An Academic Approach to LP

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EDITOR’S NOTE: Richard C. Hollinger, Ph.D. is a professor in the Department of Criminology, Law and Society at the University of Florida in Gainesville. He is also the director of the Security Research Project, an academic research institute that focuses exclusively on retail loss prevention and security issues, including conducting the annual National Retail Security Survey. 

Dr. Hollinger received both his baccalaureate and master’s degrees at the University of Georgia before completing his graduate studies at the University of Minnesota where he received a Ph.D. in sociology in 1979.

Throughout his career, Dr. Hollinger’s research has been principally focused on the topic of deviant and criminal behavior committed in the course of one’s occupation. In addition to numerous articles published in scholarly and professional journals, he is the author of three books, Theft by Employees with John P. Clark (Lexington Books, 1983), Dishonesty in the Workplace: A Manager’s Guide to Preventing Employee Theft (London House Press, 1989), and Crime, Deviance and the Computer (Dartmouth Press, 1997).

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Dr. Hollinger currently serves on the editorial advisory board of the Security Journal and is a regular columnist for LossPrevention magazine. He sits on the loss prevention advisory committee of the National Retail Federation. In addition, he is a member of various academic professional associations, including the American Sociological Association, the American Society of Criminology, and the Academy of Criminal Justice Sciences.

EDITOR:  Over the past twenty-plus years, have you seen any progress on reducing dishonesty in the workplace as it relates to the retail community?

HOLLINGER:  I wish I could say, “Yes,” but I have not seen enough progress. In fact, my fear is that it’s probably getting worse, largely because we’ve moved from a generation in which you could make certain assumptions about people’s integrity that I don’t think can be made any more. Corporations are increasingly viewed as victims that aren’t really harmed by dishonesty. Watergate set it off, followed by more recent corporate backlash against large corporations. Enron is perhaps the most recent example.

We’re still seeing the internal theft numbers going up. I really don’t think it’s a problem that’s going to ever be solved in the sense that it will completely stop. But I think a lot of companies are beginning to realize how big a problem it is. That’s why I continue to do the National Retail Security Survey (NRSS) because one of the messages is to make sure that people understand that shoplifting and employee theft are the two largest forms of larceny in America, probably always have been and always will be. But everybody always seems to minimize those as petty crimes. 

EDITOR: What factors in retail make it difficult and challenging to make big strides in reducing theft?

HOLLINGER:  I’ve noticed an increasing reliance in retail on employees that are by definition “marginalized” or that do not have a career commitment to retail. There’s new research that echoes that point. If people can’t visualize themselves in retailing as a career, you really lose deterrence because people realize there are no harsh ramifications of being involved in theft. What’s the worse that can happen? You lose your job, but you can probably get another retail job the same day. We’re relying more and more on part-time and temporary employees who really don’t have a long-term commitment to retail as a profession or as a career. The metaphor I like to use is it’s like a migrant-worker model where employees are viewed as there for the short run, to meet the needs for that particular moment. In the holiday season, you can see that clearly. There are huge hiring of temporary employees that will not be in retail anymore come January. It’s really hard to get them committed to understand retailing and to understand the implications of these losses in a very short period of weeks. 

EDITOR: As you have observed loss prevention executive leadership over time, have you seen changes in philosophies on how to combat dishonesty in the workplace?

I really think that retail companies have to pay more attention to the level of satisfaction and morale and the ethical standards of their employees. And, do that, not just with platitudes, but by actually including them in the rewards for the profitability of the corporation. I’ve always said, “People don’t steal from themselves.” It’s a very important statement. Once you understand that, you have to convince the employees that it’s in their own best interest to protect the company.

HOLLINGER:  Yes, I have. The generalization one can make is that we’ve moved from a law enforcement model to a management model. I think that’s generally a good thing. I remember when I would go to early National Retail Federation (NRF) or ASIS meetings, it seemed as if the security/loss prevention industry was in many ways, a retirement club for ex-police officers.

Someone asked me the other day, “What does this ‘asset protection’ term mean?” It’s interesting how we’ve changed terminology. It used to be security, then it was loss prevention, and now it’s asset protection. Is it just a silly little change of terms? No. I think that the loss prevention function is moving closer to the heart of the boardroom and decision making rather than being a peripheral service to the organization. Now we’re seeing asset protection professionals sitting on the board and holding titles like senior vice president and CSO [chief security officer]. They are now equal with the other, very powerful, departments within the organization. And that’s a really good thing. 

EDITOR: Every year, loss prevention and management executives throughout retail read the results from the security survey that you conduct. Tell us how that started and what the objectives are. 

HOLLINGER:  I wish I could say that was my idea, but it really wasn’t. The first survey was the idea of Bill Zalud, Read Hayes, and Bart Weitz. I was brought in to help with the analysis in 1991. As I became more and more involved in the project, I took the lead responsibility for building the mailing list, finding funding, doing the data analysis, and producing the report. It’s now become recognized as the bellwether for loss prevention measurement both here in the U.S. and also in other countries who have modeled their surveys after ours. 

EDITOR: What do you see as the positives that have come out of the annual survey and what do you see yet as the challenges going forward with it? 

HOLLINGER:  Obviously, the first answer is to get a benchmark of the scale of the problem; of how large the problem is. But, in reality most Loss Prevention readers already know that. But, now that it’s been picked up by the news media…even magazines like Consumer Reports,who did a feature article on it…now, the general public can understand how large a problem retail crime really is, and how shrinkage affects every man, woman, and child in this country and around the world. 

But, most importantly, I think the study helps retailers assess themselves and vendors benchmark their products and where those products are placed and how valuable they are perceived from the retailer’s perspective. At this point, we are focusing on more than eighty different countermeasures, from the hiring decision to the newest RFID technologies. 

EDITOR: And the challenges?

HOLLINGER:  The biggest challenge in the last few years has been getting retailers to participate in the study. In a way, we may be our own worst enemy because retail loss prevention doesn’t dramatically change from year to year. It’s not like one year you have a problem, and the next year it’s solved and you move on. So, the report, admittedly, is fairly stable over the years, and, many people say, redundant because it covers some of the same information. Because of that, we try to focus in the report on what’s new from last year, so the regular reader can quickly go to the material and not have to wade through the things that have become standard operating procedure. 

EDITOR: As you try to make this survey the best and as inclusive as possible, what are some things retailers can do to support the survey?

HOLLINGER:  First of all, fill out the questionnaire and send it back. I hear too many LP directors say, “It’s on my to-do list,” but it never gets done. Or other people will say, “Really good report. Send me a copy when you’re done, but we can’t participate.” I try to argue the illogical nature of that response—that if everybody took that approach, we’d have nothing to report on. Everybody in the loss prevention profession should feel some obligation to report, not for me, but for each other. I see myself and the university as keeping the project alive, not because it’s something that we have to do, but because it’s valued. 

There are companies that have very high shrink, and they’re soon in Chapter 11. Then there are the majority of retailers that cluster around the mean. Then there are retailers that have almost no shrink and very low turnover. So what I’m doing now is focusing on that elite group and asking what I think is the question we should all be asking: “What are they doing right, and how can we benchmark and use their best practices to model the rest of the industry?”

Incidentally, the current questionnaires were mailed last November. So, those LP executives who are reading this article in January and February should have already returned the questionnaire. If they have not, I hope they do so soon. If they did not receive the questionnaire, please contact me right away.

EDITOR:  There are some retailers who continue to sponsor the research, isn’t that accurate?

HOLLINGER:  There are indeed some retailers who regularly send contributions to the Security Research Project, which is the operating unit that manages the study. Some companies do it for altruistic purposes. But, there are other companies that view it as an investment in the industry, and, in some cases, commission special projects that address their particular segment of retailing. 

Drug stores are one such segment. We’ve completed a major study on drug-addicted pharmacists who are recovering from self-medicating themselves. That study became a doctoral dissertation for one of my former graduate students, Dean Dabney, who is now an associate professor at Georgia State University. He and I also just finished a major study that is yet to be published on shoplifting in a drug store setting. That study was privately funded by CVS/pharmacy. In fact, they allowed us to create essentially a laboratory store in the Atlanta area to conduct this particular project. 

EDITOR: Does the same hold true for solutions-providers as well?

HOLLINGER: Yes. From the very beginning, the companies that really carry the financial load for this project have been vendors. For a decade now, Sensormatic/ADT has provided the largest share of our funding. This year, for the first time, we have a collaboration of funding from several solutions providers, in particular GIS [General Information Services] and ADT once again, which is being contributed in conjunction with the ASIS and NRF foundations. 

EDITOR: Concerning the special research that you’ve done for companies like CVS/pharmacy, are those results available to the public? 

HOLLINGER: We do work in two different ways. One way is as consultants, and those results are proprietary. But, other special projects benefit the entire retail sector. I’ve done private consulting work with many members of the retail community on special issues that they need to have somebody on the outside address and then give them a private report. But even then, sometimes these projects roll into larger scale studies that address questions that aren’t just germane to one particular company, but to an entire segment. 

EDITOR: Getting back to the survey results, have you seen shifts in the theft pie between employee theft and shoplifting over the last few years?

HOLLINGER:  If you’re looking at just the shrinkage numbers, when we started over a decade ago, the pie showed almost a third of the losses in inventory shrinkage were due to shoplifting, about a third due to employee theft, and a third to other sources, largely vendor fraud and administrative error. Those last parts of the pie, the administrative error and the vendor fraud, have decreased, particularly the administrative error. With the advent of POS and bar coding, a lot of the human error has been eliminated from the actual retail transaction and pricing. Shoplifting has also dropped somewhat, but not precipitously, due to the investment in EAS, cameras, and other deterrents. 

But there has been a corresponding increase in inventory losses…we’re getting very close to half…and possibly cash losses as well due to employees. The shifts have been toward more dishonesty by employees, which is frustrating because they are the people we have the most control over. We hire them, train them, hopefully convince them that it’s in their best interest not to steal, and yet they bite the hand that feeds them. 

EDITOR: There are many retailers that have devoted financial as well as people resources into so-called organized retail crime issues? Does your survey deal with that area?

HOLLINGER:  It’s hard enough to differentiate between shoplifting and employee theft when merchandise turns up missing, and more difficult still to determine if the thieves are amateur, impulse shoplifters or are organized criminals. While there’s no real definitive data on that, I think the anecdotal information, and clearly my conversations and attendance at various industry meetings seems to indicate that organized retail crime has always been a huge problem and is probably getting larger. The question is, “Is it a function of the fact that we’re better able to understand it, or is an actual change?” I wish I knew the answer to that question, but I think it has to be investigated. 

Given the fact that so many retailers are now investing entire task forces on the problem, the answer likely is it has become a bigger problem. One of the reasons I believe that is the case, I’ve done a good deal of work with some retailers who have engaged me as a consultant to talk to their employees. As an aside, we don’t talk enough with our employees. Just as in universities, we don’t talk enough with our students. If you really want to know what’s going on and where the problems are, your staff can tell you, probably far better than consultants or technology. 

In having these conversations with store managers in particular, they can tell you horror stories about merchandise that is put out for sale and then disappears en mass, which is obviously due to organized gangs. Additionally, we’re beginning to understand where it goes; the merchandise is brought back to the same store. We find ourselves buying our own merchandise back as a refund, only to have those refund credits show up on eBay. We also are beginning to realize that some of that money is actually going, not to conventional criminals, but to organized terrorists around the world. So, the deeper you dig, you realize that this is a much larger scale problem than anybody ever realized. 

EDITOR: If you had the opportunity to sit with a collection of the major CEOs in this country, what are some of the things you would tell them to do in combating the employee theft issue in retail going forward?

HOLLINGER:  One of the mantras that I have been trying to communicate over the years is building a “culture of honesty” within the organization. Because I study corporate white-collar crime as well as retail theft, I worry that we now live in a world where any unethical behavior is acceptable as long as you make a profit. With the recent Enron and WorldCom debacles, all the way back to the savings-and-loan crisis, corporations have set themselves up for failure. From the top of the corporation down, many have set examples that do not show high ethical standards. Major corporate executives who were supposed to be setting the moral and ethical tone have turned out to be just as crooked as some of the most notorious thieves in our nation’s history. 

The whole idea here is you have to set a very strong moral and ethical example. While I disagree with Ronald Reagan that trickle-down economics works, clearly trickle-down ethics works. Organizational executives have to figure out a way to communicate that they will not tolerate unethical behavior in their organizations, and do so by setting an example, honoring the example that they set, and enforcing those standards. 

Along with that comes respect for the human beings who really are the nuts and bolts of the organization. It’s not just bricks and mortar, retailing is about people. Executives sometimes lose sight of that. They think their business is products and shelves and registers. I really think that retail companies have to pay more attention to the level of satisfaction and morale and the ethical standards of their employees. And, do that, not just with platitudes, but by actually including them in the rewards for the profitability of the corporation. I’ve always said, “People don’t steal from themselves.” It’s a very important statement. Once you understand that, you have to convince the employees that it’s in their own best interest to protect the company. 

EDITOR: Clearly in retail we spend a lot of money identifying, investigating, and resolving theft issues. Do we spend nearly as much money in educating and training management in deviancy, ethics, and dishonesty?

HOLLINGER:  I think not nearly enough. Exacerbating that problem, or maybe reflecting it, is the high level of turnover. One of the things that I still have difficulty understanding is how retail companies stay profitable when they have such astronomically high turnover rates. Maybe it’s because I work in a university where if a faculty member or two retires every year or so, that’s a serious level of turnover. But, retail companies that have over a hundred percent, sometimes close to two hundred percent, turnover in a year; it just boggles my mind how they can continue to send a consistent, clear message to their people. 

When I talk to store managers who struggle with this, I’ll ask about providing loss prevention training to their associates? They say, “I don’t have time to teach them to use the register, let alone get to these more esoteric issues like loss prevention.” One store manager in a focus group earlier this year put it this way: “A good day is when the people you hire before lunch show up after lunch.” I thought she was joking, but she wasn’t. It must be just awful to try to keep these stores in operation, let alone police other employees and try to eliminate shoplifting, when you’re dealing with such a revolving door of staff. My hat goes off to them. They’re struggling, and it’s a huge problem. 

One of the mantras that I have been trying to communicate over the years is building a “culture of honesty” within the organization….The whole idea here is you have to set a very strong moral and ethical example. While I disagree with Ronald Reagan that trickle-down economics works, clearly trickle-down ethics works.

EDITOR: If you could advise those executives to focus on one particular solution, what would it be?

HOLLINGER:  I get that question a lot: “What’s the single technology, the single solution, where we should put our money?” I always say that the single most dependable variable in predicting shrinkage is turnover. Nothing else comes even close. 

I just did an analysis where we took all of the variables in the NRSS and ran them against shrinkage. While there were some technically significant correlates, the main thing that jumps out at you is turnover. By far, it is one of the most important correlates of shrinkage. When you keep employees on staff, you don’t have to keep training people over and over again. It’s like that children’s game Chutes and Ladders, where if you hit a particular block on the board, you go down the chute back to the beginning. It seems like in retailing, every block has a chute where you go back to the beginning of the game to start over. Just when you get a new employee or manager to the point where they are getting the handle on a job, somebody lures them away or they leave on their own or they quit, and you start over again. 

It seems so obvious that it’s hard to believe the retail industry doesn’t see this as their Achilles heel and do something about it. Yes, it may mean paying people more money. It may mean promoting from within. It may mean giving better benefits. But there are a number of retail companies that do this and have very low levels of turnover and also very low levels of shrink and are very profitable companies. 

EDITOR: That sounds like an area of research right there.

HOLLINGER:  As a matter of fact, one of the projects I’m working on right now is an investigation of companies that have low shrink by asking the obvious question, “Why? What sets them apart from the rest of the industry?” There are companies that have very high shrink, and they’re soon in Chapter 11. Then there are the majority of retailers that cluster around the mean. Then there are retailers that have almost no shrink and very low turnover. So what I’m doing now is focusing on that elite group and asking what I think is the question we should all be asking: “What are they doing right, and how can we benchmark and use their best practices to model the rest of the industry?” One of the things I expect to find is a decent wage structure, a decent promotion structure, fringe benefits, healthcare, all the things that executives don’t want to hear because it will cost them money. But as my father used to say, “Pay me now, or pay me later.” 

EDITOR:  Are you talking about a concept you’ve mentioned before that dishonesty in the workplace is not a criminal issue, but is more a management and sociological issue?

HOLLINGER:  Yes. I have said that for many years. It goes back to the first question you asked me about changes in the industry. We used to view this as a crime problem, so we hired law enforcement people who were retired or wanted to leave that industry to run our shops and to do security. It didn’t work very well. It still doesn’t work well. The companies that do that still have trouble because many of the people in law enforcement don’t think from a management perspective, they think from a cops-and-robbers perspective. It’s catching the bad guys; that there are inherently bad people out there. Now we realize that all those are fallacious arguments. Now we realize that it’s the trusted people that we thought passed our tests and actually were working alongside us who are stealing. 

The good new is we know how to solve this problem. Everybody in the corporate organization are well trained, many with MBAs. So, if the issues that we’re dealing with are really directly related to human resource or training or management or inventory control…those are issues that we have solutions to. Shrinkage is not a problem that’s alien to the heart of the organization. 

EDITOR: Is this project driven from an academic standpoint or is it being driven by corporations? 

HOLLINGER:  It’s really a study that I want to do. There’s a famous criminologist named Marshall Clinard who is a professor emeritus at the University of Wisconsin. He wrote a book years ago called Cities with Little Crime. In the heart of the 1980s crime wave, he looked around the world and said, “What’s wrong with New York City, when Tokyo, an even larger city, has an infinitesimally smaller crime rate?” So, in the midst of the eighties crime wave, when everybody else was asking, “Why is there so much crime, drugs, and violence?”; he asked the opposite. It’s really an interesting behavioral, sociological, criminological question. 

“What’s the single technology, the single solution, where we should put our money?” I always say that the single most dependable variable in predicting shrinkage is turnover. Nothing else comes even close.

I’m borrowing the same idea and asking, “Why is it that a company like The Container Store that’s been profitable for its entire twenty-five-year history, have infinitesimally small shrink rates, virtually no turnover, a happy workforce, health insurance, and daycare? What’s going on there?” 

I believe there is something to be learned from companies that do it right and set a standard for the rest of us, as opposed to just taking the simple solution that you can’t do these things. A lot of people just dismiss it outright and think you’ll go out of business. We really have to start thinking outside the box and realize you have to pay people a living wage. Only then will you see your turnover drop, your allegiance to the company increase, your sales increase, and your theft decrease.

EDITOR: Your research is one of the few places to find statistics on loss prevention. How can the industry do a better job of accumulating information on the subject? 

HOLLINGER: I remember going to an early NRF meeting, where everybody would go into a room with no paper, no pens, and the LP directors would privately exchange their shrinkage data with each other. That was one of the motivations for starting the National Retail Security Survey, because people thought it was important to have this kind of information. 

Today’s fraternity of loss prevention and asset protection professionals seem to hold the idea that we’re all in this together, and if we withhold information from each other, it’s shooting ourselves in the foot. 

It’s almost like the current terrorism problem; as long as we view it as separate countries fighting this war, we’re going to lose. We have to share information…to the extent the Justice Department will allow. Otherwise, the crooks are going to win because they have us in the blind. If you asked a police officer if they could do their job without the Uniform Crime Reports, without good data that tells them where crime happens in their community, they would, of course, think you were nuts from asking the question. You have to have good data, good information to prevent crime. 

EDITOR’S NOTE: To read more of our interview with Dr. Hollinger, go to our web site at www.LossPreventionMagazine.com

 

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