Rite Aid’s Loss Prevention Strategy Yields Data-Driven Results

Rite Aid's loss prevention department has seen big changes since Oberosler arrived in May 2010.

EDITOR’S NOTE: Robert “Bob” Oberosler is group vice president of loss prevention for Rite Aid, one of the nation’s leading drug store chains with more than 4,500 stores and over $25 billion in annual sales. He has 30-plus years of varied retail loss prevention strategy and operations leadership experience with Pathmark Stores, Lowe’s, and May Company. Prior to Rite Aid, Oberosler was president of Universal Capital Management, a boutique small venture capital company. This 2012 interview reveals why he is known for identifying talent and building diverse, results-oriented organizations.

EDITOR: You have had an extraordinary career with several top retailers. When you arrived at Rite Aid in May 2010, what were the initiatives that you identified early on that were necessary to take Rite Aid’s loss prevention strategy to the next level?

OBEROSLER: The first thing I found was we had a boatload of talented, passionate loss prevention professionals. However, they didn’t have a deep toolbox of tactics at their disposal. There didn’t seem to be much discussion around creating overt controls, the factors that drive a store’s shrink, classification of stores based on risk modeling, and other proactive measures.

So, one of the first things we had to do was reset the agenda to make sure that our team knew that the scope on loss prevention strategy was going to change dramatically. They were going to become resident experts in many areas that they weren’t experts in before, for instance, inventory and the replenishment process. They were going to get more involved in facets of the business beyond loss prevention, to develop a complete understanding of all the factors that affect the store P&L. We were not going to focus on apprehensions, but how to help the stores improve sales, improve EBITDA [earnings before interest, taxes, depreciation, and amortization], and control inventory shrink.

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EDITOR: How was that change received?

OBEROSLER: I think it caught people by surprise. Here was the new VP of loss prevention saying—more for dramatic effect, frankly, but, certainly, to set the tone—”I don’t really care if we catch another shoplifter or dishonest employee ever. As a matter of fact, that would be the greatest thing ever.” Why? Because we were a company that was focusing on the number of apprehensions we made, the number of recoveries we made, and not as focused on the sales number, the EBITDA number, and the overall shrink number.

This was a big change for everybody in the LP department. This required us to restructure how we evaluated our store-level LP agents. It wasn’t going to be about showing up for work every day and how many shoplifting cases they made. What we told them was, “You’re going to be responsible for the shrink number, and we’re going to give you a big toolbox to help you.”

EDITOR: So you completely moved away from apprehensions.

OBEROSLER: Not exactly, we still make many cases each year. I just don’t think we need to motivate loss prevention agents to make shoplifting cases. It’s in their DNA already. But for that to be their number-one criterion on their evaluation isn’t the right priority. When I think about the perfect loss prevention agent, it’s not the person who goes out and apprehends the biggest, baddest shoplifter. It’s the person who knows every single thing that’s going on in their store, has great relationships with everyone in the store, takes guardianship over their high-theft items and categories, knows the items that they’re losing, and has applied the appropriate tactics to drive sales and control shrink. So, one can have the person who delivers a phenomenal shrink number, or a loss prevention agent who’s making 300 shoplifting cases a year while shrink is out of control. I know which of the two I want in my organization.

Cornel Catuna Quote OberoslerEDITOR: I’ve heard you talk before about controlling shrink versus eliminating shrink.

OBEROSLER: I’m not the zero-shrink guy. If you want to try to get zero shrink, hire somebody else. I’m going to aim at getting shrink down below a certain percentage number where we have that careful balance between maximizing sales and controlling shrink. You have to understand the customer shopping experience. You are going to have some shrink if you want your customers to have a great shopping experience.

EDITOR: Earlier you mentioned “risk modeling.” Talk about what you mean by that.

OBEROSLER: Risk modeling is a way of classifying our stores that helps us determine how best to apply our resources. For example, our front-end shrink risk model scores every store by class and risk—class being their historical shrink with five being the highest to one the lowest, and risk being that element outside the four walls noted as high, medium-high, medium, medium-low, or low. So, if I’m talking about a store that is “five high,” then everyone understands that it’s a high-shrink store probably in a high-crime area. That store will require a particular loss prevention strategy and set of tactics. On the other hand, if we’re talking about a “five low” store—that’s high shrink in a low-crime area—then obviously something else is driving shrink besides shoplifting. So, that store requires different tactics.

EDITOR: Are there other risk models you use?

OBEROSLER: In a way, Rite Aid has two businesses in one—the front end and pharmacy. We also had to create a risk model for pharmacy, which is broken down even further into pharmacy robbery and pharmacy burglary. Now we have models for these three big chunks that we’ve separated and can apply the right resources and tactics to.

EDITOR: Let’s stick with the front end for a moment. One of the key programs that you’ve been partial to throughout your career has been the establishment of merchandise protection standards and the management of those programs. Talk about how you monitor and manage internal and external incidents and how they relate to your overall loss prevention strategy.

OBEROSLER: We had kind of a one-size-fits-all program to merchandise protection. One of the tools we had was source tagging, which certainly has its place. But then, we kind of leapfrogged all the way to locking glass cases, which I despise.

EDITOR: Why is that?

OBEROSLER: When I was running store operations for a few years, I saw how locking glass cases hurt me on sales, hurt me on labor productivity, and hurt the customer shopping experience. Plus, locking glass cases cover entire categories, when it’s only certain items within that category that might be driving that loss. So, you’re overprotecting certain items and hurting the customer shopping experiences in others.

Data shows the highest-stolen items are also typically the highest-selling items. That’s why they’re stolen. There’s no mystery to that. That’s why I talk about high-theft items, not high-theft categories. The question becomes—how do you create that careful balance?

The loss prevention executive today has to be the captain of the strategic plan for selling and controlling the loss of high-shrink items. We have to understand all the different points of view throughout the organization, such as the pressures on the category manager to drive sales and make margin and their valid concerns over “restrictive” selling. Or why shoplifting in a store is personal for the store team and why they may do certain things to Pedro Ramos Quote Oberoslerprotect their product that may end up hurting sales.

We developed a data-based matrix that dictates different levels of protection for different levels of risk as opposed to rolling out one company-wide tactic. The matrix goes from least restrictive tactics up to most restrictive with multiple points in between. This gives operators a clear decision-making process based off the data, based off their risk-and-class modeling, and based off their experience in the store to implement different tactics to find that careful balance of sales and controlling loss.

EDITOR: How do you implement that loss prevention strategy?

OBEROSLER: Our loss prevention district managers are becoming the resident experts on the strategic plans, and they have the data. They work with their district operations partner to find the proper balance for a particular item. For example, take a high-theft item like Prilosec. If you’re in a high-shrink store, you may have Profit Guard™, which is basically a plastic shield over the shelf that sets off an alarm that gets louder the longer it stays open. Plus, you may have that in a vault. You may also be on quantity control. So, you have three or four layers of protection. The key is the customer can still pick it up and buy it, but at the same time you are controlling loss. On the other hand, a low-shrink store in a low-crime area may not need quantity control or Profit Guard. Just having a vault protector on it is enough.

EDITOR: Given these multiple layers of protection and the need for a bigger toolbox, what are some of the technologies and programs you’ve put in place to help control loss?

OBEROSLER: One of the first things we had to do was address the issue of losses due to internal theft and procedural errors. Because we were in a turnaround stage, we don’t have all the CAPEX [capital-expense] dollars that other companies have. That meant we had to rely on our data to drive decisions on where to spend our capital and find proven solutions that provided a significant return on investment.

One of the first vendors we signed up was Agilence. Agilence gave us the capability of having a POS interface with exception reporting and live video feeds. That changed the way we looked at internal losses dramatically. We had some clever people out there who had figured out ways to defraud the company and stay under the radar. Agilence was able to detect them. Other things Agilence helped us identify were coupon abuses and procedural losses that aren’t in the shrink bucket, but in the gross margin and promotional-spend buckets, but EBITDA nonetheless. It also gave us the Oberosler Rite Aid Storeconnectivity to look into stores from a remote location, and that is becoming a big game changer for us.

EDITOR: What about product-protection devices?

OBEROSLER: One thing I do that maybe other retailers don’t is I share all of my information. When I bring vendors in, I give them my entire database representing millions of known theft by SKU. I say, “Here’s the file. Give me your best solutions.” We have a model store inside a local warehouse that is an exact, up-to-date store with everything set up and every planogram. I tell them, “Go down there. Go through the shelves. What’s your least restrictive solution that helps control loss and will enhance the customer experience? And, yes, I also want a good return on investment.”

EDITOR: That’s a great retailer-vendor partnership example.

OBEROSLER: Now we have an overall strategy with a variety of tools, each with an associated ROI, that allows our district LP managers to sit down with their district operations manager or district pharmacy manager to determine the appropriate item or layer of measures that meet the needs of their individual stores.

EDITOR: Since you mentioned pharmacy, let’s turn our attention to that side of the business. What are some of the issues and programs you’ve implemented there?

OBEROSLER: One of the programs that was already here—and I compliment them—is they had created a director of loss prevention for pharmacy position with a small team dedicated to detecting and controlling losses in the pharmacy. What is critical is that director is a licensed pharmacist. That is important for a couple reasons. First, only a pharmacist really understands the things that happen behind that counter. Further, there are many times we’re dealing with private information that only a pharmacist is allowed to see.

EDITOR: Is drug diversion the primary problem in pharmacy?

OBEROSLER: There are three areas that affect pharmacy shrink. One is drug diversion by a pharmacy associate. The others are robbery and burglary. Again, we’ve created risk profiles for each one of these that we can now apply the proper resources.

We already had a lot of controls built into the pharmacy when I arrived. It was a fantastic program, but you can always sharpen the knife. So, we started focusing loss prevention strategy efforts on the top issues within each risk profile, be it diversion, robbery, or burglary, and created a toolbox of tactics for each.

On the drug diversion side, we started focusing on those stores that had historical shrink, as well as focusing on the most commonly diverted drugs. There are thousands of drugs behind the counter, but only a fraction of those are diverted. We started redoing our NaviScript reports, which is an offshoot of Retail Expert, and combined them with our NextGen system, which is basically the system that runs all dispensing, inventory, and patient information. By combining these two, the pharmacy LP team was able to detect many drug-diversion cases to the pill level.

EDITOR: That’s impressive.

OBEROSLER: What we’ve seen is exactly what we thought we would see. We first saw an increase in the number of drug-diversion cases, and nowJon Grander Quote Oberosler it’s starting to fall. To be accurate, the number of cases hasn’t fallen much, but the dollars-before-detection amount has fallen dramatically, which is exactly the way you want those arrows going.

EDITOR: What about robbery and burglary?

OBEROSLER: First, we identified the stores that were most susceptible to pharmacy burglary. We worked closely with other drugstore retailers to get some of these rings that were hitting us. For those stores that are most susceptible to burglary, we created tactics to stop it and built different levels of fortification. That has worked tremendously well for us. We’ve seen our losses from pharmacy burglary in the past year drop by high double digits.

EDITOR: Is the same thing true for robbery?

OBEROSLER: Robbery is not a big dollar loss item, but it’s certainly something that the industry is struggling with, especially because of the impact it has on store associates. We are aggressive and have many different loss prevention strategy initiatives in place. As we started analyzing pharmacy robbery, we noticed something amazing that I’ve never seen in my 30-plus years in LP. That is, the vast majority of these robberies were happening in stores in low-crime areas—exactly opposite of what you would expect.

When we dug down to root cause, we came to the fact that pharmacy robberies were driven by people with an addiction to prescription medications. They are addicted to a high level of opiate, then run out of money or run out of insurance, and they believe their only recourse is to go and rob a pharmacy. People ask me, “Why aren’t pharmacies robbed in urban stores?” Well, it happens from time to time. But what normally happens in urban stores is they rob the front end because they can take that cash and get better, more drugs on the street than they can behind the pharmacy counter.

EDITOR: That’s very interesting.

OBEROSLER: Let me first say robberies are hard to predict. What we attempt to do is create predictive models and deploy tactics for where we believe we are most susceptible to robberies. The results have been dramatic. Based off the best data we have, pharmacy robberies across the industry are up, while ours are down and continuing to drop year over year. We are aggressive in using every available resource and loss prevention strategy to apprehend a person who robs our pharmacy, and I am happy to say we are successful. We need to be for our associates and our customers.

EDITOR: One of your first comments when we started this interview was about the talented professionals in your organization. Looking back at your career, you’ve had a large number of excellent LP professionals who have made great LP executives. Why is that?

OBEROSLER: I’ve been blessed to work with a number of smart, passionate professionals, whether they were in the organization when I arrived, like here at Rite Aid, or whether I had to recruit them. For some reason, God’s given me a gift for recognizing talented individuals and putting them in the right position to excel.

EDITOR: What type of person do you look for?

OBEROSLER: The type of person who works best with me is someone who is data driven, analytical, passionate about what they do, and hungry for results. I’m a numbers guy, and I like people who are focused on numbers. Give me a person with those skill sets, and I’ll teach them the loss prevention strategy part.

One of the other things I strongly believe in is building a staff of diverse individuals and putting them at all levels of the organization where they can have impact. There was a powerful, diverse team here at Rite Aid; I only had to bring in one person from the outside. Everyone else was already in the organization; we just had to find them. And, oh, by the way, I think there are three or four people on this team now who will be vice presidents or higher in companies one day.

EDITOR: That’s not surprising if you look back at your career with May Company, Lowe’s, and Pathmark. There are 15 or more who are now executives in this industry today either on the vendor or practitioner side. Why is that?

OBEROSLER: The truth is I don’t know. Here’s what I do know. If you’re someone who wants your day scripted, who wants a checklist of tasks to do, you’re probably not going to do well with me. Now, that’s not wrong. There are certainly successful programs that do that. That’s just not me.

On the other hand, if you are someone who says, “Give me the list of tools. Show me what you want built. Give me the data. Focus me in the right direction. Hold me accountable. But then, let me go out, learn, make mistakes, and find my own way.” Those people tend to do a lot better in my organization and down the road.

EDITOR: Most people are afraid to make mistakes.

OBEROSLER: I tell my people, “There’s not a mistake you can make in doing your job that I can’t help fix. So, don’t be afraid to go out and push the edge of the envelope. That’s how you learn and make an impact.”

EDITOR: Another common denominator of those people who are now leaders in their company is they’re all strong, confident individuals.

OBEROSLER: In addition to someone who is smart, I want someone who has a strong voice. Having a strong voice, being able to express yourself, having confidence in your data, and having the ability to motivate people are all important components of leadership, which, when it comes down to it, is one of the most important characteristics for success—leadership, hunger, and passion.

EDITOR: What about education?

OBEROSLER: I think retail is still one of those places where a person with a master’s degree and a person with a high school degree can still excel if they do the things that we talked about. Some of those people who you referred to who are now executives do not have college degrees. But—and this is important—they have a Ph.D. in business experience, not loss prevention strategy, in retail.

When someone asks me about becoming a vice president, I tell them, “If you don’t read the business section or click on the business link every day before you read the sports page, you’re not ready to move to a higher level.” If they’re not a business person first and an LP person second, they’re not ready. Why? Because it’s not their passion yet.

EDITOR: There’s so much more I’m sure we could talk about. What final thought do you want to give our readers?

OBEROSLER: Love what you do every day because it’s a blessing to work. Don’t say, “It’s not my job.” And don’t wear a watch, but always make it to your first meeting on time. The day’s over when the day’s over. If you’re checking your watch, you’re not focused on results and getting the job done no matter what.

This article was originally published in 2012 and was updated April 27, 2016.

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