Building an LP Department Focused on People

David Shugan

EDITORS NOTE: David Shugan, CFI, is the senior director of loss prevention for Carters based in Atlanta. Prior to taking over the leadership role at Carters, he was manager of investigations at Cracker Barrel Old Country Store. Before that, he held LP management positions with Pacific Sunwear and Chernins Shoes. Shugan was honored in the Top 20 Under 40 list in 2009 by Security Director News. He is on the National Retail Federation (NRF) LP Advisory Council and is a frequent speaker at the NRF annual conference.

EDITOR: For those who may not know, tell us about Carters.

SHUGAN: Carters is a childrens clothing company that has been around since Abraham Lincoln was president. We celebrated our 150th anniversary last year. We are a company that believes in giving our customers the top quality in childrens wear. We joke about it with each other, but heres the realityI wore it as a baby, you probably wore it as a baby, our grandparents wore it as babies, and here it is generation after generation still the most recognizable brand in childrens apparel. Carters and OshKosh are just iconic.

EDITOR: Is that OshKosh BGosh?

SHUGAN: Thats right. Carters bought OshKosh about eleven years ago. Before that, Carters Retail Inc. was primarily a wholesale company that had an outlet mall presence. They had maybe a couple of hundred stores. About nine years ago they expanded their retail strategy as the outlets were doing impressive business, so they saw an opportunity to grow. Thats when they started moving into more conventional retail outside of the outlet arena.

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EDITOR: And how many stores do you have today?

SHUGAN: We are currently at about 900 stores in the US and about 170 stores in Canada. But wholesale is still a huge part of what we do. Our clothing is sold by a number of name-brand retailers in about 100 different countries and in over 17,000 points of distribution worldwide.

EDITOR: What does a Carters store look like?

SHUGAN: There are a couple of different models. A typical Carters store will be about 4,000 square feet and merchandised from infant to size eight. An OshKosh stand-alone store will look similar, but stocks apparel in sizes from infant to size fourteen. So when we look at it in terms of age ranges, Carters is from birth until about school age, and OshKosh extends until about middle school ages.

About four years ago, we opened up the first of what we call the side-by-side model, which was having a Carters and an OshKosh store right beside each other. But you had to leave one store to go into the other. Then in one New Jersey store, we piloted the new concept where we literally cut a hole through the wall. This allows mom to shop in Carters, pass into OshKosh, and check out on either side. That model has grown rapidly, and now we have approximately 150 of these side-by-side locations.

Our newest model, of which we have about a half dozen, is what were calling a shop-within-a-shop. Theres one front door, with Carters in the front and OshKosh in the back. We have both brands, our best outfits, our best looks, all in one store.

EDITOR: When did you first get involved with Carters?

SHUGAN: May 2008. From day one, I have reported into our senior vice president of operations, George Kingsmill. About six months after he joined the company, I joined the organization to create our LP department.

Shrink was a concerning factor, and George had the foresight to begin a department early and prior to expansion of stores to ensure a culture was created from day one. As we all know, if you have internal theft, external theft, or operational issues and that product is not there, your customers get frustrated and may not return. So the opportunity to improve the experience for the shopper, for the mom, and also control shrink along the way was our main concern from the start.

I want to add that working with George has been a gift. He has taught me to be a corporate leader. He has trusted me, from day one, to create, build, and lead a team that has created a culture that grows sales and reduces shrink through partnership. He leads with respect and challenges with professionalism.

EDITOR: So you started the program from the beginning?

SHUGAN: Yes. On day one it was just me, myself, and I. But as we grew from a couple hundred stores to over a thousand stores, the loss prevention department has expanded to include six regional loss prevention managers who manage about 150 stores each (John Mattera, Matt Rowland, Heidi Haugh, Grace Latour, Eric Koopmeiners, and Andy Palomino), three fraud analysts (Josh Hamilton, Keri McCulty, and Spencer Smith), our Canadian LP manager (Roma Daigle), and distribution LP and safety manager (Tom Davis).

LPM 1116-Feature 2-Interview_Page_3_Image_0001EDITOR: Eight years later, what expectations do your boss and the company have of you and your team?

SHUGAN: From the loss prevention standpoint, Ive always been about sales first and shrink second. I also want to ensure the environment is customer friendly. We are very pro-sales, pro-marketing, pro-visual, pro-real estate. And if we get the buy-in of all our sales associates and our management team, it allows us to create an environment where the customer comes in and simply enjoys the experience. To me, this is the formula for success.

The great thing about being in the childrens apparel businessand I see this so oftenis that there may be a grandmother coming in to buy that outfit shes going to take with her when she meets her grandchild for the very first time. Or a mom whos late in her pregnancy coming in to shop because she wants to pick out that outfit to bring her baby home from the hospital in. Its just exciting; its a real treat. One thing for sureyou have to love kids to be in this business.

We create an environment that gets a mom excited when she comes in. Were excited to see her and want to help her. And one of the ways we help her is doing everything we can to ensure the product is in stock, its where it should be, and its readily available. And of course we make sure its at a great price, so the lower we keep our shrink numbers, the better the value is for the customer, and most importantly the better the experience.

EDITOR: So is shrink your teams predominant objective?

SHUGAN: Thats the true measurement, I believe, of any loss prevention department, and certainly that is the case here. But the mindset for the team is to be in the stores to train and educate our associates on how to increase the profitability of our business.

I need the team to understand what the blueprint of the store should look like, where the product should be merchandised, and what current sales promotions are available to our customers. In addition, are the marketing signs correct? Are the floors clean? Because if we do these things correctly, we know shrink declines organically.

At the end of the day, we do have employees doing things that they shouldnt. And we have customers doing things that we dont want them to do, and we certainly make that a high priority from an analytical standpoint and from a field perspective.

EDITOR: What processes or programs have you implemented that youve seen success with?

SHUGAN: We focus on proactive programs and have several programs here that achieve that approach. I use the phrase loss prevention with its LPM 1116-Feature 2-Interview_Page_4_Image_0001literal meaning in mind, which is to prevent loss versus being a loss-reactive department.

One example: we created a program here several years ago called LP EveryDay. The team calls thirty stores every single weekfive per regionand we ask them an LP trivia question. Only sales associates are allowed to participate. We post the trivia question and the answers in our weekly newsletter that goes out through our communication department. So this is an open-book test. We ask them things like: Do you know what your shrink is? Do you know what our LP program model is? Do you know what is your stores highest-shrink item? If they get it right, they get entered in a drawing to win a gift card at the end of the month. If they get it wrong, we have that opportunity to train them. But they get excited when theyre called; its almost like a call-in radio show. The following month, we print the winners in our communications newsletter. Its a way to keep LP alive and breathing every single day.

In addition, we have our LP function review, which is our view to ensure compliance. This allows our field teams to go in and interact with all levels of employees from sales associate to store manager. A few other mainstays that we have include a high-shrink focus program, an employee hotline to report concerns, an employee-driven LP calendar, and LP tips and topics of the week.

As I mentioned, one of our exciting programs is our loss prevention calendar. We ask for submissions of original artwork that is LP thought provoking. We have a committee that votes on them, and then we create a calendar for the stores that they can use whether its to mark time off, celebrations, birthdays, or other things going on in their locations. Theyre just simple reminders that LP also drives their business in-store.

EDITOR: Have you implemented any new technology programs?

SHUGAN: During the first few years, like many new departments, we focused on the low-hanging fruit. About four years ago we decided we wanted to create a predictive shrink model. I always had the notion that if we look at the highest-shrink stores, there probably was a common denominator in the cause of shrink. Whether its shrink, customer complaints, payroll control, square footage, demographic, or geographic factors, there should be some type of common denominator. My opportunity was trying to move from a white-board idea to a working model. Fast forward: this led to our hiring of our LP fraud analyst, Josh Hamilton. Today, we have a program called CAPSCarters Application for Predicting Shrink. We run a predictive pool with over 400 variables that assists us in identifying shrink before it happens.

Youve probably heard Jeff Foxworthys bit about you might be a redneck. Well, here we say you might have a shrink problem ifyoure getting a large amount of consumer complaintsyou have an inability to control payrollyoure not spending your payroll effectively, which means you have leftover income on the floor. These examples can mean you have a lack of discipline, and if you have a lack of discipline, you may have a shrink problem.
So there are many ifs that you can have, and CAPS allows us to analyze those ifs to see a shrink problem before it occurs. That allows us to be much more strategic and laser-focused in our approach to reducing shrink and more financially responsible in travel. As I mentioned, we have six regional prevention managers with around 150 stores each, and with the shift in retail from brick-and-mortar to e-commerce, our travel needs to be very strategic. No longer is it about going to visit a district or a market or a store just because its on the list and we havent been there in a while. Now if our CAPS program is predicting shrink in a specific market, we can go there and hopefully attack the shrink before it ever happens based on the variables that our predictive model has shown.

EDITOR: Do you utilize any EAS or CCTV analytics?

SHUGAN: Yes to CCTV and no to EAS. When we acquired OshKosh, they were an EAS company. However, when we started loss prevention, we reviewed the ROI and felt we could invest differently. From a CCTV standpoint, weve grown our CCTV substantially. This investment has been made for a couple of reasonscertainly from a shrink perspective, but also from a safety standpoint.

EDITOR: Do you have any direct safety responsibilities in the company?

SHUGAN: Safety responsibilities fall under everyones umbrella. We have a very strong partnership with our risk management and human resources departments. We do a very good job of educating our employees, whether its with ladder safety, heavy-lifting safety, and everything from changing out lightbulbs to changing outfits on a mannequin.

EDITOR: Does Carters see much in the way of ORC (organized retail crime) activity?

SHUGAN: Remember that I joined in May 2008, and just to put that in perspective, that coincided with the real estate and financial crash that precipitated the recession. During that timeframe, one thing became very clearmoms and dads may slow down on purchasing for themselves, but when it comes to their children, they dont hold back. Due to that, baby clothes are a high-theft target for organized retail crime. Our merchandise is small, easy to conceal, and has high resell value. You dont need a lot of market space or real estate if youre going to fence it, whether its at a flea market or online. So, yes, we do see ORC activity.

EDITOR: How much has your company jumped into the e-commerce side of the business, and what role do you play?LPM 1116-Feature 2-Interview_Page_6_Image_0001

SHUGAN: When I first started here, we didnt have an e-commerce presence. However, approximately five years ago we launched Carters.com and OshKosh.com, both of which took off at an incredible rate and continue to be a big part of our world and the entire retail landscape.
My team does partner with our e-commerce group on fraud awareness and opportunities. We discuss the programs on a regular basis, and we recently hired our first e-commerce fraud analyst.

Along the way weve also created an in-store loyalty program, which has allowed for amazing value for the customer. But from the LP department standpoint, it has also created new opportunity when it comes to loyalty fraud.

EDITOR: Youve done a lot since 2008. How important is it to have a so-called seat at the table when it comes to getting things done?

SHUGAN: I think one of the reasons our department has been successful is that I have had a seat at the table from day one. As I mentioned, I report into the operations department, which has allowed avenues to being a true business partner at the table and presenting value to address opportunities. Our executive leadership team is very pro loss prevention. As always, you need to be strategic in your business case and have a reason to do something to create value.

We meet on a weekly basis with our visual teams, our merchandisers, and the merchants. We have once-a-month meetings with our real estate team to look at new opportunities for storefronts. Loss prevention is involved in that store-selection process. So whether its marketing, visual, real estate, HR, finance, or inventory controlloss prevention is a business partner.

EDITOR: If a peer in the industry asked you to tell them how to get a seat at the table, what would you say?

SHUGAN: First of all, dont go in on day one asking for everything. Get some small victories under your belt to build trust and confidence. I still remember a conversation I had after I was about ninety days in position. I sat with our president who asked me to give him a list of ten things that I would like to get accomplished. I put together, in my opinion, a great presentation, and it was very well received. Then he said, Now, if you were to break this down, what are the top five most important things? So I picked five, but I didnt see where he was headed. Then he asked, If you had to pick just three things from those five, what would you want to do? So I picked out my top three. It was at that point I realized what he had in mind as he said, Alright, cross off the other seven, go fix those three things, and let me know when youre done.

That allowed me to have some early wins. After those early wins, I was able to return to the leadership table and present additional opportunities, and the team had confidence in my approach. So my message is dont go out and try to fix everything on day one. Get small wins to build confidence and trust in your business partners. Allow things to happen organically. And lastly, dont try to play in peoples sandboxes that you dont need to be involved in.

EDITOR: Lets shift gears and talk about how your loss prevention career started.

SHUGAN: Back in the early 90s, I was shopping for shoes at a shoe store in Chicago. I happened to see a want ad in the back of the store for an internal auditor. At the time my background was more financial, and I was looking to do something in the mathematics world. However, I saw this opportunity and spoke to the store manager. Unbeknownst to me, the company was utilizing Wicklander-Zulawski (WZ) as consultants. From what I recall, part of their services back in the early 90s was providing loss prevention consulting for retailers. Doug Wicklander and Dave Zulawski made the recommendation to Chernins Shoes that they needed an internal person, and I was lucky enough to get the job.

This was an hourly position in Chicago, and my job was to be an internal auditor and review exception reports. Now keep in mind, this was back before there were computers. Somewhat early in my tenure, and being curious I asked, When I find something that doesnt make sense, what do you do with it? My partner from WZ was Wayne Hoover. Wayne probably explained how he would investigate the matter. When I requested to tag along and after watching some investigations, I realized that I had more interest to be in the field than always behind a desk. So I attended multiple WZ seminars and learned how to conduct proper interviews. Over the years, I am very proud of the fact that I was personally trained in every facet of loss prevention from audit to being in the field to interviewing and collecting a statement to civil recovery by the team at WZ, for which I am forever grateful. For that matter, I would like to thank Doug, Dave, Wayne, Shane Sturman, and others for what they provided me from a professional standpoint and for our friendships today.

I spent about eight years at Chernins and went from internal auditor to their director of loss prevention. Unfortunately, after almost 100 years in business, Chernins went out of business. This provided me an opportunity to expand my knowledge and perspective into mall-based retail loss prevention. That is when I joined Pacific Sunwear as their mid-west regional loss prevention manager.

In August 2000, I joined Cracker Barrel Old Country Stores. Cracker Barrel was just starting their LP program, and I was very excited to be part of a department led by Joe Hardman. Thats what really propelled my career in loss preventionbeing mentored by Joe. Approximately one year after I began my career at Cracker Barrel, he presented me the opportunity to be the manager of investigations and lead the field team.

When I left Cracker Barrel after an amazing eight years, we had built an entire loss prevention program that was involved with not only retail shrink but also restaurant food costs. Joe has taught me that people are the business. Early on in loss prevention, I think its easy to get a mentality of cops and robbers. But in order to be successful today, it has to be about the people. And Joe taught me how to network, how to respond, how to write thank-you notes, how to present, and how to be a leader both in the field and in the office. He not only taught me a great deal about loss prevention, but more importantly taught me how to be a good person. Joe is a true gentleman, a loving husband, and an amazing father. The opportunity he gave me to balance work-life with family is something Ill never forget and will always appreciate.

LPM 1116-Feature 2-Interview_Page_8_Image_0001EDITOR: What have you enjoyed most about your career in loss prevention?

SHUGAN: This is going to sound goofy, but Ive always had the idea of just wanting to make people better than they are today. One of my goals in life has been to help people. My extracurricular activity through most of my adult life and when my kids were young was coaching. Whether it was a coach on the football field, the baseball field, the basketball court, even soccer. I love making people realize that they can do more.

Ive taken that same approach in loss prevention. Whether Im interviewing a district manager candidate to join our company or doing an interview for fraudulent activity, my goal at the end of the day is to shake the persons handto shake the hand of the candidate who came in for a position or of the employee I just interviewed for retail theft whom I may have already called the police on. Its just helping them get to wherever they want to get.

The reality is that none of us are perfect, and we all make mistakes, but those mistakes dont have to define us. What can define us is what we do with them. So I take a tremendous amount of pride in helping people, in making a difference. And to make a difference, you have to be willing to sharewhether its making a difference in someones life to get them to where they want to go or making a difference in the LP industry through a presentation, a connection, or a committee.

For example, since we created our predictive analytical model, weve had three companies come to us curious about it how to create a similar program. Now, some of our results from the model may be confidential, but the process and how we accomplished it, Im more than willing to show anyone because I want them to win, so we can win together. We dont need to be recirculating the bad actors out there. We need to be working together to prevent those things from happening again.

EDITOR: From a hiring perspective, what have you learned from building your team?

SHUGAN: I believe that when you hire someone, its got to be someone whom you can enjoy working with. I dont need the best investigator. I dont need the best analyst. What I do need is someone who is part of a team. Maybe its the coach in me, but I could have the best player in the world on my team, but if he doesnt get along with his teammates, our team will not be successful. The team I have here is one of the best teams Ive ever been a part of. We work very well together, we laugh together, and we have fun together. They are people I hang out with outside the workplace. The big thing is we trust each other.

Also, I try to hire people smarter than me. I know what my limitations are. I know what I can and cant do. Ive never been afraid to hire somebody who can do more than I can. Like I said, my job is to help people get to where they want to go. If one of my regionals want to be a director someday, then Im going to do everything I can to help him or her become a director. And in the eight-plus years Ive been at Carters, two of my regionals have gone on to become directors. Those are the things that Im proud of. I hated losing them, but Im much prouder of what theyve become and what my team continues to accomplish.

EDITOR: Where do you see yourself in five, ten, or fifteen years?

SHUGAN: I want to make the loss prevention industry even more desirable. I recently had the opportunity to join the NRF Loss Prevention Advisory Council. I think we need to start seeing the future of LP with a much broader lens than we see it currently. I think theres a great opportunity to use new technologies to help the industry. I want to create more windows and doors for networking. I think there is still a huge opportunity to get people involved (and share information) in the industry.

Mainly I just want to make a difference in the LP world, and I truly believe this is an amazing professionone that is evolving and changing. Who knows where brick and mortar will be five or ten years from now. I believe theres an opportunity to take advantage of technology, increase partnership, and share data so that no matter where retail goes, loss prevention will be ready for it. Over the years, I have been able to listen, learn, and partner with some incredible industry leaders who have not only mentored me but also changed the landscape of loss preventionfrom Joe LaRocca who has mentored me more than I can express gratitude to Walter Palmer who has guided me through some career challenges. We need to pay it forward and help others.

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