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Loss Prevention Strategies Built from a Different Mold

The Sport Chalet experience is focused on “premier sporting goods and expert advice.” There are some distinct anti-shrink and fraud-prevention features built into the Sport Chalet experience. That’s not to say that shoplifters cannot be a scourge to this upscale sports supplies retailer, but nonetheless, even the most experienced and determined shoplifters face some roadblocks to success.

The first loss prevention strategy that stands out is the abundance of “tender loving care” showered on shoppers. There are no long, cluttered aisles to search in solitude and no clerks who seem to play hide-and-seek with you if you want to ask a question. At a Sport Chalet store, one has no sooner found the golf department and started to survey some of the 45 varieties of golf balls available than a cheerful young fellow is starting up an educational conversation about the relative merits of a TaylorMade TP Black and a Titleist Pro NXT golf ball.

That same experience is found in other departments in a typical 42,000-square-foot Sport Chalet store—from camping and hiking to hockey and fishing to sneakers and Speedos. Look more closely at a Sport Chalet clerk and you will likely spot his or her “Pro Pin,” an in-house badge of honor signifying the clerk has been through specialized training to become a certified “expert” in a particular sport and the Sport Chalet line of merchandise for that sport.

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A second, perhaps less noticeable, aspect of a Sport Chalet shopping experience is the vigilance of the cashiers. Rather than being on “automatic” at what can at times be a mundane job, Sport Chalet cashiers tend to be entirely affable, yet intently alert, thorough, and careful. Not surprisingly, they have been trained to spot ticket tampering and switching and are indoctrinated in the belief they are a key deterrent in their company’s fight against shrink and fraud. As they look to verify that the product ticket being scanned actually matches the item being purchased, they send the implied message, “There will be no ticket switches on my shift.”

And speaking of merchandise tickets—and tagging—Sport Chalet says it is determined in achieving the best possible results from its extensive electronic article surveillance (EAS) system. Sport Chalet’s Vendor Source Tagging Handbook: A Company Initiative to Reduce Losses and Increase Profits provides specifications for how it wants its vendors to tag their products. The company says it is constantly working with its EAS vendor and suppliers to design, redesign, and even reinvent tags that produce the results it expects. An example of this determination is the big-box-style “box guard” tag it now uses for some of its most frequently shoplifted merchandise.

Norbert’s Chalet

Determination, unconventionality, and focus on the customer experience are built into Sport Chalet’s DNA, which shows in its loss prevention strategies and security approaches.

Even in 1959, the specialty sporting goods industry was getting crowded and fiercely competitive. But as America was discovering the discounts and choices offered by mass retail outlets, that did not stop Norbert Olberz and his wife, Irene, from buying a small ski and tennis shop in the town of La Cañada, California, about 15 miles north of Los Angeles and 100 miles from the ski resorts of the San Bernardino Mountains.

The business held its own. During the first year, Norbert and Irene slept in the back of the shop. But what slowly evolved was a unique formula for winning and keeping customers in a cutthroat market.

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Norbert learned firsthand that customers had a lot of questions about the sports in which they were interested and the equipment they needed. A few customers even asked if they could “borrow” some ski equipment over weekends to try out skiing. Norbert agreed. The customers returned the equipment and many then purchased their skis at Sport Chalet. There was also a fast-growing demand for a convenient service to size and repair various sports equipment. So the formula of providing top-of-the-line equipment, repairs and service, and sports knowledge started to evolve.

As the company’s official history describes, one day a customer ventured into the store and asked about the new sport of SCUBA. In short order, Sport Chalet became one of the first sporting goods stores to sell SCUBA equipment, even though the store was an hour’s drive from the Pacific Ocean. Not long after, Sport Chalet was also selling equipment for the then-obscure sports of rock climbing and backpacking—equipment which was at the time only available in catalogues.

The Sport Chalet formula, though imitated broadly, is still distinct and has driven its growth and strong regional brand name. Today the chain is a public company (Nasdaq: SPCHA and SPCHB), has almost $350 million in annual sales, 51 stores throughout California and in Arizona, Nevada, and Utah, and stocks over 300,000 items supplied by over 1,000 vendors.

The stores offer extensive equipment and clothing for dozens of sports and exercise activities, each in distinct mini-boutiques within the stores. Sport Chalet also offers equipment repair, classes, and organized outings for such activities as backpacking, canyoneering, and kayaking. There is also custom golf club fitting and repair; snowboard and ski rental and repair; SCUBA training and certification (about thirty stores have swimming pools on site) and SCUBA boat charters; racquet stringing; bicycle tune-up and repair; and helpful guides to yoga, Pilates, and toning.

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In addition to abundant sales staff, at the Sport Chalet stores sports enthusiasts can spend quality time with repair people and instructors, which for sports enthusiasts from beginners to advanced is especially valued.

The company’s “Certified Pro” program encourages employees to attend product-line-specific clinics for hands-on training to improve technical product and service expertise. Only after completing all of the clinics and training, in addition to passing specific testing, is an associate considered a Certified Pro. Certified Pro certification is offered in 20 different service disciplines and is a requirement for new associates in their areas of expertise.

Sport Chalet says its prices are competitive, but that its long-term success and opportunities for growth have everything to do with the consistency of the knowledge-based and service-based customer experience it provides. Norbert Olberz’s original core values for his Sport Chalet still seem to set the tone and approach of the business:

• To see things through the eyes of the customer,
• To create ease of shopping,
• To do a thousand things a little bit better,
• To not be the biggest, but the best, and
• To be the image of a sportsman.

Loss Prevention Strategies: The Sport Chalet Way

As the company opens new stores, as well as renovates and tests new merchandising strategies in existing stores, the obvious question is: in what ways are Sport Chalet’s approach to loss prevention distinct?

“First and foremost, we are a flat organization. We run our department without a vice president or director,” said a former regional loss prevention manager. “We all report directly to the chief financial officer.”

There is a back story here, and it seems disarmingly simple. Until 2005 or so, Sport Chalet had a conventional loss prevention and safety structure headed by an LP director who reported to a senior vice president of risk management. When the LP director left, and then the risk management executive, Sport Chalet management decided to embrace the newly flattened existing organization. “When we were told that our director would not be replaced, we knew we had to work together collectively, respect each other’s strengths, and divide responsibilities,” explained Monica Trevino, corporate LP manager.

Unconventional, yes. A permanent arrangement, maybe. However, the team believes it is on the right course with its loss prevention strategies.

As a former regional LP manager pointed out, “LP at Sport Chalet is relatively new. Shortly after we became a public company in 1992, Ken Olsen, former CEO of Vons Grocery stores and a member of the company’s relatively new board of directors, demanded that an asset protection program be implemented. Our organization and program have been evolving ever since as the company has grown.”

On a rotating basis, one of the LP managers meets weekly with Sport Chalet’s CFO. They pool their notes prior to the meeting and share the feedback and discussion after the meeting. That feedback usually triggers an email to the LP field organization. “Coming out of a large retail company, the experience here at Sport Chalet is refreshing,” said Trevino. “At a larger company, you would generally see the CEO and CFO occasionally, just in passing. Here, we are all work closely with the company leadership.”

Building “Habitual Vigilance”

Sport Chalet points out that its overall employee turnover is well below that of other retailers, particularly that of the big-box and mega-mall stores. The company frequently hires Generation Y employees, who are often college graduates and dedicated sports enthusiasts. Sports Chalet benefits from their energy, and those employees enjoy the company’s environment and culture.

Just as Sport Chalet associates are encouraged to become certified experts in one or more sports, they are also encouraged (really, required, is more accurate) to learn about loss prevention and fraud. “The more informed associates are, the more effective they are,” said Trevino. As part of new-hire orientation, the LP managers conduct classes on loss prevention strategies and fraud, which are then reinforced and updated through periodic refresher sessions. New employees must pass a certification test that includes LP-related topics. And if they fail it, they must repeat the course.

For senior store managers, department heads, and cashiers, there is a fraud prevention clinic, which includes a frequently updated curriculum that reflects changes in credit and gift card fraud, identity theft, and point-of-sale merchandise theft tactics. In addition to classroom time, new cashiers do tours of duty in at least three high-shrink departments, where they learn about ticket switches, tag manipulation, and shoplifting techniques.

“We realized that our cashiers are our last line of defense against store loss and fraud,” said a former regional LP manager. “We certainly work hard to deter shoplifters from stealing individual items of clothing and equipment. However, our strongest focus is on stopping someone from charging $500 worth of merchandise using someone else’s identity. Fraudulent transactions involve costs for processing, investigating, and prosecuting these crimes.”

Sport Chalet’s fraud-prevention program is managed in partnership with the company’s human resources department, which coordinates training dates and locations. In 2008, there were typically five clinics per month with an average of 30 employees attending. Groups of stores participate based upon the geographic proximity of the hosting store. All cashiers, senior managers, and department heads must attend the class annually and the HR department monitors participation. New cashiers must take and pass a certification quiz before being given full authority over use of the cash registers.

The Sport Chalet approach to loss prevention strategy is designed to be simple and to promote “habitual vigilance” against check-out fraud. “Our ‘policing’ is not allowed to distract from customer focus or the customers’ experience,” said Trevino. “All of our associates at every level understand the role and importance of LP, including the fact that LP is everyone’s concern, not just the LP agent’s responsibility.”

Batter Up—If You Dare

With its array of the hottest sports equipment and clothing brands, Sport Chalet knows it is a choice target of serious shoplifters as well as organized crime gangs who know how to steal and resell high-demand merchandise. Sport Chalet says its internal systems track in great detail what it is losing, and that the LP team is striking back.

In 2008, Sport Chalet’s number-one most frequently stolen product was…baseball bats. The chain sells over 400 styles of bats, under all the major brands, at prices ranging from about $500 each at the high end to under $30 apiece, with the average price at about $300.

Years ago, in 2004, baseball bats alone had caused a $600,000 loss problem at the same time that the sales of bats were not that great, even though they were in great demand by thieves. Sales executives and LP worked together to tackle the issue head on. On the sales side, they came to the conclusion that they needed to do a better job merchandising the baseball bats and improving inventory availability.

The LP response was to work with the company’s tag manufacturer to replace the standard sensor tag, which was easily defeated. However, the initial revised tags were still too easily defeated and Sport Chalet went back to the tag manufacturer yet again. The solution that worked turned out to be huge, ugly tag that might seem more appropriate on expensive electronic items.

As of today, baseball bat sales are up and baseball bat theft is down. In fact, working with outside investigators and law enforcement, the LP team helped “take down” two crime gangs involved with baseball bat and other name-brand equipment and clothing thefts.

A Passion for Technology

In its formal filings with the Securities and Exchange Commission, Sport Chalet says that historically, it has used a “best-of-breed” approach to information systems. This includes an inventory system that connects all of the stores with the company’s 326,000-square-foot central distribution center in Ontario, California. The system tracks purchasing, sales, and inventory transfers down to SKU level and allows it to manage individual SKU activity by location and project sales trends and stock replenishment needs.

Sport Chalet’s LP team says it takes a partnership approach with the company’s IT department, its various LP electronics suppliers, and store management. “When we redesigned our EAS merchandise protection standards, we sent the plan out to the stores for feedback. At the end of the review process, we had a unified plan for moving forward,” said a former regional LP manager.

The company also maintains a POS testing laboratory at its headquarters in La Cañada, where it tests new POS and anti-fraud technologies, such as biometric cash register access, and new software upgrades. The company uses an outside security systems integrator and a systems monitoring service, both with national service capabilities.

Loss Prevention Strategy Built from a Different Mold

Sport Chalet’s marketing mantra—“premier sporting goods and expert advice”—derives from founder Norbert Olberz’s original vision and values almost 50 years ago at the first Sport Chalet store in La Cañada. That formula seems to be the driver of the company’s business model as well as its culture of combining customer service with deep knowledge of the products and services it sells.

This business model and culture has enabled Sport Chalet’s LP team to move forward, without a conventional organizational structure, to build-in anti-shrink and fraud-prevention processes and approaches that are both effective and enhance the Sport Chalet customer and employee experience.

Seven Points of Reduced Fraud

The Sport Chalet’s LP team points out that its loss prevention strategies and fraud prevention program are succeeding. In 2008, Sport Chalet’s losses from fraud were reportedly 90 percent lower than the average indicated in that year’s National Retail Security Survey. As with other retailers, a Sport Chalet store’s and its management’s success is in part measured by its performance in loss prevention as well as safety. Store LP agents also participate in the stores bonus program.

The Sport Chalet LP team follows a concise list of attributes that it believes characterizes effective fraud prevention programs:

• Understand that the geographic location of your stores and the size of your company are critical in the design of your fraud-prevention program.
• Everyone, from top executives to the hourly associates, should buy into the program, and the execution of the program should be deliberate and consistent.
• Maintain constant communication with your banks and credit card processors. They are on the forefront of noticing changes in fraud trends.
• Create well-defined, measurable standard operating procedures and make them the bible of your loss prevention strategy program.
• Incorporate questions into your store audit program that will measure the short- and long-term effectiveness of your fraud-prevention clinics, and survey store associates for their feedback.
• Reward associates for the positive results of the program and share the good news with everyone.
• Measure your financial losses before and after the deployment of your fraud-prevention program.

This article was originally published in 2008 and was updated February 24, 2016. 

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