Improving Home Improvement Shrinkage

Improving Home Improvement Shrinkage

E D I T O R : Your title is vice president of loss prevention, safety, and hazmat. That entails a lot. Give us an idea of the scope of your responsibilities.

V E R V I L L E : I grew up in the soft-line industry for thirteen years where you deal primarily with shrinkage issues and very few safety issues. When I came to Lowes in 1993, it became clear to all of usthe original eight members of the LP and safety departmentthat we needed to develop the same type of measurement tools for safety that are commonly used in our industry to measure shrink performance. I mean, many of us were for the first time working in a retail environment where we were witnessing power equipment moving throughout the stores, for example. We quickly recognized the importance of escorts and spotters.

E D I T O R : While youre looking at issues from the executive level, what about the opposite end of the spectrum? What are your expectations and objectives for the loss prevention specialist in the store?

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V E R V I L L E : As you know, one of the most important things a fast-growing company like Lowes must have is standardization and program continuity from store to store, district to district, region to region, and division to division. When I walk into a store in Oklahoma tomorrow and San Diego the next day, the program, major objectives, and emphasis that the loss prevention specialist (LPS) manages have got to be identical. So what we did years ago was develop a daily, weekly, monthly,LPS/LPM responsibilities. These are guidelines that assist them, in understanding and executing the established objectives particularly during their first ninety days ith the company. The components are broken down by safety, operational shrink, internal/external controls, and miscellaneous issues.

The major objectives for everybody in the LP department are safety, making your shrink budget, managing expenses, and minimizing our exposure to liability. When I give training sessions, I stress these four major accountabilities. Were given a shrink budget thats been reserved at the corporate level. The company doesnt want any surprises, because theyve announced their forecast for the year based off those numbers. So, its critical that each store make their shrink budget. Safety is the same thing. We want to maintain the safest shopping environment in the home center marketplace. The third thing is controlling our expenses at the store level so that we dont incur or cause the company any deleveraging on expenses. And then the fourth thing is liability. We want to be a company recognized as one that embraces inclusion and fairness, one that doesnt discriminate and stereotype shoplifters or dishonest employees, which as you know has over the years proven to be an unfortunate reality with some existing major retailers.

E D I T O R : Its interesting to hear your list of priorities. If I had asked that question to any number of other retail executives about priorities for their store-level associates, often one of the first things you hear is shoplifter apprehension. What has caused you to transition your expectations of the loss prevention specialist?

V E R V I L L E : Pure survival. I grew up in an environment like a lot of people in this profession, where you are measured by statistics. Statistics dont make the company any money at the end of the day. If you can quantify that it did, then I would put my efforts and resources towards that avenue. But I have quantified that it doesnt. I know people in this industry who have reduced shrink while reducing their apprehension rates. I learned when I first came here that home centers and Lowes in particular was far different than department stores. Your exposure to external theft was not going to be at all similar to what I was dealing with previously. I remember the marching orders from day one was not how many thieves we caught. Itwas, Weve got a shrink budget, a safety goal, expenses to control, and no incurred liability. Thats our challenge.

The primary measurement used today is value. What value is there for the corporation to even have a LP and safety department if you cant quantify the results at the end of the year? Numbers dont lie. Every measurable component is and should be based on whether a program, a department, a process adds valuemeaning profit. Thats the bottom line for CEOs, shareholders, and the investment community. The validation of your programs, positive or negative, will be in the numbers at year end. Are you adding profit to the bottom line?

I can tell you that this last year, weve lost fewer dollars than we lost the previous year, while building 125 new stores. How do you do that? Its certainly not by focusing on external theft apprehensions. We have controls in place certainly, but thats far from being our primary focus.

E D I T O R : How did you sell that concept to executive management?

V E R V I L L E : Let me give you an example. Lowes was one of the last major retailers to install EAS in our stores. Heres the argument I used when I was explaining to our CEO why I wanted EAS. I told him that EAS was not going to be the panacea for Lowes shrink problems. EAS was merely going to allow the LPS in the store to continue focusing on the areasthat make the most difference, which is the operational piece, the internal theft deterrent piece, and safety piece. If we dont put EAS in our stores, were going to be chasing our tails trying to bag people for $50 worth of value, spend three hours writing a police report, and at the end of the day, our shrink is going through the roof because were not on the floor where we can impact behavior.

What I wanted with EAS was the ability to have the stores front-end personnel, head cashiers, manage the external controls piece for us by simply responding to the alarms. With five or six exit points, it would be impossible for one store LPS to be responsible for controlling shoplifting by themselves. I argued that our LPSs didnt have time to deal with shoplifters. Why? Because our stats indicated that we were only averaging $184 per detention. Multiply that times 10,000 apprehensions and we still dont have any payback to even cover the LP salaries versus what were doing on the operational, internal shrink, and safety side.

So, we put in technology that lets me know that the front-end personnel who dont report to me would, in fact, respond to each and every alarm. If I look at last months report, for example, I find a 91 percent response rate within fourteen seconds on all alarms in the company. I dont have to tell you that that compliance number is unheard of. I might also add that we do prosecute an extremely high percent of those apprehensions. We do and will send a message that Lowes is simply not an easy target. Your chances of avoiding detection are much better somewhere else.

E D I T O R : Prior to instituting this EAS management system, what would have been your compliance rate?

V E R V I L L E : Theres no way of knowing because no one ever measured it with use of technology. Retailers for years have always used log books for cashiers to notate causes of alarm, incident summary, et cetera. Like everything else that requires manual labor, it simply does not get executed, at least it didnt in my past life. Now, I have it broken down by door, cause of alarm, failure to deactivate, recovery, run away, false alarm. This way I know that I have taken care of that external theft element in my stores.

E D I T O R : Thats a great success story for source tagging.

V E R V I L L E : It is. I recently presented this statement at a vendor show with all of Lowes suppliers. I said, Im sure over the years youve all wondered if youre getting anything out of the three plus cents that it costs you to put a tag on your product. Im here to tell you that Lowes is the only retailer that can tell you that were getting maximum return because we respond to 90 percent of every alarm that goes off in our stores. When the average Joe is trying to steal at some other retailer, hes not concerned about the alarm, expecting it to be ignored. But if he comes to Lowes, he knows were going to be there and respond to it. So, your money is being well spent. It should be increasing your turns, and you should be seeing increasing revenues as a result of it, because weve got the product on ourshelves like were supposed to have.

Without this measurement tool, I could be sitting here today, scratching my head, wondering if Im not putting enough emphasis on external theft. Well, I dont wonder that. My numbers substantiate it.

E D I T O R : What is your management philosophy regarding internal theft?

V E R V I L L E : The number one reason that employees steal is because theyre convinced that their particular method of fraud or theft is something new or creative, and theyre not going to get caught. We developed a videotape called Making the Right Choice. On the tapeI got a lot of flack for thiswe educate them on every method there is to steal: how to do a void, how to do a refund, how to pass off, how to stash merchandise. We show them every way. But then its followed quickly by showing them all the tools that we use to detect those types of fraud.

E D I T O R : You dont think employees will steal no matter what?

V E R V I L L E : Im convinced that retailers create dishonesty by how they operate their stores. Most people are not coming in with the intention to steal, so how you operate your business is going to influence them.

Through my years of doing investigations, Ive come to the conclusion that if you teach people what you expect of them, you clearly measure and audit them on a regular basis, you recognize and reward positive and negative behavior, and you consistently follow up on these things, theyll do the right thing. So, as a result, whether its deliberate theft that cause losses or apathy or lack of training that causes theft, the employee is the key to your success in loss prevention. Im convinced that to cut shrink youve got to put all your attention on the employee in the store who is going to make or break your result on shrink and safety, customer service, saleseverything thats going to happen in that store. Its because of their attitude, which will dictate their behavior towards shrink and safety controls.

E D I T O R : You clearly have high expectations of your loss prevention and safety people in the field. If I was a loss prevention manager for you in the store, what are the skill sets necessary for me to get promoted in the organization?

V E R V I L L E : Integrity, first and foremost. Leadership is right there behind it. You can teach people technical skills if they want to be taught and have the drive and motivation. What I want are people that are driven, that like to succeed, that want to win, but have integrity to not succeed at any cost. That phrase by Jim Cathcart, People dont care what you know until they know that you care is what leadership is all about. Every successful person has to have a solid team around them. I have people all around me who are much smarter than I ammuch smarter. Its just a little bit of intuition that Ive been blessed with that allows me to know what person belongs on what seat on the bus, to quote Good to Great by Jim Collins, a book that was given to us by our CEO. Its a great book about people and growing a company like Lowes. It uses the analogy of a bus like this. Some women, some men are great leaders, identifying who belongs on the bus. It doesnt matter where the bus is going as long as you trust the leader that the bus is going in the right direction. Whats more critical is putting the right people on the bus, in the right seats, in the right positions, and then determine where youre going. When you do, a lot of people will jump on the bus, no matter where its going, just because ofthe people who are on the bus, because they realize that success in where youre headed.

E D I T O R : Let me talk about loading up your bus. How do you go about attracting young people and if you would talk about the major commitment that you and your organization have had toward college recruitment.

V E R V I L L E : I keep a chart in front of me all of the time with all my area and regional directors in the company by division. I have it broken down by diversity and gender, internal and external hires, so I know the ratios in each division and if the cards are being stacked unevenly in one region or one division. I believe the reason that people come to work for Lowes is that we have a reputation for developing people, of investing in training and people development. The fact is that 53 percent of our 100-plus area managers today were internal promotions. I have three regional directors that started off in store-level LPS positions. Four years later they were a regional director for a Fortune 100 company. I have five or six that were area managers and then became regionals. In all approximately 61 percent of my regional directors were promoted internally. I also strongly believe in being balanced with a good blend of outside recruits that inevitably bring a fresh perspective to your organization. There are dangers of having too much in-breeding so to speak, as much as you want to maintain a tradition and a culture that the fundamentals were built on, all companies must undergo change and the people need to be able to rapidly adapt to changing environments. I fully endorse this kind of balance.

E D I T O R : Tell us about your recruiting efforts.

V E R V I L L E : Our LP department is unique. Our LPSs wear aprons. Their name badges dont even say loss prevention, they say customer service. Theyre exception-report driven. They have to be good in accounting. They have to understand auditing. They have to understand its not a bag-and-tag philosophy here at Lowes. At the end of the year, if a store achieves their safety and shrink goals, there will not be any questions asked of them as to how many apprehensions were made. Were in the loss prevention business, not the loss reaction business.

Because of our philosophy, were not necessarily recruiting from other retailers. Not that other retailers programs are wrong, we just have a different focus here. I came from the culture where all or most measurements used to evaluate performance were based on apprehension results, not store bottom line profits, which safety and shrink directly impact. As a result, we do several college career fairs every year looking for people with accounting backgrounds that will fit in and understand the culture. We also get some people from other retailers, where its a welcome relief for them to know that they dont have to be chasing people through the parking lot to get high evaluations or promotions.

E D I T O R : When you get a talented person from college or another retailer to commit to your department, what commitments do you make to them in return?

V E R V I L L E : Their future and their career is all based on performance nothing else. Its spelled out for them. Theres a roadmap, a significant investment in our training programs, and the infrastructure is our testament to our philosophy. There is a track record for this department that speaks volumes on how performance ismeasured, recognized, and rewarded. I myself am proof of the Lowes model. Most retailers would have interviewed current or former vice presidents when my mentor Bob Oberosler vacated this position. Lowes gave me an opportunity of a lifetime, and, I believe, Ive seized it.

E D I T O R : Tell me about your training program here at Lowes.

V E R V I L L E : Its certainly nothing like when I started my career. My first day I was taken to downtown Los Angeles to work alongside a company veteran, whoshowed me the ropes over a two-day period in the downtown Robinsons store. After two days of catching numerous shoplifters, I was issued a badge. That was it.

E D I T O R : So you dont really follow that here?

V E R V I L L E : The day someones hired, theyre given a four-module protocol. Each module requires two to three days to complete. They must finish all four modules within ninety days of their hire date. Upon completion of the first module, they go online and take a survey that was developed to identify people who have the typical attributes associated with successful associates. The survey protocol includes college, military, other retailers worked for, their responsibilities, what kind of functions they had, if they had prior receiving or accounting experience, if they had to do any reconciliation on inventoriesall types of things. There are so manydifferent functions a person can have in his past that has nothing to do with LP or retail, but can pertain to what theyre going to be doing at Lowes. For example, you couldve worked for a company where you off-loaded trucks, did all the receiving reports and all of the discrepancy research for them. Thats a big piece of our job. Well teach the other stuff.

E D I T O R : Thats for store-level people. What about managers?

V E R V I L L E : When an area manager is hired, theres a format they go through thats contingent on if its an internal promotion. If they are promoted from inside, they are familiar with all of the store-level programs, the computer systems, terminology, et cetera, so their two-week training program is more about management, leadership, people development, time management, that kind of stuff.

When we hire someone from the outside to be an area manager, their two-week program is in the store. They likely will have multi-store experience and will understand management, people development, time management, and the people skills.

Then, theres a buffet of thirteen area manager modules, four of which are mandatory for everyone whether you are an internal or external hire. They include things like how to conduct and complete a store walk through, how to maximize the ROI on all LP technology, how to breakdown a P&L report and understand the impact shrink, safety, and bad debt can have on their stores financial performance. Its also important for an area manager to be able to explain capital investments, depreciation of capital, and simply be knowledgeable on all components that impact a store managers expense lines that are related to LP. For example, an ALPM should be qualified to explain to a store manager that his $65,000 camera system is only costing him $6,500 a year because it depreciates over a ten-year period.

Aside from the four mandatory modules, there are nine optional modules based on what the regional director determines to be that persons weaknesses. We also have something that were currently in the process of developing for the regional directors. It will be a professional development program geared towards continuing their education on the functions of other Lowes support groups, the required indirect interaction with our department areas of education that will make them better business people so they can continue to develop and grow as professional business peoplenot just LP professionals.

E D I T O R : Tell us a little about the educational programs that you have for the store non-LP people. How do you go about touching operations to get them to really deliver the results youre looking for?

V E R V I L L E : We have a piece of all the management training programs, whether its store manager, assistant manager, district manager. They have to understand shrinkage because thats a big driver for the entire corporation.

Probably the biggest thing weve done is develop what we call the Lowes LP Boot Camp. In 1998 we were growing at 100- plus stores per year. That meant we needed four assistant managers per store, a co-manager and manager in each store. Thats 400 assistant managers per year not counting turnover. These were the people who would be driving our programs and managing our stores in the upcoming years. We had to get ahead of the situation so we didnt have an LPS trying to make things happen without enforcement from management. We had to force training on store management store managers first and then the key areas of the store, like the return-to-manufacturer clerk, receiving manager, and the front-end manager. Those three people plus the store manager and our LPS were required to go to these LP boot camps.

The first thing we did in the boot camp was give them a pretest. We also told them that we were going to have a final exam at the end of the day as well, and if they failed, their district manager had agreed that they would go through the process again. The pretest was done for one reason. We wanted to show them how little they understood about the processes and the reports that were currently available in their stores that they werent using. At the first boot camp, all twelve managers scored only 20 percent on the pretest. That got their attention. They all wanted to blame shoplifting for their losses. But we showed them that it wasnt the bad guys stealing. It was their employees that werent trained and didnt care and werent held accountable. We told them, Youre the problem. When we gave them the final exam at the end of the day they scored 85s. They learned something. They felt good about themselves. It was such a success that the store operators supported aproactive approach where we went from just taking the stores or the district where we had previous bad inventory levels to all stores regardless of their shrink history. Fast-forward four yearslater, we still do these boot camps every year, because of attrition, because people forget, our store systems, reports, andtools are constantly changing or being upgraded, all for thegood, I might add.

E D I T O R : That took a major commitment from executive management.

V E R V I L L E : Thats the culture here at Lowes. Senior management is extremely supportive and involved. They understand the importance of proactive approach towards safety and shrink and have totally bought into it. An hourly LPS can only affect the desired employee behavior if management is both knowledgeable and supportive. He or she is powerless if management doesnt have a stake in the game and hasnt been trained. Its a no-brainer.

E D I T O R : What exciting programs do you have on the drawing boards?

V E R V I L L E : Remote CCTV is something that weve been looking at for about three years now. The way that I have been approaching it is to communicate all the various applications to all Lowes departments, while downplaying its use for the stereotypical uses such as remote employee investigations. I recently demonstrated its use to the executive team, showing how the merchandising group can view store planograms and store operations can do store tours from their office. Storeplanning can use it to look at resets and retrofits in their stores. Any technology proposed by LP professionals should serve two primary purposes other than the companies accounting departments standard ROI model. That it increases store productivity while improving efficiencies by simplifying or streamlining an existent or nonexistent process. In this case, the ability to conduct a store tour remotely has endless possibilities, not to mention savings on associated travel expenses..

E D I T O R : Will all of your employees in the store as well as management know that you have the capability of remote monitoring?

V E R V I L L E : Trust me, I will make certain that they are aware of the technology. We in LP do what I call advertising our defenses. You have to in order to positively affect the desired behavior youre striving for. To help them run their business and identify when theyre not running the business properly.

E D I T O R : Is it your belief that the true value from remote monitoring is in shrink reduction or is it in sales, customer service, merchandising, or operations?

V E R V I L L E : Its going to benefit all of those things. I think the greatest value is that its going to modify behavior. Its going to affect behavior which will lead to, I believe, improving customer service levels as well as those other areas.

We also plan to use it for positive reinforcement. Were going to recognize the employees who did things according to policy and were operating safely and properly to reduce shrink and prevent accidents. For example, I was touring one of our test sites in Torrance, California, recently and noticed a greeter doing an outstanding job. So, I called the store manager and told him I wanted him to go up to the front of the store and recognize the greeter. Shes doing a great job of handing out credit card applications and in-store maps, and shes greeting customers that are walking out the wrong door. He asked me who I was. I told him I was the VP of loss prevention. He asked me where I was calling from, and I told him I was in North Carolina. I was doing it to show my divisionals how were going to use this technology to reinforce positive behavior.

E D I T O R : Before we end, I have a few personal questions. Tell me how you balance your life, because a person in your position has extreme pressures on your time.

V E R V I L L E : Im a very simple guy. Most of my free time is with my family. I couldnt tell you my neighbors names. My friends are few, but theyre ones that I really care about. My big deal on Friday night is to go to Chilis and grab a movie with my kids. Im also into sports. Im basically a frustrated jock who took my competitiveness into the business world. Both my daughter and son are into sports. Shes into swimming and soccer. Hes into baseball and basketball. But first and foremost, theyre both straight-A students. They both understand that they wont be as fortunate as Dad, because in todays world education is everything. They understand they have to score well in school before anything else.

E D I T O R : Weve spent a good deal of time talking about some major accomplishments here at Lowes. But let me ask you, is it a greater thrill for you to impact the results of Lowes as you have or to see your son get the game winning hit in a baseball game?

V E R V I L L E : Id say they are both exciting. I live and die on every pitch in his games. Its awesome. I do my best to be at his games, which hasnt always been easy. When youre an untested vice president like I was four years ago, you bust your butt just to make sure youre not going to fail. In spite of the fact that wehave had four consecutive years of making our shrink and safety plans, and this year being a record year so far for the company, I still remind myself daily, that youre only as good as your last day. Having said that, I believe with the continued efforts and emphasis on safety and shrink, along with the culture here at Lowes being what it is, a small town, blue collar, no frills company, that we will continue to be successful for many years to come. I have, however, succumbed to the factthat I need to get a little more balance now. Ill live a little longer, and I think Ill be a better father and husband as well as a better executive.

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