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Outsourcing Options in Specialty Loss Prevention

Over the past two years, several specialty retailers including Stride Rite, Wilsons Leather, and Fredrick’s of Hollywood have made the decision to outsource their entire loss prevention functions. The question many in the industry are asking is, “What are they thinking?”

How can a service provider provide the same level of service as in-house loss prevention professionals? If it is a growing trend, and not a passing fad, now is the time to examine the pros and cons of outsourcing all or part of your LP program.

Outsourcing has been around security and loss prevention since the demise of the night watchman. Once the technology existed to remotely monitor locations for intruders and fire, away went the Detex clocks, ring of keys, and the person using them. Their functions were outsourced.

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Although the night watchman may be a thing of the past, there are many businesses and locations where security guards remain in place. But, how many of them are proprietary? Moving those bodies off the payroll saves time and headaches. No more recruiting, training, managing, evaluating, and replacing people…some of the benefits of outsourcing.

What Can Be Outsourced?

A walk through the exhibit hall at an industry trade show finds outsourcing options at almost every booth. From alarm service providers and access control systems to civil recovery firms, from training and awareness programs to auditing and investigations, service providers are all striving to make our jobs easier. In each case, the products or services can be customized to your unique environment or purchased off the shelf.

You may already be outsourcing without realizing it.

Have you used a headhunter to fill a position?

Have you installed a CCTV system, created master key and lock logic, or laid out an access control system? If you have consulted a service provider for their expertise in technology or layout, as opposed to selecting the products and buying them off the shelf, then you’ve outsourced.

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In each situation, the major benefits are freeing up time from mundane tasks, improving the level of competency of the function, or saving money…or some combination.

The challenge small-box retailers face is a constant need to maintain or reduce costs while increasing results. There is less of an opportunity for specializationand sectionalization in LP functions than a big-box retailer may have. That provides a niche that the right service provider may fit into nicely.

Outsourcing Options in Specialty Loss PreventionTechnology. Few specialty companies have their own central station or proprietary guards. The industry seems to agree outsourcing is the right choice in these cases. The same holds true for access control system designs and key and lock control.

The rationale for the outsource decision is a simple one. With technology changing so frequently and with so many different opportunities available, the expert in the field can bring forward the best business practices combined with a multitude of real life experiences to design the best technological solution for your application.

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Recruiting. From a recruiting perspective, many positions are filled through word-of-mouth or peer recommendations. However, absent either, an in-house recruiter has to begin their search from scratch. Typically, the in-house recruiter has to learn the marketplace and in many cases the industry. That can lead to a less detailed search process, where active job seekers are the only candidates, sourced through newspaper ads or Internet postings.

The database that professional recruiters have is an overwhelming resource to more readily fill an open position. In addition to the active job seekers, a good recruiter will solicit candidates that best fit the position’s profile. The candidates you see are thoroughly screened and assessed as a good match for your organization. Ultimately, that advantage can advance the search process several weeks or months, resulting in a smoother transition for the new employee.

Once you are prepared to make an offer to a candidate, the search firm, acting as an independent third party has an advantage to help facilitate negotiations, work through counteroffers and ease emotional logjams that may hamper hiring the absolute best person.

Civil Recovery. Databases and case management software exist to allow a retailer to process their own theft cases for civil recovery. The trade-off of doing it in-house versus outsourcing seems to rely on resources to manage the process.

If there are enough cases to keep a position busy or the ability to time share the function with other duties, keeping the process in-house eliminates the need to pay for the service. Those commissions could potentially reach into the millions of dollars for larger retailers.

Yet, some of the biggest names in retail outsource the process. In the last few years, civil recovery firms have aligned themselves with law firms. Aside from the legal reasons for the partnership, the added benefit of an attorney’s letterhead on a demand has increased the recovery effectiveness. When combined with properly educated and experienced agents working on the demands, the net effect is an increase in monies recovered for retailers. The civil recovery firms can also provide proprietary software for case management, a risk analysis to minimize liability issues, and continuous legislative updates to ensure full legal compliance.

Training and Awareness. In recent years, training and awareness programs have become commonplace functions for outsourcing. Companies that bring in bright, creative graphic artists and software developers may have an edge over the presentation of a loss prevention message. Interactive video and CD-ROM programs are becoming more readily available, and affordable, than in years past. Theoretically, there is no longer a need to internally brainstorm for ideas to get your message out and help sell your program.

Before making an outsource decision, you have to decide what is the appropriate level of detail your awareness program requires. One service provider describes the science of developing training programs to be most effective in the cost-benefit analysis. That science does not require absolute customization.

Will generic training programs work in your company? It may be as simple as asking, “Is it critical that a post void be called a void prior?” Outsourcing Options in Specialty Loss PreventionInconsistent terminology can weaken a message. If an employee is struggling with the training message, the intended behavior change may get lost in the translation.

Can the training program be customized enough to satisfy your company’s overall message? The same message or creative presentation in a children’s shoe store can’t possibly work effectively in an automotive parts store. However, it may work well in a children’s apparel or a women’s shoe store.

Or must it be unique to your environment? Unique themes, nomenclature, or mascots all help to tie a corporate message together…but at a premium. Remember, two reasons to outsource are to improve results and cut costs. In this situation, these benefits may be at odds. You have to evaluate these two trade-offs to make your decision.

If you have access to an in-house design group, you may have the best of both worlds. But often, internal resources are focused on merchandising or advertising and internal programs hold little priority. Or, they don’t understand loss prevention needs. It is apparent that many retailers believe that the bottom-line results of outsourced awareness programs outweigh the costs.

Scott Myers, vice president of loss prevention and human resources at Hibbett Sporting Goods, uses his company’s in-house video production department for awareness programs. His feeling is that companies tend to outsource things they don’t have the resources to support. At Hibbett they are fortunate to have the ability to create whatever customized awareness materials they may need and use their internal resources at every opportunity.

Myers is lucky to have access to quality in-house production capabilities. However, for those retailers not as fortunate, outsourcing provides access to the same capability. The initial hurdle to overcome is familiarity with the organization’s tone of message and audience level. Once a meeting of the minds takes place, a quality service provider should be able to develop and grow the shortage reduction program consistent with the organization’s overall communication and strategic goals.

Jim Passarella, director of loss prevention at Jones Apparel Group, has both outsourced awareness programs as well as created internal programs at different times in his career. He believes the wrong service provider can result in more effort than doing an in-house program. “Sometimes you have to spoon feed the language or the message to the service provider. At that point you’re better off detailing the concept and having any graphics company do the production, if your own advertising team can’t handle it.”

Investigations and Audits. Investigations and operational auditing are also an outsourcing option. The ability to bring in a professional interviewer to resolve an internal theft problem may be an appealing option, relieving the stress of an in-house person to “get the admission.” Additionally, operational auditing can be a black-and-white function that anyone can do, as long as they have the instructions in front of them.

A quality service provider may also provide expertise in areas not traditionally addressed by a field-focused loss prevention team. High exposure areas like kickbacks, vendor fraud, margin irregularities, and overseas investigations may be specific areas to outsource while internal investigators focus on more traditional areas like internal theft and shoplifting.

However, transition from outsourcing LP technology to LP people is a difficult one. Remember the logic applied to the night watchman. In addition to the potential cost savings, gone is the need to recruit and develop professionals. There is no more need for you to worry about turnover, vacations, and sick time. Performance evaluations and developmental action plans go the way of the Detex clock. Those become your provider’s headaches.

Interestingly, one of the major service providers in this area argues it as less a cost-reduction decision and more one of market density and responsiveness to issues or audits. They believe they bring the best business practices of several retailers into one LP professional who is capable of being in your location quicker than your in-house team. That prepared responsiveness is what makes the concept of outsourcing field functions more appealing.

Outsourcing the Entire LP Operation

Wilsons Leather made the decision to outsource their loss prevention efforts beginning this past spring. Before, outsourcing their entire LP function was never a consideration, due to concerns over experience and level of service as well as costs. In early 2002, Wilsons Leather sought an economical loss prevention solution to match the seasonality of its permanent store business, and to support their fourth-quarter temporary store concepts. The latter is an especially challenging business as these locations are essentially opened in a matter of days versus weeks or months for a permanent store.

Stan Evavold, Wilsons’ director of loss prevention says, “The LP challenges we traditionally have in a permanent store, such as hiring, screening, and training allassociates, are significantly amplified due to the short time frame involved in our temporary store format.”

Outsourcing Options in Specialty Loss PreventionHe further explains, “During the evaluation process of identifying a solution to these business challenges, we learned that there were niche players in the outsourcing business, not only filling the temporary needs of a retailer, but also in a full-service capacity, and at a very attractive price.”

Aggressive due diligence was conducted on these service providers, with a focus on ensuring that the provider’s field staff would meet the standards in multi-store experience Evavold required of his own team.

Evavold also considered additional factors that the service provider brought to the table. “There were a few value-added benefits that I found to be very attractive with the outsourcing initiative. The first being that the service provider, while maintaining the confidentiality of their existing client base, could recommend and develop best practices for Wilsons in policy, procedure, audit, and operations based on their experience with their existing clients.

“Second, we could expect an increased face-to-face presence of loss prevention in our locations. This would occur due to the service provider having several clients in the same malls. After addressing an LP incident with one client, they could visit my location for a quick touch-base for issues at my store.

“They also had a solution for addressing minor loss prevention issues without having to dedicate an experienced loss prevention professional. And lastly, again because of the multiple clients in one mall setting, they would be more aware and familiar with specific issues in that particular mall.”

When making the final decision to outsource the LP function, it was a basic exercise of risk management for Wilsons. Evavold concludes, “Generally, when an organization makes an aggressive effort to reduce risks related to shrinkage and losses, there is a trade-off in operational controls, procedures, and focus. We evaluated the resources we currently had available to reduce and minimize our risk, and found through this initiative our resources would be significantly increased without effecting the focus and philosophy of our customer, the sales organization.”

Keeping It All In-House

Conversely, you have little control over who is interacting with your stores. You know little about their personal skill set or how effective they may be in your company’s environment. You don’t know how many different faces will walk through the same door with differing messages, weakening your desired objective. Corporately, there may not be the buy-in that theft is theft and an audit is an audit. Both may be seen as a learning opportunity for the organization, which an outsource solution may not satisfy.

Hibbett Sporting Goods does not outsource the field loss prevention function. The have a regional loss prevention manager (RLPM) for every fifty locations. The corporate belief is twofold according to Myers. One, if associates only see you when there is a problem, you become the enemy, not an ally. Second, if the associates never see you, they never get to know you. Myers says, “Negative stigmas are attached to what we do. You can make those better or worse depending on how you handle yourself.”

That familiarity is a key component in Hibbett’s average shortage results over the last six years in which they have beaten national averages when compared to National Retail Security Survey statistics. Myers believes his RLPM must build a strong working relationship with not only the district managers and store managers, but also with everyone from assistant store managers through the receivers. His philosophy is “We are in the people business, helping people with people.”

Jones Apparel Group’s Passarella adds, “I wouldn’t be opposed to selectively outsourcing investigations in markets where I didn’t have anyone. Certainly for video surveillance or covert installations, where I didn’t want to tie up someone on my staff, I’d consider it. However, I believe it is important to have my own people conducting interviews. They are better equipped to deal with the internal nuances that may be part of denials.”

One major service provider feels their business approach is in line with Passarella’s needs. The ability to be flexible and supplement an existing department can be a win-win scenario. It increases market presence for the retailer, while providing the service provider the ability to increase market density in a geographical market. It should also expose the retailer to the best business practices that every service provider touts as a benefit to their services.

Is There a Right Answer?

Your LP team’s position in the corporate culture and partnerships throughout the organization are the key to this choice.

  • Is your focus on getting the bad employee out as quickly as possible?
  • Do you report audit results to operations for further actions?
  • Are you frequently refereeing disagreements with your field people and their operational counterparts over the right course of action? In these cases, using independent loss prevention specialists may be the wisest fiscal choice.
  • On the other hand, is your team multi-tasked,where in addition to providing site assessments, training, auditing,and investigation, they also partner within the organization to make other departments more effective?
  • Do they provide another set of eyes in the evaluation of the store team for operations or senior management?
  • Do they lend value in driving higher morale throughout the organization?

If the answer to these questions is yes, outsourcing the function is probably not an option.

In the final analysis, there is no single right answer. For some, total outsourcing makes sense. For others, an in-house program works well. Many will be bestserved with outsourcing specific components of their program and keeping others closer to home.

No one can know your company as well as you do. Making the right decision about what to outsource and when is critical to the success of your program. In doing so, the balance of interpersonal relationships versus the budget must be weighed carefully to determine what will produce stellar results. After all, a successful loss prevention program, outsourced in full, partially, or not at all, must make a positive difference at the bottom line.

EDITOR’S NOTE: Stan Evavold had chosen to leave Wilsons Leather at the time of the interview. The author wishes to thank the following service providers who helped with background information for the article:

Civil Demand Associates, 800-937-0911
Contact, Inc., 704-846-1035
Deloitte & Touche, 312-946-2743
Downing & Downing, 440-255-1177
LP Innovations, 877-574-6682
Palmer, Reifler & Associates,888-572-5637
RuMe Interactive, 800-545-8247
Security Source, 888-878-6736
West Coast Recruiting, 818-556-6056

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