LP Transformation at Limited Brands

LP Transformation at Limited Brands

LP Magazine recently had the opportunity to talk with three senior leaders of Limited Brands, one of the nations most prominent retailers with 3,800 stores, almost $10 billion annual sales, and over 100,000 employees. Limited Brands is well-known throughout the loss prevention industry as having dramatically transformed its LP program into one of the most successful in the retail world.

We spoke with Leonard Schlesinger, vice chairman and COO; Mark Giresi, executive vice president for retail operations; and Paul Jones, chief security officer and senior vice president of loss prevention. We also attended their national loss prevention conference where the LP field team interacted with corporate executives.

These extensive conversations depict a strong alignment of philosophy and commitment to continuous organizational improvement. It seems clear that Limited Brands top management has a clear understanding about the role LP can and should play in todays successful retail enterprise. Given this unified vision, it is not a surprise that Limited Brands in the past three years has dramatically reduced its shrinkage and strengthened LPs role in the companys operational management.

Leonard Schlesinger is vice chairman and chief operating officer at Limited Brands, as well as group president for beauty and personal care. He joined Limited in 1999 as executive vice president of organization, leadership, and human resources.

Prior to his appointment, he served as senior vice president, counselor to the president, and professor of sociology and public policy at Brown University. Until October 1998 he was the George F. Baker, Jr. professor of business administration at the Harvard Business School. Schlesinger has an MBA degree from Columbia University and a doctorate in organizational behavior from Harvard Business School. His writings on organizational management have been widely published. He is the author or coauthor of nine books, including The Value Profit Chain (Free Press 2003), The Service Profit Chain (Free Press, 1997), and The Real Heroes of Businessand Not a CEO Among Them (Doubleday Currency, 1994).

EDITOR: Significant changes were made in the LP organization direction three years ago. Presuming the results speak for themselves, what challenges had to be overcome or still exist in the change process?

SCHLESINGER: The nice thing about retail organizations is that if they can align themselves around agreeing about what their objectives are and what results should be measured, at the end of the day the results speak for themselves. Sales are what they are. Shrink is what it is. The ability to be able to demonstrate positive outcomes has an enormous impact on peoples resistance to change.

The reality of it is, as we discussed several years ago, we as a company really had almost antique views of loss prevention the function, and loss prevention the activity. We had our resources in the wrong arena. We were spending a fair amount of money; we just werent spending it on things that really mattered in terms of the relationship to outcomes and results. So a large part of the analysis that Paul [Jones] and his leadership team initially went through was to highlight the fact that, yes, we were spending alot of money; and, no, we werent spending it in the right places.

A related issue was that the loss prevention function operated in its own silo, disconnected from other functions and activities. Philosophically, pragmatically, and organizationally, the loss prevention team articulated the logic that there is no way that we could ever hire enough loss prevention people and have enough loss prevention resources inside of the organization unless were partnering with large populations of other Limited Brands people who actually believe loss prevention is part of their job. For Paul, in essence, the loss prevention team needed to relate to the stores in strikingly different ways than before.

The thing that was most noticeable early on in the process was that the folks in the stores organization were so appreciative of the support, the teaching, the coaching to an extent that wildly exceeded anybodys expectations. They, in fact, knew they werent getting it, they knew they needed it, and they deeply appreciated the ability of the function to pull that off. So, we have two fundamental dimensions that improve our ability to manage the change process. First, the primary client system, meaning our field organization, embraced the new LP initiative almost instantaneously, right down to the sales associate level. Second, we were finding ourselves driving results much faster than anybody expected in terms of the process. That doesnt mean there werent bumps, hiccups, and burps all the way through the process. Weve had all of those things, but at the end of the day our people accepted the general logic that theres a level of credibility in the LP function and its LP leadership. This credibility does not allow anybody else in the organization to assume they have a more profound understanding of loss prevention and shrink than our LP leadership. This has helped enormously.

EDITOR: What are the loss prevention wins of the last three years and areas that you havent won yet?

SCHLESINGER: First, the aggregate reduction in shrink to a level that is below that which Les Wexner [Limited Brands chairman and CEO] said was achievable by any retail organization, in and of itself, is a testimonial to what weve done. When Paul was training and on-boarding, we had significant conversations where Les said, In my forty years, I believe if your shrink is below x, your numbers are x. Were significantly below x, and nobody believes the number.

Second, our ability to introduce a broader, more diverse employee base into the loss prevention organization serves as an example to the rest of the company. Not only did we manage a process of shifting strategy, organizational change, and leadership transition, we actually created a function that is an exemplar to the rest of the organization in terms of being able to live up to the promise of having a broad, diverse, and extraordinarily talented workforce.

If someone told me three years ago, that we would regularly be pointing to the loss prevention function as the place to think about for workforce development, promotional opportunities, developmental opportunities, and as the place that probably does the most sophisticated job of inclusion and diversity management, I would not have believed them. This is clearly a byproduct that came from the change process.

Third, the notion we would have an organized crime taskforce was just not in the domain of comprehension. At that time LP managed the desk, managed the building, drove around and gave tickets, and interviewed people when they stole stuff. Thats an exaggeration, but only a minor one. The reality today is that we have capabilities built into the LP organization that most of the people in this business just simply cannot comprehend as being either required or capable of being executed inside retail business. Increasingly, as you look at issues of identity fraud, the continuing evolution of electronic commerce, auction markets, inability to be able to rely exclusively on legal strategies for dealing with counterfeitersthe reality is all of those things lead to a significant expansion of loss preventions scope and scale of activities.

EDITOR: Were there or are there areas that are still challenges?

SCHLESINGER: Oh sure. One issue is continuing to manage the evolution of learning in the field. We deal with the inevitable issues of overload, training agendas, turnover, and all of the other people issues that never go away.

The second issue is continuing to build into your loss prevention program levels of sophistication, particularly around issues of technology, which are inextricably tied to a lot of the loss prevention issues that are surfacing today.

The third issue is that loss prevention in any organization can experience the same fragmentation that you can find in any urban police force in which the citizenry starts imposing demands and expectations upon the police, such as having them playing basketball at the youth center, standing on the corner, visiting the school, and they end up with no time to deal with crime. If you look at the learnings that has come out of major urban police departments, which have gone through their own change processes, it is about realigning those departments around their core mission, keeping score in terms of outcomes, and then holding people accountable. So, one of the things I appreciate about Limited Brands LP function today is that were very clear about how we keep score. Those scorecards come out regularly and routinely. We know exactly what those key dimensions are and nobody gets let off at all. The issue becomes continuing to manage the definition of that agenda over time so that it evolves with the changing nature of the business and what were trying to do.

EDITOR: If you were going to write a white paper on this transformation and want others to read and learn from it, what would you tell the reader to think about doing and those things to be very cautious about?

SCHLESINGER: One, in organizations as large and complex as a multi-site retail organization, it is naive to assume you can drive it totally from the top. Building enough understanding, education, and discussion to get alignment around key principles and then to let people execute against those principles is a big part of the job.

Second, and to some extent Limited Brands recent experience in LP is the aberration rather than the rule, everything takes longer than you think it should. Ive discovered in my own life here that it is very easy to underestimate the time it takes to get anything done in terms of the conversations you have to have, the alignment you need to build, the breadth you need to be able to get around to execute on a broad scale. Ive long since stopped deluding myself into thinking that I can mandate anything and expect its going to get done. At the same time, you cant get the organization so bogged down in the process of discussion, that it loses sight of the fact that theres an objective and a purpose that it needs to get organized around and some outcomes that it needs to get measured around. After all, the world is changing, people are buying, and stores are getting ripped off every day while were discussing how to do this. Sometimes you just have to get on with it.

Third, the most basic issue around human resources that people are uncomfortable with is that sometimes the only way to change a manager is to change a manager. Im trained as a psychologist. I have a reasonably unbiased optimism about human potential. However, sometimes youve just got to be willing to fish or cut bait on these issues when there is a greater good that you need to be managing against.

Fourth, if at the end of the day you cant look in the mirror and believe you have behaved consistently with your own values and with the values you espouse as an organizational leader, then everybody else will walk away from you. You cannot lose sight that large numbers of people in large, complex organizations are waiting to see inconsistencies in your behavior. When they see those inconsistencies on a routine basis, it makes them write the leadership off, and it makes it that much more difficult to execute on any broad scale.

Mark Giresi is executive vice president of retail operations. He joined Limited Brands in February 2000 as the vice president of store operations. He holds a bachelor of sciencein accounting from Villanova University and a law degree from Seton Hall University. Prior to joining Limited Brands he spent almost sixteen years in various roles at Burger King Corporation, including senior vice president, worldwide general counsel and SVP for franchise operations and development in the U.S.

EDITOR: As a primary partner in the process of transforming LP at Limited Brands, what role did your operations areas play with the new LP team over the past three years?

GIRESI: We did an extensive amount of analysis on LP and shrink in our enterprise, even prior to Paul and his leadership team joining us. We had a lot of room for improvement, to say the least, both structurally and operationally, in terms of ensuring safety, preventing losses, and creating an environment of trust. The former LP team had been here a long time and had a preset thinking about LPand our shrink numbers were among the highest in the industry. In September 2001, it was agreed we needed a new LP strategy and structure in order to take the program to a very different place. Our environment had changed in that we were not just talking about individual shoplifters anymore.

My view was that the first step was to get someone in here who knew about leadership and who could lead us to where we needed to be. I had a strong point of view about how theLP/safety services team should interact as a support service, not just as a policing arm. We undertook to find the very best person for this leadership role. We hired Dr. Richard Hollinger at the University of Florida to help us in our thinking generally about where we should be going, and he and I were in complete alignment. We also retained a recruiting firm to identify the best LP practitioners in the retail industry. We found some really talented people and went through a rigorous interview and evaluation process. Ultimately, for all the right reasons, we asked Paul to join the company.

Very quickly, Paul began building our new strategy. There is no substitute for experience, because you learn a lot of lessons about what works and what doesnt work. One of Pauls immediate great contributions was to introduce a culture of honesty into our LP organization. He also recognized the LP team had to establish strong relationships with the field in order to build that culture of honesty. The field had to trust that LP would not be a pure policing arm that was judged on the basis of investigations and arrests, but be judged instead on the basis of contributing to overall business improvement. Paul also immediately understood that the field people who were charged with the day-to-day responsibility to manage their losses would need tools, an operating process, and support necessary to do their jobs.

When I arrived at Limited Brands in 2000, we didnt have foundational operating practices for store operations, including LP. Every brand was decentralized and every brand did what they did on their own. They did the best they could based on what they knew and the experience of the people. We had no enterprise-based thinking, strategy, or support to address customer-related issues. To me, LP is a critical component of the foundational operating environment that we had to build. The original work Paul and his initial team did was to ask how people were spending their time. Did they spend their time in the stores? Educating the store staffs? Spending their time in an office watching a distribution center was probably not the best use of time to address the opportunities to reduce shrink and improve customer experiences in our stores. So, Paul had to build LP ground up. We also agreed that this had to be a diverse team, because our customer base is diverse. Our associate base is diverse. We needed to communicate in our actions, not just our words, about inclusion and diversity.

The team developed a strategy and operating standards, which wed never had before; job standards and clear competency requirements for different roles within the organization. And very critical to making the new strategy work was to shift dollars we were investing to activities that could impact losses. This required us to influence leaders in the enterprise who had preset ideas about what loss prevention people do or do not do. We started to talk about setting standards, such as how low we wanted shrink to be. Somepeople thought that would never be possible.

So Paul was the architect, and I was there to be supportive and provide my own feedback about how we could get alignment and buy-in. We had to get alignment around the strategy because it was going to be a significant behavior change for the leadership in the organization to understand where LP was going.

EDITOR: When you came to Limited Brands as vice president of store operations, did you centralize functions? Did that centralization precede LP centralization or was it a byproduct?

GIRESI: Loss prevention was really the first shot at the centralization of an entire function within the stores world. Subsequently, we centralized other functions on the execution side. LP was really the first significant one.

EDITOR: Your role as an executive and the world that you manage is different today from three years ago when this whole loss prevention transformation started. How did it change?

GIRESI: Early on, we needed to ensure that we had the right resources in the right places. In order to do that, plus ensure that the LP function was positioned correctly, we decided it was the right thing to do to have Paul report to Len. We wanted to make a statement to the organization that this was important. Paul and I worked together and we supported each other. I tried to make sure that LP was not secondary, but was a major part of how we acted and thought. LP was incorporated into peoples reviews, business strategies, planning, and resource allocation. In my role as chief stores operator, I believed LP was an important part of our fundamental operating system. Its called the Limited Brands Operating System (LBOS), and its a set of standards, operating practices, tools, and performance management systems. It includes some technology, but technology is not the systemits the behavioral components associated with it. At this time, I now have accountability for stores, loss prevention, real estate, store design and construction, and visual merchandising across all of our retail brands. In essence, all of the functions aligned to giving our customers outstanding experiences in our stores.

GIRESI: The partnership between you and Paul is pretty clear as is the partnership between the worlds of operations and LP. Partnering is sometimes an overused word, but give me some examples of the successes that have occurred at Limited Brands that have allowed the LP team and its internal partners to achieve desired results.

GIRESI: One is with talent. Weve seen individuals in the stores organization move into LP. Without a good partnership, and without people understanding how that move is going to benefit their career, that would have never happened. In the past, if someone had great sales results they were lauded as a great stores person, and we never looked deeper. But our job is not just driving top line sales; its also driving profitability, which is what LP is all about.

EDITOR: Where are you on a scale of one to ten in changing the opinions and thoughts of the field about LP? One being LP is perceived as the cop mentality, ten being LP is a business within a business and run by business executives.

GIRESI: Our goal is to move away from the old model based on historical standards and operating principles. If we were a one or a two before, were probably an eight or nine now. We have really good alignment. The stores folks absolutely believe, and will tell me on a store trip, My regional LP manager is terrific. Theyre actually in my business. They know how I do my job, and theyre very supportive.

We have also worked hard to align LP goals with stores goals. LP bonuses are structured so our LP people are not only accountable for supporting the districts, but also benefitfinancially from the districts success. I just believe you have to align the reward system with the business performance that youre trying to get.

EDITOR: As your stores operations teams and the LP teams look ahead, what are the next challenges and objectives?

GIRESI: As I indicated, Im now directly responsible for those support areas that directly touch the customer, from real estate to store design and construction, to how we runthe stores, LP support to the stores, maintenance of the stores, remodeling everything that hopefully touches in a positive way the customer experience.

One big challenge is to support the folks who are serving customers. Its almost a classic upside down pyramidcustomers at the top and were at the bottom. Our job is to support the stores. Figuring out how to integrate that team more seamlessly will enable us to more effectively develop and scale new concepts and improve our existing concepts. So when we have conversations about new concepts that were developing, an LP person is in the room. We would have never done that in the past. Never. Thats a piece of it.

The second challenge is competitiveness. We have to constantly stay ahead of our competition in order to retain the best talent. Thats a big challenge for us.

The third challenge is, with the advent of more and more so-called professional theft rings and organized retail crime, our stores and their LP partners face a lot of pressure. Having an organized retail crime team, supporting governmental bodies, and protecting our people and our assets are important. Having the right technology tools to support the protection of our people and our assets is a part of it. Educating our stores teams to handle things in the right way will cause those thieves hopefully to leave us alone. But theres no one thing thats going to win that battle. However, weve seen outstanding results from our organized retail crime team. It has produced very hard, bottom-line financial results. Very tangible. You can see it.

Paul Jones is senior vice president of loss prevention and chief security officer. He has over twenty-three years experience as a LP professional holding senior positions at Sunglass Hut International, Luxottica Retail, Federated Department Stores, and Target Corporation. Jones is a frequent speaker at national conferences as well as member of the Retail Industry Leaders Associations LP steering committee, National Retail Federations LP advisory board, and president of LossPrevention magazines editorial board.

EDITOR: Speak to us globally about your teamits make up, drive, skill level, et cetera.

JONES: A team is truly what we have. It is composed of highly motivated people with various backgrounds and thinking. They share a few simple qualities they want to win; they want to be leaders who serve their customers; their goals are aligned with the goals of their customers; and they are expected to audit, train, and investigate in a manner that is consistent with being a total business partner. Our LP team understands that a part of their performance review is a 360-degree feedback score from their customer, which ensures that what we do is done in a manner consistent with total partnership.
From the greenest to the most tenured, our LP team members are passionate and fully understand what is expected. Their pride plus passion plus energy plus skills plus fun equals great results. Within a short time, we have produced results that could be viewed best in class.

EDITOR: What have been your proudest moments since you joined Limited Brands?

JONES: I have heard from many of my mentors, Dr. Hollinger, and many of my retail partners that our team makes a difference every day. Team members are proud that they have grown into this eclectic, inclusive team filled with passion and a quest for learning, and providing service that produced outstanding financial results over the last three years while spending significantly less than we did before.

We have assumed responsibility for crisis management, as many of my counterparts have, and I could not have asked the team to perform any better in that role. Our response to the Hurricane Katrina crisis was quite amazing. Our cross-functional team came together, followed our valueswhich includes placing our associates firstand good common sense. They spent weeks locating every associate using many different methods, from signs to ads to call trees, and then immediately moved to help them. Depending on what the cross-functional team determined, we housed them, paid them, counseled them if they needed it, and, after locating everyone, we quickly moved towards getting our stores up and running in a quick, safe way, ensuring we did not expose our associates to harm.

I never had to ask permission on what to do or spend. We knew our values and we made decisions quickly. We had LP/safety services, risk management, construction, and maintenance working around the clock making it happen. We also had plenty of volunteers from our stores to staff phones. I also was able to talk almost hourly with some of my peers to see if we might be missing something they were doing.

EDITOR: What do the Limited Brands LP team members expect from their executive team leaders?

JONES: They expect honesty, accessibility, a strategy that makes it easy to understand how all the LP pieces connect with the companys objectives, and a leadership team that has both their interest and the companys interest in mind. They want to be part of a winning team and, hand in hand with that, to understand how to leverage best practices, technology, provide weekly reports on progress, and, most importantly, to know their LP leadership cares.

EDITOR: Whats next?

JONES: Limited Brands has a dynamic business model that emphasizes adding product and building margins that makes it possible to always be thinking about how we can improve as acompany and as a team. This year, our LP team will participate in a program called Leaders Lead, which is designed to help us build bench strength and promote from within. The sessions will range from situational leadership to interviewing mistakes, to dealing with conflict and resolving it to retail judo. The objective is to invest in our teams development to get them ready for the next level.

EDITOR: What roles or tasks are part of the LP function at Limited Brands that may not be found in the LP functions of other retailers?

JONES: Ive talked about crisis management. Were also responsible for threat assessment, which analyzes and handles every threat made against an associate. We handle storesafety. We have a supply-chain security function. Because we manufacture product, this team surveils delivery agents and addresses problems quickly.

We have built an organized retail crime team with a co-leadership model. One of the leaders, who has a JD degree, joined us from the New Jersey Attorney Generals organized crime team. The other leader is also an attorney and was a lieutenant at the NYPD legal affairs bureau.

We have an international security function that monitors geopolitical risk as well as the safety of our 1,000 associates around the world. Any associate who is going to travel receives a briefing on safety, and we have protocols set up to ensure they are safe.

We also manage protests, our world-famous fashion show, and events involving our models around the country. We have an XBR/shrink performance team that ensures we are headed in the correct direction based on data analysis. We also run and support one of the largest and most successful e-commerce businesses in the country, www.victoriasecret.com,which has great product, great business, and a fraud model that delivers low losses.

As the chief security officer, I have a seat at the management table and am part of the executive leadership team. We discuss strategy and performance. It is critical that I understand everything that is happening, so I can see around the corners and have solutions ready.

EDITOR: You have an amazing storygoing from shrink that was probably on the high end to now being at below-industry levels. What explains this success?

JONES: First, I didnt do it. The team did it. And when I say team, I mean the entire 100,000-plus Limited Brands associates who have embraced a culture of honesty. As that happened, you saw monumental change occur because it was the right time in this companys history to fix this problem. This was originally planned by the chief stores officer and a team that included legal, government affairs, HR, stores, logistics, and others. This team, our stores leadership, and the LP team have kept this coalition together for over three years, which is why it worked. It was supported from the top down and the bottom up. We could have had the same LP program and people, but if the company was not ready to go through the tough points, our success would havebeen just marginal.

EDITOR: Why would anybody want a career in loss prevention and why should they consider Limited Brands?

JONES: LP is an exciting business in which you are always learning. The eventual earning potential is also certainly there. I believe we are really in the logic business, deducing possibilities and probabilities based on observations. We are selling merchandise for a profit. LP will continue to change monthly, and, if you thrive on change and enjoy new things, this is a great business to be in.

Why Limited Brands? We have a company reputation that is phenomenal and brands that are some of the strongest in the world. We have senior leaders on our executive committee whowill ensure we are growing the business.

But to be honest with you, we are not for everybody. We have a strong culture of honesty, and our people are inclusive and have diverse thoughts that they feel free to share. People who succeed at Limited Brandsin any functional areaneed to be passionate about serving their customers. They need to want to win and not just want a job. Personally, I would rather hire someone with half the experience, but who has that fire and desire to walk through walls and yet is humble enough to learn, than a seasoned veteran who has lost the passion and is just looking for the next best thing. LP people we hire need to love stores, because our team is part of the overall stores team. We are part of helping every day to drive sales and sell merchandise for a profit. We have high expectations, and I often find our team sets even higher expectations for themselves.

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