After a long career in loss prevention, including twenty-six years at Best Buy, Paul Stone, CFE, LPC, is now experiencing unparalleled results. Tempted out of semiretirement six months ago, Stone joined Goodwill Industries of Southeastern Wisconsin as its vice president of security. “We have zero shrink,” he said, a smile in his voice. “It is, by far, the lowest I’ve ever had in my career.”
He’s joking. When you’re accepting and selling donated items, it’s impossible to know, really, how much diversion is going on. Traditional inventory tracking doesn’t exist. Valid shrink figures can’t be calculated. But while a standard performance metric may not apply, the importance of successful loss prevention is the same for a nonprofit as it is for any retailer—and perhaps more so. When LP leaders work for a cause-driven organization, revenue protection truly is “mission critical.”
“Whether you’re at a big box store or a place like Goodwill, all of us in LP are trying to do the right things for our companies,” explained Larry Hartman, director of risk management, loss prevention, and safety at Goodwill Industries of Central Florida. “Usually that protection of assets is helping our companies’ sales. In our case, it’s providing the revenue we need to carry out our missions.”
Goodwill is a big operation. It has 161 member organizations, comprises 3,250 North American stores, and has approximately 130,000 employees. It’s the second-largest nonprofit in the US, serves 36 million people annually, and has helped put people to work since 1902. It is both ubiquitous and well regarded; yet, it can be oddly misunderstood.
People typically know that there is charity going on behind the scenes—that good works are the driving force lurking behind its model—but the face of Goodwill is its retail locations. Its thrift store business is at the heart of its public image. So, for many people, there may not be much consideration of Goodwill beyond it being a good place to shop and a convenient way to get rid of clothes that no longer fit for a tax write-off.
Until he got involved with Goodwill, Mike Keenan, CPP, CFI, LPC, said he had a very rudimentary picture of it. “But when you learn about all that they do and how they help people in need, it really blows you away,” said Keenan, who has led LP at Macy’s, Ross, and Gap and is now president of Mike Keenan and Associates, a retail loss prevention consulting company. Goodwill organizations routinely provide job training opportunities and job placement free to disadvantaged individuals. “I found it really fascinating, and I have been moved by the people whose lives I’ve seen changed,” he said.
He was so moved, in fact, that his volunteer commitment to his local chapter has expanded significantly, and since April 2018 he has served as the chairman of the board of Goodwill Industries of the Greater East Bay, which serves Alameda, Contra Costa, and Solano counties in Northern California.
Before his involvement, however, “I mostly thought of it as a donation drop-off place,” said Keenan. “I didn’t know much about the mission or what it did.”
Regardless of geography or size of Goodwill territory, LP leaders we interviewed cited awareness and perception as a primary determinant of LP’s success. Theft depends significantly on the extent to which employees and members of the public equate Goodwill’s mission with its thrift-store items. If that connection doesn’t exist, then the items on store shelves or at donation drop-offs are someone’s unwanted items or junk—and, to many, freebies for the taking.
“Philosophically, when you’ve got donated product coming in, people see it as free. And because of that ‘free’ notion, they are certainly tempted to take it,” explained Keenan. “The ‘free’ attitude permeates everything about inventory loss. When people think it’s free, they don’t treat it as carefully. You can get in nice glassware, and someone will just throw it in a box.”
The “free” attitude toward donated items underlies risk for a nonprofit retailer. And it is partly why some struggle financially even though inventory truly is, well, free. “Every Goodwill on the planet should be profitable, but some struggle because they lack efficiency and execution—and because of theft,” said Keenan, who is taking aim at exactly those items in an effort to solidify the unsure financial footing of Goodwill of the Greater East Bay.
Trying to alter the “free” mindset is at the core of Goodwill LP programs, but implementing culture change is in addition to—it does not replace—typical retail risks. Resellers pose a problem. Stores get hit by organized retail crime (ORC) gangs. Price switching—yes, price switching—is a common scheme. Goodwill stores also face other unique risks, such as the fact that store associates are often individuals who would never pass a background check at a major retail chain.
In short, Goodwill offers LP leaders a rewarding place to apply their talents, but it’s not easy work. “Thrift stores are a billion dollar business,” said Carlos Garcia, director of loss prevention for Goodwill Industries of South Texas. “But it’s also a million-dollar LP nightmare.”
Goodwill Industries International (GII) provides its 161 member territories with consultation services, but they operate independently. Each one has its own leadership and decides for itself how best to run its business. There is support in the form of leadership seminars, including a summer conference that offers loss prevention leaders from the different territories an opportunity to learn from one another, but each decides the extent to which loss prevention is a priority and how to go about it. “Each territory decides for itself whether or not to have a security team or a safety team and determining what size those departments should be in order to best support the mission in that community,” explained Paul Stone.
The core mission of empowering people through employment is at the foundation of all Goodwill organizations, but the mission services in support of it vary widely. Job training and placement services are common, but a Goodwill region may operate a laundry, a military-base cafeteria, a car wash, or a stenography college. The result is that Goodwill loss prevention operations—including risks, technology, and controls—vary significantly. Some take time to put UPC codes on merchandise, while some try to put goods on the floor within the hour. Some territories have mature LP departments, with all the bells and whistles of any major retailer. Some don’t have an LP department at all.
Stone now leads LP for one of the largest Goodwill organizations, a twenty-three-county territory that includes southeastern Wisconsin and metropolitan Chicago and has over 100 locations, including sixty-nine retail stores and more than 6,100 employees. He heads the retail asset protection and corporate security programs, operates a traditional safety operation, and oversees a medical services team. He leads business continuity and crisis management, and he’s starting a fraud management unit. As part of asset protection, he has security responsibilities related to supply chain, warehousing, and e-commerce.
While they do purchase some after-season goods from retailers, the bulk of items it sells online and in retail stores come from donations—and that’s where the potential for loss starts. Employees sort the items, get them ready for sale, and direct merchandise appropriately, either to the secondary market, stores, online, or waste. “The goal is to preserve the revenue. We embrace the total loss concept and try to contribute in other ways, and cost control is certainly one,” said Stone.
Six months in, Stone thinks they’re off to a good start. “We’ve worked with a number of our vendors and have gotten them to sharpen their pencils a little bit and have had some early success,” he said, noting that he’s looking for opportunities where LP can add value to an already-effective operation. “Our Goodwill team had already done a terrific job of maximizing donations. Very little ends up being waste.”
Although electronic article surveillance isn’t seen as viable—slowing down operations too much—Stone has other LP technology tools in play, including point-of-sale (POS) systems with exception reporting and video surveillance. LP agents rotate throughout the territory’s retail locations, and Stone is looking at increasing their visibility to improve customer satisfaction and retention and to prevent theft. “We’re looking at more visible security agents versus undercover agents, and having them there at critical times, to further stop ticket switching.”
While the reward for thieves is generally lower, they employ price switching at Goodwill just like they do at for-profit retailers, said Stone. What’s often different is that after they are caught and banned from a store for a time, they come back as honest shoppers. Such is the loyalty of a Goodwill customer. “We see a number of customers switching price tags and taking a chance to save one, two, or three dollars,” said Stone. “If it was me, and I was caught, I’m not going to go back to that store. But they love to come in, so they come back as shoppers looking for that great find.”
Because getting donations to the sales floor is mission critical, employee training and awareness take on heightened meaning, said Stone. “We let them know that revenue we generate drives our mission and that to provide folks with work we need to safeguard those donations.” They drive the point during new employee orientations, in-store training, town hall meetings, morning store safety meetings, and with visuals reminders like emails and break room posters. “It can be difficult for employees and customers to view a donation as valuable because it didn’t cost anything. But there is a cost to process it, store it, and move it. There is a cost to accepting it into the system,” Stone said. “Many Goodwills have incredible safety programs and have done a terrific job of opening communication channels and providing consistent messaging on a continual basis.”
Internal communications also plays an important role in preventing theft and protecting workers at Goodwill Industries of the Southern Piedmont, which covers Charlotte and an eighteen-county area in North Carolina. Most recently, for example, the LP department ran a campaign to warn and instruct staff on the upcoming “cold, flu, and robbery season,” according to Greg Hawes, its loss prevention services manager. Without LP agents positioned in its twenty-five retail locations, every team member is taught that he or she is part of the loss prevention program and that safeguarding the mission depends on them to observe and report loss. “They are the eyes and ears of the LP department,” explained Hawes. “Retail store members have developed and maintain a good rapport with our regular customers, who report suspicious activity to store management, who in turn report it to loss prevention.”
External education also serves an important loss prevention function, according to Hawes, who was hired in 2003 when the LP department was in its infancy. “A lot of people know we have stores, but one of our challenges has been to let everyone know what our mission is and how our donations fund our mission.” Promoting the message to the community and educating shoplifters has been part of that effort.
Still, Hawes said they have shoplifters every day, including instances of individuals running out with carts full of merchandise. And robberies committed by gang members are a real, ongoing threat. Without LP staff in the store to provide deterrence, Hawes said they rely significantly on technology and are in the midst of a five-year plan to transition to HD cameras, so they can better secure evidence for prosecutions that will stick and to reduce civil liability claims. They’ve also successfully tested and have begun installing cameras equipped with license plate recognition capabilities, with a plan to expand its use at retail locations to solve cases and hit back at gangs and individuals that repeatedly target Goodwill stores. “This captures the license plate of the vehicle involved. Then we investigate how the suspect is associated with the owner of the car, and give the information to police to follow up on and move the investigation forward.”
At donation drop-off points, Hawes said he is trying out two-way talking cameras. Triggered by motion detection, a pre-recorded message plays to engage individuals and to discourage after-hour “drop and shop,” where people leave one donation bag and take home three. This aggressive implementation of security technology has been critical to the LP department’s success, as has support from his senior leadership, for prosecuting offenders and technology resources, Hawes added.
Although an uptick in internal theft has been noted recently, Hawes said they’ve been able to reduce employee theft 60 percent from its high watermark and, thanks to enforcement of strict cash handling procedures, have had only one case of a manager taking cash. Hawes credits education for preventing theft by store associates. “We focus a lot on personal decision-making in our presentations and strive to hit hard the importance of making ‘mission-minded’ decisions.”
It helps, but LP also relies on deterrence through internal investigations. Using exception reporting tied to stores’ video surveillance systems, LP staff has the ability to flag unusual activity, such as lower-than-average cash intake by a certain cashier, and to review associated footage to see if it’s because he or she is engaging in sweethearting or other fraud.
With a shrink metric unavailable, the LP department looks at its number of reported thefts, store performance/sales, and the number of donations recorded to monitor its performance. “Our company looks at loss as anything that takes resources away from our mission, whether it’s a slip-and-fall or negligence that results in damaging our property,” said Hawes. “If it takes away from delivering on our mission, it’s a loss.”
Before he accepted his job in 2011 as director of loss prevention for Goodwill Industries of South Texas, Carlos Garcia remembered one occasion when he dropped off a donation. “I left the item, and in my rear-view mirror, as I’m driving away, I saw someone else putting it on their truck,” he said. “I knew that dilemma was something I was going to have to deal with.”
Although he knew of some challenges that awaited him, Garcia said he did not exactly realize what he was signing up for. In the Goodwill’s forty years of operation, it never had a loss prevention department. Stores had museum-grade cash registers, no POS systems, and no video surveillance.
That’s changed significantly, however. In addition to a new POS system, they embarked four months ago on a new UPC product labeling process that provides visibility into the merchandise stores sell. “We don’t know exactly what brands are sold, but it does tell us, for example, that we sold 150 blouses on this day,” said Garcia. “At least we now know what type of items we’re selling.”
Like other Goodwill LP directors, Garcia has focused on education to drive down theft. His message is amplified by the fact that the Texas penal code enhances a theft offense by one level when the victim is a nonprofit. “If someone steals a $10 pair of shoes, they still have to post a $3,500 bond,” said Garcia. The agency has used social media to get the word out to potential shoplifters and backs it up with a willingness to prosecute. Employees also are warned during orientation. “The hardest part I’ve had is changing the culture and public perception of donated goods as something they can take because someone else is giving it away,” said Garcia. “It’s changing but gradually.”
Data reflects the progress. They’ve increased sales, for example, and internal theft, which resulted in ninety employee apprehensions during Garcia’s first year, has trended down to thirty or forty per year. Still, two recent theft cases involving cashiers—caught failing to ring-up merchandise—had values over $7,000. “Unfortunately, it’s a really tough thing. Even with orientation, training, and prosecutions, some employees still take the bait knowing that we’re limited in [our ability to track inventory].” External theft is equally stubborn. “A lot of the issue I have is with resellers, other thrift businesses, flea markets. We’re a prime target of those type operations,” said Garcia.
Working with law enforcement has been extremely beneficial, but cooperation was hard earned. Even with his law enforcement background, Garcia said he found police initially unreceptive to requests for help in stemming after-hours donation theft. “At the beginning, they felt like if it was outside on a public sidewalk, then it was property that was open for whoever wanted to take it.”
Area law enforcement is more supportive now and regularly works hand-in-hand with Garcia on sting operations. It has helped that they took law enforcement’s suggestion to improve signage at donation points to make it clear that left property is the property of Goodwill. It also helped to provide law enforcement with access to HD store cameras via a website and mobile app. “They can set up in our parking lot and dial in to see our cameras. It helps them if they’re working on a credit card fraud case or following someone, for example.” Finally, it doesn’t hurt that he has a law enforcement background and that the sheriff in Corpus Christi is a former Goodwill board member, Garcia acknowledged.
For all its progress, LP at Goodwill of South Texas remains a small operation. Garcia carries the title of director, but he is a loss prevention department unto himself. Strictly limited in manpower, he leverages hotline tips from the public to focus his investigations. “We have a lot of good customers who are very protective of our mission,” he said.
Like several others, Larry Hartman was attracted to the idea of using his LP experience to support a good cause. Also like others, his respect for Goodwill Industries is growing as he gains exposure to the full range of charity work it performs.
“As I am learning about the inner workings here and what they do to help people in need…it really is a very special organization,” said Hartman, who joined Goodwill Industries of Central Florida in August after a long stint at Burlington Stores, and Home Depot and Kmart before it. “And this was the right time in my career for this and the right fit for me personally.”
Hartman sees a grassroots, bottom-up approach as the best path forward for loss prevention. “Theft undercuts the mission to help those in need. I’m focusing on trying to remind employees that every donated item is designed to help people overcome challenges,” he said. “We’re really trying to drive that emotional connection between our donations and our mission.”
Included in its culture change initiative are employee awareness campaigns and a tip hotline, so employees have an avenue for reporting suspicions of theft. “That was something I saw that could be more active, and it’s something that I’ve had success with in the past.”
He is also visiting stores and conducting focus groups with employees to offer them an opportunity to share concerns, frustrations, and ideas. His goal is to help the new campaign gain traction. “We’re trying to form partnerships with employees by being responsive to their concerns and having associates feel that they have a voice and an impact on the program. We’re asking them right out of the gate, ‘What are your frustrations? What can LP do to get your buy in?'”
Without some other traditional LP tools, such as EAS, employee engagement becomes even more central to LP strategy, suggested Hartman. “My goal is to work with retail store employees on providing great customer service, which will help us protect assets and also drive sales,” he said. “We’re trying to get there through awareness and by getting workers to take great pride in their work.”
Knowing that some employees may be tempted regardless, the organization has controls to prevent theft of higher-end items, which are typically sent to a central facility. There, merchandise is kept under lock and key until it is sold through its e-commerce platform, where it typically fetches a higher price. “There is always a risk of theft, so we are sure that work is very well supervised,” said Hartman. “But if someone is thinking about taking jewelry or something like that, we want to get them to think about the lives they’re going to impact with their decision. We want them to understand that anyone can face the same uncertainty that the people we help are facing-that this could be you or someone you love.”
Greater East Bay
As the new chairman of the board of Goodwill Industries of the Greater East Bay, LP veteran Mike Keenan is, not surprisingly, directing the organization to make theft prevention a greater priority. The goal is to boost its profitability. “The number one profit drain is theft,” he said.
With nearly 50 percent of sales going to resellers, Keenan sees substantial risk from collusion with employees. “It’s very easy for an owner of a store that sells collectibles to tell the guy behind the counter that if any Stars Wars items come in to let him know, and that he’ll buy it on the side from him.”
These items are exactly the ones that can make or break a Goodwill’s financial fortunes. If sold in an online auction, they can command a substantial price. “You can’t measure success with shrink or loss, but what I’ve told my group is that with effective LP, we will see an increase in sales because more of the best product will be available,” said Keenan. “But many of the most expensive donations never make it to the store or on e-commerce. The most valuable stuff has gone right into people’s pockets.”
Training employees to funnel donations to the platform where they can fetch the best price is important, and so is addressing theft at the point of donation, including video surveillance and integrity shops to assess if valuable donations make it into the sales pipeline. “I’m a firm believer that you publicize the program so that people have to wonder when something comes in if it might be a test and worry that they’d be caught if they didn’t turn it in.”
To reduce temptation, Keenan is trying to attach a value to every donation in the minds of employees; for example, each donated item contributes $5.33 to providing services. Identifying a specific value—calculated by a finance team and promoted to employees—helps workers make that critical connection. “It can be two dollars or five dollars, but you want to put some value to every donation, so people can understand that it is what funds the mission,” he explained.
Attaching a monetary value to donations creates a deterrent and helps drive a successful shrink-reduction program. It also avoids other problems. When employees don’t equate a donation with a value, Keenan explained, they’re more likely to send a good product to salvage, less likely to protect it from damage, and may simply throw it away. Keenan also believes in expanding avenues for employees to report loss control issues, including the ability to provide confidential tips and offering incentives for doing so. He also sees store leaders as critical for driving loss control into the organizational culture and believes store visits have to include questions on loss control issues.
Keenan acknowledges that he sees everything through an LP lens, but he believes it is serving him well as he steers his Goodwill organization in a more profitable direction.
“I was always involving myself in the entire retail experience and tried to understand how LP fit into the entire picture, so I felt well prepared with my experience to direct the entire enterprise,” said Keenan. “Plus, if you don’t pay attention to LP, then you’re going to get hammered from a business point of view.”
What Keenan was unprepared for, however, was the extent to which Goodwill was going to sink its hooks into him. “I initially joined back when I was with Gap because they were encouraging people to serve on local boards,” he said. “I thought about Goodwill and figured, ‘I’m a stores guy. They have stores. It’s probably a good fit.'”
He didn’t expect his commitment level to grow so substantially. But when you see lives being completely transformed, it’s easy to get pulled in, he suggested. Plus, it has been a chance to show that an LP guy can make a positive difference when given the chance to run the entire operation. That the organization is already on the path to profitability, after just six months, is nice validation. “That’s been kind of fun,” he said.