Best Buy Loss Prevention: Changing the Rules

Best Buy loss prevention

Winning in business, as in sports, requires both offensive and defensive skills and strategies. Certainly nothing is more discouraging to a team than to gain hard-earned points through offense, only to lose the game by giving away points that should have been protected by a solid defense. In most companies, the defensive team is called “loss prevention” and the offensive team, “merchandising and sales.”

At Best Buy loss prevention, we changed the rules of the game. Not only did we teach our defense how to play offense and vice versa, but we also combined the two historically opposing groups and created a new team with a broader role and a larger goal—serve the customer and add value to the organization. The results have been excellent.

Did we change the rules of the game because we thought it would be fun to play a different way? No, we changed the way we were playing because we wanted to stay in the game. Retail shrink, or loss of inventory due to shoplifting, employee theft and vendor theft, and administrative errors, is a significant problem of retailers across the country. In 1995, it was clear that it was a problem for Best Buy, as well.

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Employee Theft Increasing Nationwide

The 2002 National Retail Security Survey, published by the Center for Studies in Criminology and Law at the University of Florida, reported an average retail shrink rate of 1.70 percent of total annual sales, or an approximately $31.3 billion annual loss to retailers. The largest percentage of loss, 48 percent, comes not from shoplifting or individuals external to the organization, but from theft from the organizations’ own employees. This study showed employee theft continuing to increase significantly from the previous year.

Another study, the 15th annual Retail Theft Survey conducted by Jack L. Hayes International consulting firm, found that on a per-person basis, dishonest employees steal approximately 5.7 times the amount stolen by shoplifters.

Biting the Hand That Ignores Them

Employees who feel devalued or not trusted by their organizations often feel justified in stealing from them, reports University of Florida associate professor of sociology Dr. Richard Hollinger. Disenfranchised employees may not only reduce profits through theft, they also may reduce overall productivity by aiding in the deterioration of employee morale through secrecy, lack of helpfulness, and abuse of sick leave or increased absenteeism. A secretive culture breeds distrust and results in a lack of communication both internally and externally. Workers whose voices are not heard or who feel they have nowhere to go in their careers become inattentive to their job responsibilities, feel less of a personal connection with the company, and care less about customers.

Ironically, physical devices and countermeasures installed to reduce theft can aid in creating an overall feeling of distrust, even among honest employees. Experts studying employee behavior do not tell us that employees steal because there are not enough cameras or not enough security tags. Instead, they tell us that workers are significantly more involved in theft when they feel their employers are dishonest, unfair, and uncaring.

Creating a “Low-Shrink” Culture

As the title of five-time Tour de France winner and cancer survivor Lance Armstrong’s book says, “It’s not about the bike.” Technology is only a tool for people to use. No matter which tools employees have at their disposal, those tools won’t be effective in the hands of employees who don’t care. Creative solutions, positive attitudes, and employee loyalty come from people, not technology.

Loss prevention is not about technology and about catching people doing the wrong thing. It’s about preventing loss, or eliminating an environment where people feel it’s right to do wrong. TRAX Software and Consulting founder Larry Miller puts it this way, “The first job of prevention is to create a culture in which people do not want to steal, where they do not believe they can get away with shrink-causing activity, and in which they know that shrink will not be tolerated.”

At Best Buy, we knew in order to have lower shrinkage, we needed to change not only the way we approached Best Buy loss prevention, but also our corporate culture around shrink prevention.

Traditional Methods Were Not Enough

Best Buy Co., Inc., is a multinational consumer electronics corporation based in the Minneapolis area.

Prior to 1995, we began our fight against shrinkage with a traditional loss prevention structure. The responsibilities of the Best Buy loss prevention department were to limit and reduce inventory shrinkage caused by shoplifting, employee theft, vendor theft, and administrative errors. To detect errors we ran operational audits of our stores. To apprehend and recover inventory from theft, we engaged in the customary in-store procedures and theft investigations. The organization had very good results until 1995.

In 1995, our shrink spiked to over 1 percent, and we were forced to take a good look at ourselves in the mirror. We saw that Best Buy loss prevention had become a silo, and it wasn’t working. We hadn’t even been aware that we had a problem. And, we hadn’t been allowing anyone else into our business, so no one could help us see or fix our problem. The numbers didn’t lie, however, and it was clear that the traditional model of loss prevention wasn’t satisfactory any longer. We had to find a way to do something different.

In today’s competitive arena, we needed to find new ways to add value to the organization as a whole. We wanted to be smarter about how we employed our most valuable resource—our employees—not only for better shrink results and greater operating cost efficiencies, but also to ensure that we met employee needs and made them our allies.

The revelations of 1995 started us on a long road of significant changes that have brought positive results not only to Best Buy loss prevention and our shrinkage, but also to other disciplines within the company. We began adopting a more disciplined, employee-driven approach to developing a culture that would encourage and reward employee honesty, ideas, and teamwork—thus reducing shrink and developing highly satisfied, loyal employees.

Multidisciplinary Teams Eliminate the Silo Mentality

First, we felt it was critical that we have a simple retail shrink plan that was developed from the bottom up, not the top down, involving store managers and line-level employees. By trusting employees to develop sound plans, we respect their intelligence and innovative capabilities. In turn, they become more engaged and develop ownership in the success of the plan and the company.

This approach helped us get rid of the silo concept of Best Buy loss prevention. We needed other disciplines within the company, such as retail, to share responsibility and ownership of retail shrink. We did not want to be the lone “hero” because we had already tried that and had failed.

We also felt it was important to try to control areas that were controllable, while retaining an open style of merchandising, the “grab-and-go” ease, for customers. With that in mind, our shrink plan focuses on primarily reducing employee theft and administrative and paperwork errors. Rewards are important, and our shrink plan contains a generous shrink incentive available to all employees, which gives a portion of each store’s shrink savings back to that store’s employees.

At the same time, we started to gain traction around the company retail shrink plan, Best Buy recognized the need to add structure to our other disciplines as well. So, in 1997, the company introduced a standard operating platform (SOP) for each of our store disciplines: operations, inventory/loss prevention, merchandising, and sales. The SOPs enabled us to consistently come to market in all areas of the company and across the entire country.

Embracing Change, Allowing Innovation

Through the implementation of the SOPs, teams were required to take on additional responsibility. Best Buy loss prevention took ownership of the inventory discipline and merchandising took ownership of the media area. The merchandising discipline, which includes the media areas of the store (music, movies, and computer software) has responsibility for setting planograms in stock and down-stocking, store appearance, pricing, ad set, and media revenue and tasking.

By widening their areas of responsibility, the teams were able to view the company from a broader perspective. This not only helped them identify potential efficiencies, but also helped them understand the company from a bigger picture perspective, freeing them to see new ways to improve performance.

Leadership Fosters Better Solutions

You cannot simply drop good employees into new disciplines with a “sink-or-swim” message and expect to get great results quickly. Our teams decided that the way we could be the best partners to our district and regional teams and their stores was to understand their business. The Best Buy loss prevention team developed a program called Integrated Business Leaders (IBL), so we could become added resources for our partners, and they could reciprocate.

We challenged individuals from loss prevention to learn other disciplines’ businesses. IBL is not classroom learning. Rather, it is hands-on, onsite learning that requires seeing another discipline at work, asking questions, listening, and getting involved. The team educated themselves, became resources for each other, and had fun in the process. They learned that if they couldn’t get somewhere or achieve something, they could ask for help from their partners. This emphasis on building partnerships we refer to internally as “ship building.”

Integrated business leaders learn not to ask “How does the organization fit into my goals?” But instead ask, “How do I fit into the organization’s goals?” Not only does this process build cohesive partnerships and mold different disciplines into a single organization, but it also engages employees and provides them with continuing and growing interest and ownership in the company. The more brainpower you add to a situation, the more fresh perspectives, the better the solution.

 

This kind of partnership building without egos can happen only when you have trust, respect, and openness. You have to not be afraid to let people into your business and be willing to use their ideas. You have to have honest follow-up. The employees who thrive in this environment are the team heroes, and they need to be put out in front of other employees to show them what “good” looks like.

Excellent Results, Not the End Game

Since we began these changes in 1995, our shrinkage results have been excellent. Retail stores in general experience an average shrinkage of 1.7 to 1.8 percent of sales, with the best operators reporting 1.0 to 1.2 percent shrink. For the past three years, Best Buy has enjoyed world-class results well below other industry leaders. We achieved these results not with world-class technology, but with world-class people.

Product Process Team

Over the past three to five years, the Best Buy loss prevention and merchandising teams consistently demonstrated flexibility and high levels of success, so we challenged them once again to think outside their boundaries, and in January 2003, asked the teams to combine, forming a product process team.

In taking this unconventional and dramatic step, we anticipated benefits across a number of arenas. Both teams had discovered synergies in their goals. Merchandising had ideas about reducing inventory shrinkage, and loss prevention had ideas that could benefit merchandising and sales. Combining the two teams enabled us to create a new team comprised of the “best of the best” from each discipline, rather than follow the traditional path where a stronger department is forced to take on a weaker department. As part of an “Efficient Enterprise” initiative, merging also reduced costs in Best Buy’s infrastructure.

One of the most exciting benefits, however, was the opportunity for us to “unleash the power of our people,” one of Best Buy’s core values, by giving each member of the new team the opportunity to learn new disciplines, make a difference and contribute in new ways to our organization’s success, learn about their own ability to innovate and grow through tremendous change, and enjoy broader career path opportunities that had not been available to them previously.

The Scorecard: A Means to Learn

As with any major change, you have to expect a transition period where results may slip, being prepared for better results longer term. For us at Best Buy, the first ninety days was a period of definition and learning for the new teams and the product process discipline. In merchandising we did see a decline in productivity in the first three months, while the inventory/loss prevention shrink results continued to be excellent. Longer term, this has been the best year ever for both disciplines.

Looking for ways to take work out of both disciplines, we evaluated both disciplines during that initial ninety-day period as two separate entities with two sets of job responsibilities. We found that we had to maintain most of the responsibilities as they were, but needed, instead, to find a way to execute them as one new discipline.

We also learned that we need one clear set of expectations. The shrink control expectations were clear to all from the beginning, but my leadership team and I did not recognize the need to clarify the merchandising expectations. We put our team in a self-discovery mode during the initial period and failed to recognize that clear expectations could have helped as guideposts. We now have a clear set of expectations for the merchandising discipline.

We continue to handle all of the loss prevention duties within our product process discipline. In some ways, the transfer of ownership from the traditional model to the new model has enabled us to become a better partner to retail, as well, with better results to date. We have always challenged our loss prevention teams to truly add value to the company in nontraditional ways.

We have spent very little time using vehicles such as civil recovery, data mining outsourcing, and loss prevention outsourcing. Rather, we have concentrated on learning inventory, change management, leadership training, and partnership building, both internally and externally with vendors. We think of this as a Deming emphasis—building quality into the system, or in our case, into our people, rather than looking retroactively for “bad apples.”

Because of the unique environment we have created, we realize that we now have to grow our talent internally. Through this integrated approach, we have increased the size of our talent pool, as well as our leadership bench. In addition, we have employees who have more options. They can take very different and exciting career paths within Best Buy if they wish, or they can choose to return to a single discipline for other retail organizations.

In the long run, our increasing knowledge and understanding of these activities has added value to the organization. With our results in mind, I would challenge the loss prevention leadership in other organizations to think beyond loss prevention and look for new ways to add value to their companies.

Unleashing the Power of Our People

We have learned without a doubt that people will find a way to manage through enormous change if we let them. While not a new thought, it came to the fore front during this process that there is not just one right way to manage through change. Sometimes as leaders we try to protect our people by trying to manage their capacity, or their work/life balance for them. What we found is that if we have a clear set of expectations and goals, we need to allow and trust our people to go after those goals, and they will find a way to achieve those goals, while managing their own capacity and balance.

We’ve learned that we don’t just have one set of people doing one job and another set doing another job—it’s all “our job.” Creating an integrated company where we understand each others jobs, roles and responsibilities, and interact like a Venn diagram of three overlapping circles, helps employees understand that we all share the same goal—to take better care of our customers—and have fun and profit along the way. As a company, Best Buy doesn’t need to protect ourselves from our employees—rather, we’ve won because of our employees. We value them. They value themselves and their company.

This article was first published in 2004 and updated in April 2016.

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