Many loss prevention professionals begin their career in established departments where they are lured to the structured succession planning, continuing programs, and enduring policies. However, there are LP executives recruited to develop a department or strategically expand an existing department. Their role is to develop and coordinate an infrastructure necessary to execute new brands, new markets, and/or new business models in an effort to support growth and protect the profitability of the company.
While J.Crew as a company was expanding, the loss prevention department was comprised of just one associate director, one manager of business practices, one LP executive managing two distribution centers, and one LP manager responsible for corporate security. There were limited programs to support the growth initiative, and therefore they anticipated an increase in shrink and loss concerns. The need for a larger department with proactive and robust programs was imminent to maintain the current and relatively controlled shrink results.
Organizational Strategy
A new vice president of loss prevention, Charlie Miller, was hired who envisioned an infrastructure that would not only be innovative, but one that would fuel operational efficiency and effectiveness. He, too, saw the need for additional manpower and programs to assess and combat potential risk. Although J.Crew experiences similar shrink issues as other specialty retailers, including external and internal theft and data integrity concerns, our challenge was to build a department that embraced a methodology that would be consistent with the culture.
“To consistently reduce shortage on a companywide basis, you need a comprehensive and balanced LP program that includes specific shortage goals down to individual store levels, strategic use of technology, awareness and positive recognition programs, ongoing training of store management and associates, consistent monitoring and adherence to policies, and a strong investigative presence,” explains Miller. “Lastly, you need to have buy-in and support from the company’s executive leadership team.”
The department strategy was to develop an organizational model that would support company growth initiatives, yet result in minimal headcount growth within the LP department. It was crucial to develop and drive integrated and sustainable programs strategically linked to business objectives successful in strip centers, malls, and freestanding stores across all channels—J.Crew stores, J.Crew Factory stores, its children’s division, Crewcuts, and the newest division, Madewell.
A year after Miller started, a second associate director of loss prevention was hired with responsibility for the regional LP managers and the field organization. Although we are still considered a small department, in one year we created a field organization to support stores. We recruited, hired, and on-boarded three regional LP managers geographically positioned strategically throughout the country aligning with shrink and sales volume and one additional point-of-sale (POS) investigator. Vendor-supplied security services were replaced or supplemented with more highly skilled in-house personnel and placed into high-shrink stores in New York City.
The other associate director assumed responsibility for LP operations, focusing on “back of house” operations, such as physical security, vendor relations, invoicing, as well as managing civil demand and restitution. Those responsibilities also included managing all aspects of the corporate office, from investigations and physical security to overseeing the LP manager for the building, as well as all exception-based investigations generated through the corporate analysts.
Benchmarking and Research
Knowing early on that partnerships would be crucial for the success of the department, the first thirty days was spent soliciting feedback from field and corporate business partners, such as inventory services, finance, operations, legal, and human resources. Roundtable discussions and facilitated listening sessions were conducted with field management before creating and instituting any policies or programs.
Integrating and aligning our platform with business partners demonstrated our preparation and support of new multi-channel growth initiatives and our commitment to teamwork. It was also crucial to determine previous successes and failures, ensuring mistakes were not duplicated.
Other comparable retailers were benchmarked to become familiar with current technology, industry trends, and best practices. Benchmarking and research helped us make smart decisions and ensure we were applying the most proven and successful shortage reduction strategies in the industry
Creating a dynamic department was the goal, but we also wanted to ensure that we were aligned with other retailers with those policies that would directly impact our customers, such as return authorization and the return policy
Our commitment was that we needed to demonstrate a measurable return on investment for an initiative to be deemed a success. To that end, we took the following steps:
- Analyzed shrink history, current budgetary requirements, and forecasted future expenditures,
- Assessed current manpower, security standards and technology, and field-training opportunities, and
- Created short- and long-term strategies along with a strategic “back up” plan.
Although at times very challenging, remaining flexible was imperative, recognizing that we may have to redirect efforts or retool programs as the business needs shifted. Creating a comprehensive strategy that focused the department on “A” priorities was crucial to ensure that we were all working toward the same goal.
Limited resources demanded that any initiative produce quick results. Throughout this initial twelve-month period, we continuously monitored programs and revised them when necessary. When programs failed to achieve measurable improvements, they were either revised or discontinued.
Filling Out the Organization
Our responsibility was to create a high-performance, engaged team to support the company’s growth. This needed to occur from attraction to retention. Although we recruited relatively quickly, we kept the focus on quality and the need to bring in experienced LP professionals who were looking to be hands-on and grow in a fast-paced environment.
We created regional LP manager (RLPM) and investigator job descriptions, crafted detailed on-boarding plans, and determined most effective placement based on shrink and market density. Being a small department we envisioned all three regional managers possessing a global and tactical approach. After a careful review of sales volume and shrink numbers, it was determined to locate the regional managers in New York City, Chicago, and San Francisco.
While we recruited the RLPMs from other companies, we looked within the company to fill the POS investigator position. The investigator position needed to have an intimate knowledge of register procedures as well as a basic understanding of the intricacies of investigating fraud.
Throughout the hiring process, we considered the following question—Is the person top talent and will he or she integrate into the department and company?
In larger companies, depending on the complexity of the market, LP organizations may benefit from layering in district LP managers with an unwavering focus on shrink reduction. At the time, with fewer than 300 stores and relatively low shrink in comparison to the industry standard, we did not see sufficient return on investment in creating a district management position.
Implementing New Programs
A number of new programs, audits, and policies and procedures were developed and implemented in this twelve-month period.
Target Stores. In order to maximize our impact in the shortest time possible, the first program instituted was a target store program. We based the target store selection on inventory results, looking at the stores with the highest loss as measured in both percent-to-sales and shortage dollars. We created two lists—the top thirty stores as measured by shortage dollars lost and the top thirty stores as measured by shortage as a percent-to-sales. Any store that appeared on both lists was automatically a target store. We added other stores on a discretionary basis based on shortage history and previous internal findings.
We decided to focus on the top 20 percent highest shrink stores in the company and developed a program to specifically address their needs. Because the program required additional time and attention and we wanted to ensure that the RLPMs made an impact, we limited the number of stores each would manage. At the same time, we provided stores with attainable goals with realistic expectations.
The program was rolled out immediately following ourannual inventory. To heighten awareness additional store visits were conducted by loss prevention and regional directors. All stores were required to facilitate a target store kick-off meeting and participate on monthly target store conference calls. Stores were also required to conduct off-cycle inventories and self-audits in preparation for a quarterly target store audit by the LP department.
Awareness Campaign. To support many of the components of the program, we launched an awareness campaign and revised the existing hotline award program. Quarterly posters, each with a new LP topic, were distributed to all stores. A publication called Shrink Rap was also sent to all stores that correlated with the quarterly topic.
Store managers were required to discuss the quarterly topic at morning meetings. It was also used as an on-boarding tool for new managers and associates. Stores were also required to post and communicate a new hotline poster along with wallet cards explaining the components of the program. The wallet cards were also given to associates at meetings and attached to checks quarterly.
Shortage Reports. All stores received a shortage poster to record and post their current shrink results so that all employees would know their units lost and store goal. The highest shrink departments or categories were also identified, and a plan was executed to reduce shrink in those specific areas.
Field executives committed to maintain constant coverage and a tagging directive was implemented for all stores along with varied communication and training to ensure compliance.
Corporate supported stores with quarterly MSTATS reports. These reports are a tabulation of the number of units and dollars lost for the quarter and from what area of the stores either the merchandise was stolen or the tickets/defeated tags were recovered. Managers would review this information with sales associates, utilizing it as a training and awareness aid.
The store managers also utilized this tool in creating schedules to ensure that they had the proper coverage in the most vulnerable areas of their store. It also helped them to determine the products most often lost, so additional coverage could be focused on those items.
Operations. In addition to launching the training and awareness campaigns, we provided additional awareness support by presenting LP issues on various operations’ conference calls as well as hosting monthly conference calls specifically for target stores. Working with operations, stores were given additional payroll to host all-store awareness meetings, many of which were attended by LP.
We layered in off-cycle inventories for target stores and cycle counts for high-shrink categories, again working with operations to provide the adequate payroll and manpower.
Field Training. Recognizing the need to drive change, new market and regional management training was conducted. The two-day on-boarding with their respective RLPM consisted of reviewing policy and procedure and internal investigations, as well as aligning expectations, roles, and responsibilities.
In collaboration with human resources, comprehensive on-boarding for new store managers was developed to empower them to execute all of the company’s initiatives strategically and effectively.
Additional training and materials were created specifically to address data integrity and shipment concerns, internal and external theft prevention, and organized retail crime prevention.
Technology. Current and future security standards and technology were evaluated, including CCTV, GPS, and EAS/source tagging. CCTV was upgraded in many stores and the potential benefits of future implementation of public view and remote monitoring were examined. We also reviewed the use of GPS tracking for future truck surveillance.
Although J.Crew source tags merchandise, the newest technology in cabling was placed in many high-shrink stores. We also instituted a hard-tagging directive for all stores to address high-shrink categories.
A more enhanced exception-based reporting tool was created and a second investigator was hired to identify theft and monitor trends.
Working with the IT department, we developed an on-line incident, or known shortage, reporting system so stores could access and report incidents electronically as opposed to handwriting and mailing them to the corporate office. When a report is sent, it would now automatically route to the LP department for follow up.
Budgets. Evaluating current budget and forecasting future expenditures was critical. The philosophy at J.Crew has always been “less is more.” While we outsource technological expansions and additional departmental training, nearly all of our programs have been a grass roots campaign developed in-house. By closely monitoring our budget, we spend only when necessary. We approached every challenge strategically, spending as little as possible, while still arriving at a favorable outcome for the company.
Operational Standards. In addition to creating and implementing programs, we needed to develop and enforce operational standards. A number of new policies were created and existing policies were enhanced and communicated to stores.
- We established a foundation regarding cash handling procedures such as banking and media reconciliation.
- The scope of our pre-employment screening and background checks was broadened.
- Safety policies for robbery, natural disaster, protests and demonstrations, and alarm procedures were reestablished and communicated to stores.
- The distribution center LP department in collaboration with traffic standardized shipment-processing procedures.
Outsourcing. Previously, J.Crew outsourced LP agent services in high-shrink locations. We determined that this was not cost-effective nor did it support store management adequately.
The Northeast-based RLPM was tasked with recruiting and hiring in-house LP agents for high-shrink locations along with creating apprehension policy guidelines. Agents were placed in stores with safety concerns and to deter shoplifting. In addition, they became an extension of the management team, supporting the managers with operational compliance, associate training, and audits.
The expenditures saved by going with in-house agents were significant and supported funding additional store technology, programs, and departmental training.
Loss Prevention Audit. It became apparent that a resource was needed to maximize operational efficiency and drive business partner ownership and compliance on key priorities. The loss prevention audit was developed with the following goals in mind:
- Generate awareness,
- Identify store deficiencies,
- Create accountability, and
- Predict shortage
The loss prevention audit is unique to J.Crew because its principal focus is to forecast shrink. The audit is comprehensive and deliberately focused on adherence to policy, including, but not limited to, anything that may cause a loss or liability to the company.
Since its inception, the audit has been a tremendous tool differentiating between the operationally compliant stores and the stores deficient in either their adherence to policies or their execution of policy.
Regional LP managers are responsible for auditing target stores quarterly, while non-target stores are required to self-audit quarterly. If a store fails the audit, they are required to create an action plan within seven days and present it to their RLPM and regional director. A member of LP will then audit the store every forty-five days until they pass.
Stores that fail the audit receive additional time and attention by the RLPM and either the district manager or regional director. The RLPM works with the store manager to create a measurable action plan ensuring that not only do they pass the audit in the future, but also more importantly, operational concerns are addressed and rectified. Together, systems and controls are established for the store manager to execute and sustain.
In addition to the store audits, the distribution center hub audit was revised. Together with the LP department, transportation companies were audited for compliance on safe handling of product, timeliness of deliveries, and safety and security guidelines. We then collaborated with the traffic department to determine follow up steps.
Internal Theft. An intensive investigative approach to detect and reduce internal theft was also launched. Investigations and interviews were conducted in all high-shrink stores, resulting in a 300 percent increase in internal cases over the previous year and an 800 percent increase in restitution.
The Next Twelve Months
At the end of twelve months, we solicited feedback from our field business partners to evaluate what worked, what didn’t, and receive suggested revisions. We again benchmarked other retailers and shared best practices. The progress of all existing initiatives was carefully examined to ensure that all investments demonstrated measurable benefits before additional manpower and programs were added.
Based on our first year’s experience, several new initiatives are in the works in the coming year, including:
- Creating an investigations department focused on internal theft, organized retail crime, eBay and on-line fraud, and transportation issues.
- Developing an audit department to increase the quantity of audits conducted per year.
- Adding accountability into the loss prevention audit. This year when a target store manager fails the audit the first time, they will receive a verbal warning. A member of LP will audit them again within forty-five days. If they fail a second time, they will be issued a level one or first corrective action. The corrective action process will continue until they pass.
- Creating a company-wide awareness program along with an updated LP video and a user friendly, accessible LP web page to drive awareness.
- Adding district LP managers in high-shrink markets to support the RLPMs. Their responsibilities would include general loss interviews, auditing target stores, expanding the in-house agent program, and extensive training in all stores within their area.
Our annual inventory cycle was recently completed, and we are celebrating double-digit percent reductions in both retail and factory target stores. Seven target stores recorded reductions ranging from 21 to 52 percent. Overall retail and factory stores recorded very healthy percent reductions as well.
The positive results from our first year were significant, thanks to the hard work, not only of our loss prevention organization, but throughout the company. While the journey is just started, we believe the J.Crew loss prevention organization is well on the way to reaching our goal of “world class.”