What began as innocent, innocuous conversation at a holiday company party eight years ago has turned into a professional odyssey filled with complex challenges and rewarding satisfaction in making significant headway towards fulfilling the odyssey. My conversation at that time was with the then chairman and vice chairman of Saks Fifth Avenue. The challenge was to reinvent the Saks Fifth Avenue asset protection department as a best-in-class industry leader.
The term “industry leader” is not intended as competitive vernacular toward our fellow retailers or to signify some winning status or superiority to other retailers. Quite the opposite. We began our quest using other best-in-class retailer’s metrics to measure our strategy and growth—a starting report card if you will. Think of it as taking the SAT for college then measuring yourself against the freshman class at an Ivy League institution.
At this holiday party the three of us agreed on one major point. That execution of our strategy and measurable performance metrics would be the qualitative yardstick dictating our success or failure. At the end of the season it was going to be the measurable results that counted. We were still going to be judged on the qualitative performance of the asset protection department and expected to exceed a gold standard as high as anyone in the industry. But our final time at the end of the race would determine if our performance would win a medal and be judged as best in class.
A High-Performance Retail Strategy
We recognize that Saks Fifth Avenue is a different type of retailer…notice I said “different” not “better.” Our peers define us as a luxury specialty retailer. We prefer to define ourselves as a high performance retailer, something you will see more of in our future marketing. How retailers should judge performance is on operating income and return on invested capital. That is how Wall Street and investors make assessments.
For the record, here are a few quick facts about Saks Fifth Avenue. This year we will record approximately $3 billion in sales. We operate 118 stores nationwide, including full-line and Off 5th Outlet stores. We operate a Saks Direct business and an international division. Aggressive expansion is planned outside the continental United States. We currently have a Saks Fifth Avenue in Riyadh, Saudi Arabia, and another opening this fall in Dubai.
How do you begin to reformat a strategy in an asset protection division that was entrenched in past practices, where responsibility and accountability was fragmented? The company’s belief at that time was that a 2.5 to 3.0 percent to sales shortage was acceptable as an inevitable cost of business in the luxury market. After all, the argument went, we were dealing with creative “artistic” vendors and merchants whose real strength lies in product design and defining the luxury market.
Somewhere, at sometime, someone needs to be accountable and held to a performance standard. Divided accountability equals zero accountability.
Saks Fifth Avenue has an average price point of $500 per item. Our price points in jewelry are comparable to Tiffany’s. However, our jewelry is merchandised in an open department store fashion. Channel, Prada, Gucci, Louis Vuitton, and Dolce and Gabana handbags are displayed on the selling floor, not behind showcases, but in an environment where the customer can touch and experience the product openly.
Our average shoplifting loss was $750 and the dishonest associate case was a little over $4,000. With numbers like these, it was somewhat understandable to accept anything in the 2 percent inventory shortage range as a success. However, our challenge was best in class, and best in-class inventory shortage results would have to be in the 0.5 to 0.7 percent range (retail, not cost).
Four Key Core Competencies for Saks Fifth Avenue Asset Protection
To begin the quest to become a best-in-class asset protection program, there were four immediate strategic changes that had to be implemented. Once they were in place, we could then focus on the tactical and fundamental elements of our program. By integrating these four core competencies into a broader strategy, we would be able to execute and achieve the extremely aggressive performance goals we had defined for ourselves.
Our first core competency was going to center on leading in a culture of rapid change, which was going to be a constant at Saks Fifth Avenue. The organization was not going to slow down so we could make the necessary alterations to the asset protection division. We were going to have to adapt our strategy to a train that was literally moving at 200 miles per hour. Even if our asset protection strategy performed at 150 miles per hour, we would still be short and the strategy would fail miserably.
No, we were going to have to develop a strategic plan that focused on high-speed execution and showed the organization some quick tangible financial results. Understanding our target while managing and executing strategic milestones was going to be our first core competency. This would be the foundation upon which the others were designed.
In order to engage all management within Saks Fifth Avenue, we held a series of open “town hall meetings,” if you will, where we showed very simple, yet compelling, examples and illustrations highlighting where we were at that point and where we would be after three to five years. We used illustrations showing the shortage at that time (seven years ago) at 2.6 percent. The result was an annual shortage of $67 million. Then, if we incrementally improved that performance by 25 to 50 basis points in six-month increments down to our goal of 0.6 percent inventory shortage, assuming no increase in sales (which would only improve our calculation), we would be looking at a favorable financial performance of $15.6 million. This would be a savings of $51.4million at retail or a little over $25 million at cost.
No one was going to argue against that type of performance. We immediately had the attention and support of all concerned. I am pleased to report that, not only did we achieve this goal, but have maintained this performance consistently for the past five years.
The second core competency, which I was fanatical about, was complete accountability. All functions directly related to shortage control had to be centralized within asset protection. There had to be one focal point the company could look to design and implement shortage control strategies. There had to be one division that would assume total accountability and be responsible for all decisions with respect to shortage. While we may feel the pressure on a daily basis, the organization must know that there exists a central repository of accountability. Split accountability or shared accountability opens the door for multiple strategies that may not be headed together in the right direction. There needs to be one goal, one vision, one person who can sit with senior management and say, “Yes, I own that. It is my responsibility, and you can hold me accountable to the financial performance.”
Accountability to an end result is what drives the financial metrics of an organization. All strategies look great in the beginning. All ROI presentations present the “best foot forward” result. All future visions are heavenly when presented. I’ve been in presentations where you want to stand and cheer with enthusiasm, stomp on the floor, and clap your hands in acknowledgement of a well-presented topic.
But somewhere…and this is extremely important…you have to measure performance. You have to stop the process and ask, “How did we do against the strategy we sold the organization? How effective was the invested capital we asked for, and did it actually perform as presented?” Somewhere, at sometime, someone needs to be accountable and held to a performance standard. Divided accountability equals zero accountability.
The third core competency was having the appropriate talent and skill sets within the Saks Fifth Avenue Asset Protection division to achieve our objectives. To be the best in class, you need all “A” players on your team. Team members needed to know that they could rely on each other if we were going to succeed. Every position was going to be critical to our mission.
So we embarked on a quest to find and recruit the best-of-the-best talent for our strategy. We didn’t limit ourselves to the traditional search within the retail loss prevention field. We recruited a diverse team of executives with varied backgrounds who were experts in their particular field.
For example, we asked our vendors and asset protection technology suppliers for recommendations as to who one of the best engineers would be to design and oversee construction and asset protection technology implementation. We found him and hired him.
We hired the top-rated operational director to join our all-star regional team.
We hired CPAs from internal audit to assist in shortage control.
We found the best person in accounting to run central journal, where all our company paperwork is analyzed and posted.
We went to Macy’s and recruited the individual who ran their 34th Street store, which was the largest and busiest retail store in the world, to oversee our traditional retail security and external and internal productivity.
We were so impressed with the Los Angeles County prosecutor who prosecuted Winona Ryder that we hired her to oversee Saks Fifth Avenue Asset Protection professional standards.
We have a training executive that consistently produces multi-level educational material and techniques that are cutting edge for retailers, while also providing consistent asset protection communication to all levels of associates company-wide.
We have a vice president of asset protection that successfully manages this talent level on a daily basis. She scored the highest within the Gallup Organization on leadership and engagement. In fact, her score was so high Gallup tried to recruit her.
The list of talent goes on and on. The bottom line is that with the best and brightest people executing your objectives, achieving your goals is going to be infinitely easier. Surround yourself with smart, high-energy, creative individuals who are engaged at a level that their infectious energy motivates others.
Everyday at 9:30 a.m. I have a conference call with the senior members of corporate asset protection where we discuss trends, obstacles, and daily objectives. The process is not dissimilar to the daily “CompStat” meetings instituted by the New York City Police Department and now copied by most police departments worldwide. Their purpose is to immediately recognize and focus on criminal activity trends to reduce crime—yet another example of direct accountability. While our purpose is shortage and crisis management, the accountability and spirit of the programs are similar.
Weekly, I require every member of the corporate asset protection team in our staff meeting to discuss their objectives and make other team members aware of challenges and successes that we are experiencing. This is a meeting where we consistently reinforce our philosophy—one vision, one goal, one direction. When everyone understands what the vision is and we collectively move together towards that vision, the probability of succeeding is all but assured.
The fourth core competency and final segment for the Saks Fifth Avenue Asset Protection team was going to be moral integrity. We were going to win, but win in an environment of the highest ethical standards. Ever since September 11th, my role and leadership competencies have taken on a different meaning. The World Trade Center twin towers where more than 3,000 people perished in the worst terrorist act on U.S. soil took place approximately a mile from our New York flagship store and corporate offices. Almost everyone knew someone who has been personally affected by this tragedy. We also have corporate offices in a 31st Street location that is less than a mile from ground zero where some 500 associates watched the towers burn and collapse.
There are close to 5,000 associates based in New York City who look to corporate asset protection for guidance, procedures, and instruction, with the expectation that we are doing everything possible to protect them should another tragedy occur.
Everyday for months after the tragedy there were associates—and executives—in tears and close to emotional collapse wondering if it was safe to be in midtown in a high-rise office environment.
Even apart from this tragedy, potential crisis events are an everyday possibility. Consider our location:
- The Saks Fifth Avenue flagship store sits in the heart of Manhattan at 5th Avenue and 50th Street.
- Saint Patrick’s Cathedral is located within 500 feet of our store, which draws tens of thousands of tourists a year.
- Rockefeller Center is directly across the street.
- Most demonstrations and parades that take place in New York City pass by our 5th Avenue doors.
- It is not unusual to find a high-profiled dignitary with their entourage in our store on any given day.
Today, planning for and ensuring a comprehensive emergency crisis plan is without a doubt the most important objective I have personally. We have developed what I believe to be one of the finest emergency crisis plans in the business today. We have had our program critiqued, reviewed, and blessed by numerous outside experts.
In all probability there will be another tragedy somewhere within the borders of the United States. New York City is always considered a prime target. With Saks in the heart of Manhattan, we will constantly rehearse and improve upon our plans to ensure we provide the safest environment possible.
To me the core competency of moral integrity means acting with the intention of making a positive difference in the lives of associates, customers, and vendors. I firmly believe that with the enormous responsibility asset protection departments carry today, corporate fraud, scandals, the litigious environment, and potential crises, moral integrity by evolutionary increments will become more and more prominent.
The Ongoing Challenge
It is important that we as leaders understand the process of change retailing is going through today. Industry leaders who combine a commitment to moral integrity with a healthy respect for the complexities of change will be more successful and unearth a deeper understanding of their roles.
While we have achieved best in class in many categories, we still have further to go. A quote from President John F. Kennedy’s administration inspires me on this journey. When President Kennedy was in office approximately forty years ago and technology was still in its infancy, the President summoned the chief scientist of NASA to his office. President Kennedy asked him “What would it take to build a rocket that could carry astronauts to the moon and safely return to the earth?” The scientist gave it some thought for a few minutes and then responded with these six words: “How committed are you to succeeding?”
Success is easy. It’s the commitment that takes heart.
Editor’s Note: Since this article was first penned by Tom Matthews, Saks Fifth Avenue and the Saks Fifth Avenue Asset Protection department have become part of Hudson’s Bay Company.