How GUESS? Turned LP into a Mission-Critical Business Operation

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Shoplifters’ Destination of Choice

From Aruba to Venezuela, the GUESS?™ brand is ubiquitous. Known globally for its innovative, highly visual design sense…and for launching the careers of super models Claudia Schiffer,Naomi Campbell, and Anna Nicole Smith…hundreds of department stores and exclusive shops through out Europe, Asia, and South America feature GUESS? apparel, accessories, and other products. GUESS? Inc. also directly owns and operates over 271 stores in the United States and Canada. The GUESS? brand is all about adding surprise and sparkle design touches to such common items as jeans, shirts, and sunglasses—transforming the common to suave and sultry.

As a high-profile member of the upper echelon specialty segment of the retail industry, GUESS? is a destination of choice for style-conscious shoppers,shop lifters, and, of course, professional thieves. “Organized gangs routinely target us for grab and runs, where they come into the store and just carry out a table full of merchandise,” explains Joe Toth, vice president of loss prevention for GUESS? Inc. “There are also the professional teams that work the store,systematically going after high-value,high-demand leathers or jeans,” That Toth seems rather matter-of-fact about his stores being a prime target for thieves belies the fact that since he became GUESS?’s chief loss prevention and security officer in 2001, shrink at GUESS? has declined by seventy percent, placing GUESS? among the best shrink performers in its retail segment. Not surprisingly, Toth and his small, closely knit loss prevention team are well-known and well-respected within the company. This was certainly not always the case. As Toth admits, “Loss prevention was not always positioned within GUESS? to be successful. We had to re engineer both the loss prevention program and the loss prevention mindset in order to be successful.”

The story of the GUESS? loss prevention turn-around and rebuilding is a case study in organizational transformation, bridge-building, and professional expertise at its best.

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Disconnections, Barriers…and Scrambling Cockroaches

Joe Toth joined GUESS? in 1997 a sone of two regional managers of LP reporting to a newly hired loss prevention vice president, who reported to the company president. At that time GUESS? was operating 120 stores in the U.S. and annual shrink was a very serious business issue. The good news, of course,was that GUESS? executive management recognized this and made a visible investment in getting it under control.

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At first, the retail group was interested in LP because they were looking for any help they could get. The problem was that the LP program was reactive and worked independently of store operations. There was some initial improvement, but as buy-infaded and sales slipped, shrink age crept backup. LP was never able to engage the stores to do what was needed to resolve their problems.

In early 2000, Toth was asked to become director of investigations and to handle internal theft cases. Through out that year and with no staff or budget to launch an all-out attack on thefts across the country,Toth took a huge number of admission statements from dishonest employees.“Unfortunately, it had no net affect on the  shrinkage,” says Toth, “because we still weren’t addressing the under lying problems. The approach was reactive and there was just no strategic plan to reduce the losses. It was like killing cockroaches in the middle of the night.”

However, like the retail industry itself,change was and is relentless at GUESS?.In 2001, as the company added stores, it also reorganized. The company president left and a bit later so did the loss prevention VP. In August 2001, Toth was asked to head up loss prevention.Toth accepted, but insisted he report to the vice president of stores. “This was essential,” says Toth. “To position loss prevention…and myself…to succeed, I needed to be strongly connected to store operations. Field support wascrucial to shrinkage reduction. And by being under this umbrella, it also assured me the store managers would be accountable for the results.”

That was then. The actions Toth took to position and strengthen GUESS?’s loss prevention program reflect an essential combination of political savvy, interpersonal skills, and both professional discipline and loss prevention expertise. Today, GUESS?’ soperations and Toth’s responsibilities include GUESS? stores in the U.S. and Canada in six regions, with a loss prevention manager assigned to each region. Shrink levels have never been lower.

So what is behind this dramatic turn around.

“Our problem with employee theft was huge. Well over half of our shrink was internal,” says Toth. “Even though our store managers knew this, many of them were young and did not ‘get’ loss prevention. So we decided direct intervention was necessary. We conducted a full-scale investigation and training session in every store. We started with the high-shrink stores and slowly fanned out to the entire company.I insisted that district sales managers travel with their regional loss prevention manager to participate in these investigations. This opened their eyes to what was happening in their stores and created immediate buy-in. Our goal was to remove problematic employees proactively and provide a blue print for store managers to reduce their losses.”

The fast-start aggressive approach paid off. In the first full year, GUESS? dramatically reduced internal losses and incident sizes. At that point, executive

prepared to move forward aggressively,their shrink situation would never improve,” recalls Toth. “We met with focus groups of store and district managers to hear their concerns and feelings about loss prevention. I then put together a detailed plan of annual goals and initiatives and sold it to both corporate and the field. That meant every one knew what we were going to do and in what order we were going to do it. It is a process I repeat every year.We re-evaluate our strategy, propose new goals and initiatives, and then solicit feedback from the retail group before submitting a new budget. This has truly become a collaborative effort and the retail team has been a great partner.”

As Toth won regional and store management buy-in, he and his team launched phase one of the company’s new loss prevention strategy.

The Business “Face” of Loss Prevention

According to Toth, the previous LP program was reactive and “old school” in its approach. It lost operational support because it was content to just go through the motions and to “put out the fires.” There was no strategic planning,no prioritized agenda, and no investment for the future. When shrinkage did not decrease, store management lost faith in the program. It was hopeless after that. “My first priority in the new job was to convince the retail group that unless we were all on the same page and management really bought into the program and supported Toth in every way possible. “Once they saw what I was trying to do and the potential ROI, they approved everything I asked for.”

Toth strongly believes a successful LP director must have the ear of executive management. “The VP of stores, Vince Dell’ osa,the president and COO Carlos Alberini, and especially Paul Marciano deserve a lot of the credit because they have been strong supporters and are truly committed to shrinkage reduction,” says Toth. “This is certainly not the case in every company. A lot of executives pay lip service to loss prevention issues, but not at GUESS?.”

 

“Engrained in the Business”—Tightening LP Spend and Changing the Mindset

Simultaneously with the attack on internal theft, Toth and his team systematically looked at what each store was doing and spending on loss prevention and security. They found a lot of un coordinated spending and little tracking of results. Toth looked at the existing national and local suppliers of every thing from alarms and merchandise tagging sensors to armored cars and security officers.

“We added up everything we were spending and what we were getting and saw a huge opportunity to tighten-up our program,” he says. “We started re negotiating every contract…and got better terms in nearly every case. We found sloppy practices between us and our vendors. Store spending was just out of control.”

Some stores had huge stock piles of sensor tags and were getting charged for numerous false alarms because of employee carelessness. Other stores that were spending heavily on security officers still had some of the worst shrink.

“So clearly there was room for improving our thinking and our practices at the store level,” Toth explains. “The plan was to get our financial house in order and identify savings that could later be re invested without additional expense. I knew we would have to purchase new technologies and equipment, and we do not spend recklessly. We made a strong case based on expected ROIs and executive management approved nearly all of our budgetary needs. At times, they have been even more aggressive than I have.”

At the same time Toth added discipline to GUESS?’s supplier interactions and spending, he addressed the more fundamental issue of getting store managers on the same page about loss prevention. GUESS? was growing fast. Young, hip store managers and merchandise personnel tuned-in to the hot fashion scene were coming on board. Unfortunately, loss prevention was not part of their mind set and was at the bottom of their to-do list.

“The most significant, conscious change we made was to develop a new mindset and new vocabulary for loss prevention,” he says. “Most employees thought of LP duties as additional things to do on top of their already hectic job responsibilities. Consequently, they never found enough time  to focus on LP issues…and shrink age suffered.

“So, we integrated our message into an over all business approach that centered around providing premium customer service. We used business concepts, such as improving profit contribution, to talk about ways to reduce shrink. We talked about making loss prevention a consideration in where and how merchandise is displayed. All of this allowed us to link loss prevention with top-line sales growth. Improving customer service was our approach to getting managers and staff to interact better with shoppers. In turn, this has made it more difficult for shop lifters to grab and conceal merchandise.”

All store employees went through training that included spotting the behavioral signs of shoplifters. Processes were put in place that required sales associates to work the front of the store in order to greet new customers and prevent grab-and-run incidents.

Finally, the GUESS? hiring process was strengthened to include a personality assessment that included LP questioning and integrity tests along with a comprehensive background check and credit history.

Building loss prevention into GUESS?’s management thinking was also a priority. For example, compensation and rewards for store management was a tool Toth championed. At his urging,GUESS? increased its biannual shrink bonus to store managers and expanded it to include assistant managers, visual managers, and others.

Also, loss prevention now plays a major role in every district, regional, and global management conference. Toth says these are occasions when he and his team can reinforce LP values, tweak current strategies, and participate in field management succession planning.

Upgrading Technology in theLoss Prevention Framework

What about the financial savings Toth achieved by renegotiating supplier contracts and tightening spending processes? “We reduced loss prevention and security spending by 50 percent without cutting services,” he says. “I knew we had a huge challenge a head of us to upgrade our existing technologies,and these savings allowed us to get started without waiting for budgetary approval. For example, we were having a big problem with defeated sensors because we were using an old sensor technology. Tools to break the sensors  were readily available. Without a new technology, our entire LP frame work was vulnerable.”

GUESS? was growing fast. Young, hip store managers and merchandise personnel tuned-in to the hot fashion scene were coming on board. Unfortunately, loss prevention was not part of their mindset and was at the bottom of their to-do list.

Toth and his team went into the sensor market place to investigate alternative solutions to the old technology. After much consideration,the team selected a young and innovative EAS and CCTV company based in North Hollywood, California. “Their product line has a unique design and much larger footprint than the tags we were using.We met some initial resistance from the store managers, but that changed when they saw the new tags were much more difficult to remove. Plus, they also turned out to be significantly cheaper,”Toth says.

In late 2001, we conducted a five-store trial during the Christmas shopping season. The results were…and still are…eye catching. Defeated sensor losses dropped dramatically in stores using the tags. Today, almost three-quarters of GUESS? stores have standardized with this equipment, and GUESS? shrink has declined each successive six-month period since.

What to Attack? Where to Go?Data-Driven Loss Prevention

Joe Toth will tell you that even though the saying, “If you can’t measure it, you can’t manage it” has been around a long time, it nevertheless is a powerful and relevant proposition. As GUESS? has steadily expanded throughout North

America through the opening of new stores and acquisition of licensee-owned stores, the challenge of managing GUESS?’s shrink number down ward has intensified.

“As shrink gets lower, there’s less room for error,” says Toth. “Once you eliminate the big cases and put effective defenses in place…all the obvious things…much more detailed approaches and lots of analysis are required.”

Loss prevention at GUESS? is conspicuously data-driven. Toth conducts quarterly LP team strategy summits at which his team looks at progress made on annual loss prevention, security, and safety goals.Setting more specific objectives for the upcoming quarter requires detailed analysis of each store in each region,looking for emerging problem trend lines. These team summits are also invaluable for team-building and comparing situations and solutions

One approach GUESS? regional sales directors and Toth’s team developed is their “Touch Base” process. “These two groups have to be strong partners to be successful, so we invest a lot in these relationships.” Toth explains that the two groups are required to touch base weekly and schedule additional face timeeach month. They also travel together quarterly and must coordinate their schedules to ensure problem stores are addressed with a unified agenda. Each month, they prepare two lists of problematic stores. One list includes stores whose sales are off plan or that have higher-than-expected turnover. The other lists stores with higher than planned shrink. They pay special attention to stores that overlap—and plan special visits. Toth says this process keeps the two departments on the same page, strengthens their relationship, and applies the expertise and perspective of each party to identify high-risk situations before they get out-of-hand.

One approach GUESS? regional sales directors and Toth’s team developed is their “Touch Base” process. “These two groups have to be strong partners to be successful, so we invest a lot in these relationships.” Toth explains that the two groups are required to touch base weekly and schedule additional face time each month. They also travel together quarterly and must coordinate their schedules to ensure problem stores are addressed with a unified agenda. Each month, they prepare two lists of problematic stores. One list includes stores whose sales are off plan or that have higher-than-expected turnover. The other lists stores with higher than planned shrink. They pay special attention to stores that over lap—and plan special visits. Toth says this process keeps the two departments on the same page, strengthens their relationship, and applies the expertise and perspective of each party to identify high-risk situations before they get out-of-hand.

GUESS? has also invested in exception-based point-of-service data analytics. Using software from Cleveland based Datavantage, Toth and his team set transaction exception parameters.Problematic transactions are logged and automatic alerts are sent to all levels of field management.

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“We’ve tiered our alert system so that high exceptions trigger an instant warning and response, while sporadic problematic transactions get looked at on a more systematic basis,” Toth explains. A full-time data analyst develops trend lines for each store and region and those become the basis for proactive measures—from additional employee training to investigations.

Global, Connected, Collaborative

GUESS?  today is a publicly-owned company whose shares trade on the New York Stock Exchange. However, visiting any GUESS? store in the United States or Canada confirms that GUESS?’s design soul and over all “attitude” is continental… or, more accurately,inter continental.

Toth makes an interesting observation. “The retail industry has been changing for decades…especially in going global with product design and merchandising…with everybody borrowing ideas from everybody else.Loss prevention, especially in the United States, has pretty much kept ago-it-alone mentality. Everybody has guarded their own approaches and especially their data. That’s now starting to change…finally

To the point, Toth and GUESS? are active in the Retail Industry Leaders Association (formerly IMRA) and in the specialty group of the National Retail Federation. They participate in research and bench marking projects related to identifying best practices and tracking important industry trends.

Breaking the Code

Loss prevention’s success at GUESS? is all about delivering a quality program with considerable inter personal and political finesse. It’s about the internal selling of good ideas to good operations professionals who “don’t know what they don’t know” about loss prevention.Aligning the loss prevention effort along business lines and talking about it in business terms eliminates the barriers and old mindsets. So it’s probably a given that each year’s aggressive shrinkr eduction goal is explained in terms of what impact it would have on the bottom line of each of the 271 stores in the GUESS? world.

MICHAEL STUGRIN is a business writer and consultant based in Long Beach, CA, and can be reached atmstugrin@earthlink.net.JOE TOTH, an 18-year loss prevention professional, is based in New York City, and can be reachedat josetoth@guess.com.

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