen, “Our management team is incredible. We are all very different personality types, but we work very closely together to complete the equation.
“Our director of loss prevention, Lee Bland, is simply amazing. She has managed to integrate LP into the very culture of our stores. She relates to our associates in such a way that they incorporate good loss prevention practices into their everyday tasks.” Our regional managers, Mike Battles and Stan Berger, and field representatives are among the best in the business. This team drives the program with an incredible work ethic. They understand the main goal of a store is to properly service the customer, maximize sales, and ultimately make a profit.
And did that effort pay off? In 2002, the program resulted in an approximately 48 percent reduction in shrinkage in those fifty stores. That translates to a year-over-year savings of $3.7 million dollars.
Thirty-three of those fifty stores are no longer considered as high risk.
Most importantly, the culture of the company has begun to change. Lossprevention is now seen as a partner with the district operations managers and the human resource department. All are committed to achieving the same result. We are no longer seen as reactive, or as “policemen,” but as a proactive part of the solution, a member of the team. The stores seem to be learning that we are here to help them be the best they can be. In the long run, we all win.
So, what will the shrinkage results be for Stage Stores in 2003?
“Based on our shrinkage history, the program works for us,” says Lauritzen. “We repeated the process in 2003 with one major change. Our field staff has managed to perform and complete the entire program within the first quarter of the year. That should make a big impact. We are looking forward to great results again.”