Aligning a Loss Prevention Program with the Lowe’s Customer Experience

EDITOR’S NOTE: Claude R. Verville, LPC, is vice president of loss prevention, safety, and hazmat at Lowe’s Companies, Inc. He joined Lowe’s loss prevention program in 1993 and was promoted to his current position in 1998. Verville started his LP career in California at Robinson-May, a subsidiary of The May Company, where he worked thirteen years, leaving as director of investigations. Verville is a leading voice in the LP industry as a member of the Loss Prevention Foundation board of directors, LP Magazine editorial board, and Retail Industry Leaders Association steering committee.

EDITOR: Believe it or not, it was 2003 when we last interviewed you for the magazine. Obviously, a lot has gone on in the past decade. Tell us about some of the more significant changes at Lowe’s.

VERVILLE: Probably the most significant change has occurred over the past three years. Lowe’s underwent a major reorganization that established two chief officer positionsthe chief customer officer and chief operations officer. This reorganization was meant to ensure that strategically everything we do is designed around the customer experience. To reach that goal, we had to establish a completely new decision model as well as break down barriers that prevented collaboration internally. The result is that the majority of the final decision on new programs resides with the chief customer officer. Operations has to execute what they propose. Everyone has to align with the strategy, so the reorganization ensures that everyone has a voice in the process.

EDITOR: How does that process work?

VERVILLE: The chief customer officer has various teams who innovate, design, and ultimately optimize an omni-channel sales platform to meet a strategic objective. As part of the operations team, we ask questions like, is it executable without giving up controls? Is it cost prohibitive? What changes are necessary at the store level to deliver and execute effectively?

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EDITOR: Can you provide a concrete example of what you’re talking about?

VERVILLE: Let’s take mobile POS, which obviously is a hot topic right now. That’s one of the few recommendations from the customer experience team that we’ve had to say, we’re not ready for just yet. Here’s why. Our stores have four exits. It’s not uncommon for people to boldly walk out carrying power tools, Dyson vacuums, or other expensive merchandise. Our front-end team is trained to watch for that and ask to verify the receipt. That happens hundreds of times a day for us and represents tens of millions of dollars in preventions per year. If you add mobile POS to that environment, you would impose significant challenges to the front-end teams. Plus, it would negatively impact the customer experience for the vast majority of our legitimate customers if we’re questioning their purchase. So, we have to make some operational changes before we’re ready for mobile POS.

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EDITOR: So the loss prevention program is part of the operations team?
VERVILLE: Since I took over the department, I have reported to various people, including the chief administrative officer, the chief financial officer, and the chief risk officer. Today, I report to Rick Damron, our chief operating officer. Rick has been an operator for over thirty years with background in merchandising, logistics, and operations. He is really in tune with the role of loss prevention and safety in the corporation. He fully understands and supports the investments we make to reduce accidents and prevent shrink within the loss prevention program. He just gets it, which gives me an unbelievable seat in the house. Incidentally, Rick will be the keynote speaker this year at the RILA asset protection conference in April, so the conference attendees will get a chance to hear his views on the role a loss prevention program plays in today’s corporate structure.

EDITOR: How has this new structure changed what the loss prevention program is doing today that you might not have done five or ten years ago?
VERVILLE: Like many retailers, our sales on dot-com have been going vertical the past several years. Customers place their order online and either have it sent to their home or pick it up at their local store. For us, the vast majority of customers chose to pick up at the store, which obviously is the customer experience they want. But it also creates some challenges.

EDITOR: How so?
VERVILLE: When the customer buys something online, our system says we have it. Let’s say you bought five widgets. The system showed we had five in inventory. At the same time, someone could be standing in line to purchase two of the widgets. So, when you arrive at the store, there are only three. You’re not going to be happy. The accuracy of what is on the shelf has never been more important than it is today because of dot-com. The loss prevention program has always played a significant role in ensuring inventory integrity for investigative purposes, and now it is even more critical in preserving the customer experience. What that means is we have to leverage technology and align our initiatives to improve the accuracy rate of our inventory.

EDITOR: How will you do that?
VERVILLE: Today at the stores, employees basically have a clipboard and are asked to count specific assortments within their departments. They enter their top-selling items, the second-tier sellers, and the items that may only sell every three or four weeks. One of our new technology initiatives replaces that paper-and-pen program so that now employees will not only be prompted to look at the various top-sales items, but also the top shrink items, because they may be the reason your stock level is not accurate. We’ll also add the promotional items that need to be in the pipeline as well as the top-selling dot-com SKUs. All this will allow us to ensure that our in-stock is extremely accurate; meaning what we say we have in our system at any one point is actually on the shelf.

EDITOR: Has the reorganization changed the structure of your LP organization?
VERVILLE: Absolutely. A few years ago, the company downsized from five operating divisions to three and from twenty-one regions to fourteen. That meant that I had to displace two divisional directors and seven regionals within the loss prevention program. It was a very difficult time. But a lot of good things came out of the restructuring. For example, because the company was getting more and more strategic, I was involved in lots of internal meetings; more than I could attend. So I sent whoever wasn’t traveling to sit in for me in a lot of those meetings. Or we just weren’t represented in a meeting. I’m talking twenty to thirty meetings a week. It wasn’t the ideal operating model.

One of the LP and safety department’s greatest supporters, Dennis Knowles, EVP of operations, was in a lot of those meetings and always covered our back. If we weren’t in the meeting, he would tell them to be sure to review the initiatives and the impact to our controls and operating procedures by our team. He pulled me aside one day and told me I had to figure out how to ensure consistent representation in these strategic meetings. Thanks to his prodding, I created a new position, director of strategic planning and strategy for the loss prevention program, and put one of the divisionals who was displaced by the reorg in that position; a young man named Scott Draher. His role is to effectively engage with all these design and planning meetings to ensure that the loss prevention program aligns with the strategy. It’s one of the smartest things I ever did, thanks to Dennis. The result is we are more integrated today than ever before.

EDITOR: How else has your organization changed?
VERVILLE: If you go back to the last time you interviewed me, only two of the eight direct reports I had back then are still with me. Many have moved on to run their own organizations, like Jeff Fulmer, Cornell Catuna, Leo Anguiano, Jon Grander, and Jesse Stanley. Others have crossed over into store operations. The two remaining are Art Barraza and Dave Roberts. Art is a divisional director, and Dave is director of investigations. Jill Evans retired, and Sandy Hinson is now the director of LP operations. Hank Jones is now my director of safety. John Doggette, who was the other divisional displaced in the restructuring, in now director of LP merchandising/vendor shrink solutions and analytics.

EDITOR: Who are your three divisional directors?
VERVILLE: Art Barraza has the south division. Terry Sullivan, who is actually in his twelfth year, has the north division. And Curtis Leininger has the west.

EDITOR: That’s a lot of changes over the years.
VERVILLE: It is. Nobody, other than Terry, has had the same role over the last five, seven, ten years. I have intentionally cross-trained all my direct reports multiple times; moving them and interchanging them frequently.

EDITOR: Why did you do that?
VERVILLE: It’s meant to broaden their horizons, to grow their knowledge base, to give them greater value as part of our succession plan, and to promote collaboration. Let me explain why I’ve done this. Our divisional directors were flying around in the corporate jet with the senior VP of operations as their primary partner. They walk through stores to validate the execution of our programs. The divisional directors manage the district managers of LP, who manages the LPs in the stores. So division directors are generalists and didn’t always understand or appreciate the other roles on the team.When they come back from their travels and attend my staff meeting on Monday, they hear my director of safety and hazmat talk for five minutes about the twenty-six meetings he went to that week.

Our director of investigations talks about all the dot-com fraud, the credit card fraud, the important investigations, and all the ORC investigations in five minutes.

The director of merchandising shrink controls talks about the countless meetings this time of the year with the nursery vendors. Why? Because nursery shrinkage, which is a perishable, is the number one shrinkage category. Not tools. Not fashion plumbing. Not outdoor power equipment.

Sandy Hinson, who manages all of our budgets, talks about all of the company initiatives. For example, we’re currently upgrading all 1,700 stores with Verint video management software.

Scott Draher talks about the innovations and strategic teams he’s involved with. There’s all kinds of technology getting ready to roll out, like H3 Lite; FaceFirst, which we’re going to test; exception-based reporting. Five minutes in our staff meeting can’t do it all justice.

In order to continue to develop the entire team and ensure a high-level of collaboration, I felt it necessary to continually rotate individuals through various positions from generalist to specialist and specialist to generalist in order to provide them with a different LP or safety perspective, to broaden their horizons, and to give them an enterprise focus. The end result has been to bring the team closer together personally and professionally with an increased appreciation for the various roles each team member playsas part of the overall loss prevention program.

EDITOR: That’s a great management lesson.
VERVILLE: It’s another example of some of the changes over the past several years. It’s called servant leadership. Every executive in Lowe’s has been challenged and trained to provide servant leadership for their teams; meaning it’s not about us, it’s not about me. It’s about all those individuals who make us successful day in, day out. It’s about their development; their level of engagement. It’s about their future. As servant leaders we’re supposed to work selflessly to provide the recognition, the rewards, the encouragement, and the motivation to make others successful. As managers, we’re just the benefactors of everything that others are doing. So when you get your bonus check, you should thank your regionals, your area managers, and the people in the stores because they’re doing the hard work. The servant leadership model is something that is now part of the culture at Lowe’s.

EDITOR: Despite all the changes and downsizing, I suspect the overall objectives of your department are very similar to what they were ten years ago.
VERVILLE: The four key business objectives of the loss prevention program today are the same as they were years ago in this ordersafety, hazmat, and environmental compliance controls; shrink controls; zero liability as a result of our LP programs; and expense control/ROI.

EDITOR: Why do you put safety as your first objective?
VERVILLE: My epiphany about safety came in my first year at Lowe’s. I got a call from a regional out of South Carolina. An employee was deployed on a forklift up on the top shelf pulling an appliance, and for whatever reason he untethered himself and fell to his death. That day I realized that I was no longer at May Company anymore; this was not soft lines. Then about a week later a forklift operator wasn’t using an escort, meaning there was no employee walking in front of it, and ran over a women’s leg. When I became the VP, I was adamant that we would be recognized as having a best-in-class safety program. Now, everything begins with safetyevery conference call, every business discussion, every metric that we measure, and every store visit.

EDITOR: How did you achievethat objective?
VERVILLE: We do a daily safety and hazmat review of our stores that gives us the analytics by department to allow us to know where we should focus in each department. Back in the day, we had the opening store manager walk the entire building with a clipboard and a checklist. The problem was we were depending on one person to check the entire store. Plus, we were excluding hazmat as well as non-selling areas, such as receiving, delivery, parking lot, and it wasn’t department-specific. Today, every person who manages a department is accountable to complete the reviews daily. This gives us timely, department-specific data on the exposures we need to focus on by store, by market, by division, and company-wide.

EDITOR: Give us an example of how you use the department-specific information.
VERVILLE: As you might imagine, the exposures in paint are far different than exposures in lawn and garden, which in turn is different from lumber or flooring. Now, based on the daily audit, using analytics we know the three things that drive claims in each department. Take lawn and garden, for example. We require that all palletized bag goods shipped to us must be shrink-wrapped. We examine those shipments to ensure that the shrink wrap is intact and properly securing the product. If we identify a problem, our corporate safety team will get involved with our merchant and vendor to ensure that future shipments are corrected. Our daily electronic reporting allows us to be proactive in preventing incidents.

EDITOR: Where does that information go on a daily basis?
VERVILLE: It goes into our store managers’ case management database. It’s our portal for our entire book of business. I recall when we first rolled this out after doing a test in one region, I made a presentation to our VPs and market directors of operations. I called on one VP to stand up and said, “Bill, do you know what the compliance levels are in all 100-plus stores in your region, and what they have done as far as the safety review? It’s 11:00; it should be good by 9:00 a.m.” He looked puzzled and asked, “How would I know?” So, I asked the same question of the VP from the test region. He stood up and said, “Yes, I have it right here.” He pulls out his iPad and says, “At this point my stores are 80 percent compliant. The top three departments are bam, bam, bam.” That’s the new world we all live in. Information is available at all times. We’ve taken the technology that the loss prevention program has traditionally used for shrink, but leveraged it towards safety as well.

EDITOR: What have been the results of this focus on safety?

VERVILLE: Over the last decade, we’ve reduced our injury rate by over 50 percent. The most important part of our focus on safety is we’re communicating to our employees that we care about them. It’s about our employees. If our employees can keep each other accountable, if our employees care enough about each other as human beings, the customers will be safe by default. Here’s our messagesafety is where nothing happens. Personal safety is our highest priority. When nothing happens, you get to go home and attend your child’s soccer game or recital. You get to go home and enjoy the reasons why you work. When your employees believe you truly mean that, their engagement is better; their morale is better; they’ll follow you anywhere.

EDITOR: Your second objective is shrinkage. Talk about what you’re doing in that area?

VERVILLE: The challenge today is we are delivering more product than ever before. We have the second largest delivery fleet in the country. Dot-com has changed the landscape with customers ordering online for store pick up. Even with those changes we are still very focused on the operational basics. As far as shrink goes, I believe that 40-plus percent of our losses are front-end shrinkage, with the vast majority of that, contrary to popular belief, simply inadvertent mis-scanning issues by cashiers, rather than intentional internal theft.

EDITOR: That’s different than what industry surveys state. What makes you believe that?

VERVILLE: Here’s how I quantify that. We did a LaneHawk test a couple of years ago in several of our stores. As you know, LaneHawk uses cameras and software that integrates with your POS to monitor items that are in the cart that are not scanned. After the transaction is complete, it gets reconciled electronically and produces a report. For our test, we determined a percentage error rate of X percent and, from that, a ratio of transactions to errors. We took the average dollar value of those errors times the 80 million transactions we do per year chain-wide. The resulting number was exactly 40 percent of our shrinkage at the time.

For various reasons, we did not roll out LaneHawk. So today, we do cart testing. Every month, every store loads up a cart with items hidden inside other boxes, items with barcodes switched, things like that. They put the register in test mode, and the cashier scans everything. The cashier knows it’s a test, but they still make errors. Right now, we lose about $16 a cart. If I go back to the LaneHawk error rate, that equals about 40 percent of my shrinkage today. Front-end loss is my focus and cashier training is constant.

EDITOR: What about shoplifting?

VERVILLE: The loss prevention program averages only one-and-a-half shoplifter detentions per store per year.But we average over 120 recoveries without detentions (RWDs) per store per year, which by the way are not done by our LP personnel. They are done primarily by our front-end cashiers. We don’t allow our LP staff to stop customers who blow past the front end unless they have seen the person come in without the product, take the product, and leave without paying; basically the industry’s required five elements for apprehensions. But the cashiers can stop them for the purpose of executing a receipt validation, which all retailers do. So, those 120 RWDs more than make up for the one-and-a-half shoplifters per year completed by our in-store LP/safety personnel. Our learning organizational effectiveness department has done a terrific job putting together training curriculum for our front-end personnel.

EDITOR: What other shrink issues are you seeing?

VERVILLE: There is nothing more complicated than do-it-yourself. That’s not just me saying it. Ask Mike Lamb. There are all types of operational complexitiesreturns, repairs, special orders, installations, delivery, lumber, lawn and garden. Like I said earlier, our number one shrinkage category is nursery plants. It’s not theft. It’s failure to scan plants and it’s perishables; dead plants that we have to write off because we don’t manage inventory levels appropriately. All these complexities are part of shrinkage. Our shrink program is an operational-based program that’s resulted in a 50 percent reduction in our shrinkage rate over the past decade.

EDITOR: The third objective you mentioned was zero liability. What do you mean by that?

VERVILLE: Liability exposure from apprehensions at Lowe’s is no different than it is at Walmart or anywhere else. Yet execution-wise it can be very different. We have always had very specific detention guidelines and measurements to ensure compliance to those guidelines within the loss prevention program. The measurements help us identify when we have cowboys in our organization who have difficulty with our guidelines.
We measure infinitely and analyze the root cause. One of our core metrics for the loss prevention program is the number of altercations as a ratio to shoplifter apprehensions. How many apprehensions have some form of altercation? How many injuries have occurred as a result of shoplifter apprehensions? If you have a high propensity of those metrics, you are likely going to get false arrests. We measure that. And the last thing we measure is the number of questionable detentions reported as a percent of total apprehensions.

Everyone throughout the LP organization from top to bottom all know how we measure these things and are all on the same playbook. At last year’s RILA conference I co-presented with Jesse Stanley on a new program called “Addressing Disruptive Behaviors,” which provided a tool or verbal methodology for our in-store LP personnel to utilize in quickly recognizing potential violent behaviors or tendencies when conducting a detention of a shoplifter. We went from basically a reasonable-force guideline to a full-disengagement guideline that reduced our number of altercations by more than 50 percent and the number of injuries by 66 percent. Although the team was a bit apprehensive initially, we reminded them that historically at Lowe’s only a small percentage of the shoplifter’s become combative while the vast majority cooperate. The loss prevention program was not backing away from shoplifting in general, we were merely providing them a training tool to better equip them to identify potentially behaviors before they escalated and injuries occurred. Because what are we all about at Lowe’s? It’s about safety. Safety includes our LP and safety personnel, other Lowe’s personnel, the customers in the area, as well as the subject who shoplifted.

EDITOR: The fourth objective was expense control.

VERVILLE: Every year, we have kickoff meetings in February where we cascade the message over what the wins were in the past year, and what the expectations are for the next year. We review all these metrics and our successes, and what we did well, and what the opportunities are within the loss prevention program. I show them our total operating expenses as a departmentgeneral operating expenses, store operating expenses, all store equipment repairs, background checks, salaries, and capital. Based on all this we can quantify that as a department we pay for ourselves on almost a one-to-one ratio of total cost versus what we prevent and bring to the bottom line. Only world-class organizations can say that. Still, I emphasize to our team that they cannot forget that the loss prevention program is a sales support group. We have to continually find ways to evolve and add value to the organization. And we do.

EDITOR: You’ve been an industry leader in establishing certification in loss prevention. Now you are pushing loss prevention certification through your organization.

VERVILLE: Correct. We are funding the cost to LPC certify fifty people a year. As of the start of 2014, all my direct reports have completed their LPC. All fourteen of our regional LP and safety directors are LPC certified. And a large percentage of our 118 area LP and safety managers are certified. Ultimately, the vision is to have all the remaining area managers within the loss prevention program certified as well as all the corporate management staff. In addition, we pay for certification coursework as incentives to our top store-level LP and safety personnel each year. It’s an important career-development program for our department.

This article was originally published in 2013 and was updated on November 17, 2015

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