What we are attempting to do is add to the tools and practices that will not only move CVS/pharmacy, but the entire retail loss prevention industry forward in stopping loss.
As a loss prevention department charged with protecting product, do you have the reputation as a category killer? Do others in your company call your department, “sales prevention?” Or, is your LP department viewed as a partner in profit?
Protecting product without restricting customer access and negatively affecting sales is the tricky balance loss prevention must play. We believe CVS/pharmacy is ahead of the curve and setting the pace in this particular area.
Understanding all the areas impacted by theft is the first step in building the right product-protection strategy for your business. The next step is to use data to tell the story of loss and to help eliminate some of the emotion in the decision-making process. Taking a holistic approach, leveraging all the strengths of various programs or solutions, and implementing them for their greatest benefit is the final touch in making a solid program. We at CVS are doing just that…and the numbers are telling the tale.
This approach to product protection has not always been the case at CVS. Only a few years ago, the scope of product protection at CVS was solely electronic article surveillance (EAS). The strategy was EAS tagging at store level, EAS tagging at the distribution center, and negotiating source tagging with suppliers.
Although EAS is an effective deterrent and the first line of defense in product protection, it is not the ultimate answer. With the rising pressures of external theft and organized retail crime rings, it became clear to us that our product-protection program needed to be reexamined and improved.
Understanding SKU-Level Loss
Analyzing reported loss information along with sales and shipment data gave loss prevention the information needed to identify high-risk categories and high-risk items within each category. This data enabled us to understand the risk level of an item as it relates to sales and the cost to protect a specific item. We also set up reports that enabled us to measure the risk for an individual store.
These two types of reports gave the LP department the ammunition to educate other departments within the organization on the impact of external theft. The reporting also gave our suppliers what they had been asking for, information on SKU-level loss.
Suppliers needed to view the losses associated with their product so that they could understand the impact and react appropriately. Typically, without this information, there was a lot of emotion surrounding product protection between departments within CVS and our suppliers. The sharing of reports and the dialogue they generated throughout the organization helped focus our needs and took much of the emotion out of the product-protection decisions.
Corporate versus Store-Level Solutions
Understanding external theft and the various dynamics it created in the organization was the next step in the evolution of product protection at CVS. It became evident that if high-risk products were not protected properly through a corporate solution, then we knew the stores would protect the product however they saw fit. Typically this led to removing product from the proper sales location and displaying the product behind the front checkout or locked up in the back room of the store. Often the proper location had no signage telling the consumer how to purchase the product they came to buy.
This type of management of high-risk product leads to a number of negative impacts throughout the supply chain, including out of stocks at the store, lost sales, negative customer service, eroding margins, loss of market share, and a slowdown of product flow throughout the supply chain. As well as being a loss prevention issue, the impact of poorly conceived and uncoordinated solutions to external theft is clearly a supply-chain issue.
Being a small-box retailer, CVS does not have multiple banks of registers to deter thieves, nor do we have internal loss prevention teams who roam the store or continuously monitor CCTV. Although we have the same external pressures as the big-box players and often shares many of the same thieves, we cannot always implement the solutions they use due to limited resources.
“We had to think outside of the box for product-protection solutions,” says Ernie Deyle, vice president of loss prevention. “The challenge for us is to have product available for the customer, make the shopping experience as easy as possible, while reducing losses on high-risk items. This challenge was met by working closely with various security solution vendors and understanding the underbelly of organized retail crime rings.”
Seeking Solutions Beyond EAS
A little over two years ago, we started looking beyond solely leveraging the benefits of EAS tagging for product protection. Working with various security solution providers, we searched for security items that would help fight the battle of reducing losses associated with high-risk product.
To help us in our search, we were very active in numerous industry associations and committees, including
- National Association of Chain Drug Stores,
- Auto ID Center researching RFID solutions,
- Industry Loss Reduction Team,
- Loss Prevention Research Council,
- ASIS International,
- Source-Tagging Council, and
- RF Users Group.
Through these various groups, we can view loss issues from multiple points of view and take key learnings to make informed decisions for the business. Active participation in these industry groups also gives CVS the opportunity to influence loss prevention practices today and in the future.
Our research proved to reinforce the idea that CVS could not implement most of the security products that big-box players were using. One of the main challenges we faced was that CVS is a self-serve environment. This is what the consumer expects when shopping in our stores. This situation helped push us to work with various suppliers to find unique solutions that would work properly in the CVS environment.
Liquor Security Cap. The first item we tested was a liquor security cap for stores that sold alcohol. At the time this reusable solution was a radical departure from the standard product-protection approach at CVS. Through testing the cap, we discovered that the stores embraced this solution and managed the program with little difficulty. The results showed a significant reduction in losses and a healthy sales lift on the items that implemented the security cap.
With the paradigm broken, we started challenging vendors for other solutions for different high-risk items. At the same time we engaged manufacturers in discussions that provoked creative thinking regarding protecting high-risk items.
Security Peg Hook. The next item we saw of value was a security peg hook that could lock to the pegboard without having to screw into the fixture. This peg was also quick for the store manager to move when working on the section. The only drawback was the initial design of the front tip of the peg. We worked closely with the supplier until we came up with an anti-sweep peg that met the needs of loss prevention, store operations, and visual merchandising. To date, this peg has been a great success in the categories where it is used.
Locking Show Cases. As these two devices were being tested and rolled out, locking show cases were also being installed in high-risk stores. If the corporate direction was to place high-risk items open to sell in high-risk stores, then there should be no surprise that the items were being stolen, or that the operators would restrict high-risk items from the sales floor.
The use of locking cases caused great emotion from the merchants at CVS and the suppliers of the product that were being locked up. The merchants felt that locking up items was killing the category. While LP and operations were protecting high-risk product with whatever tools they had to work with, the reality was that if there were no product protection solutions provided to the stores, the items were simply not on the sales floor. We were effectively out of business in these categories and everyone suffered, especially the consumer.
Testing New Levels of Protection
At this point, the product-protection program entered the next level of evolution. Not only was external theft causing loss prevention and operations to react to protecting product differently than they had in the past, but external theft was forcing pressures on the merchants and visual layout to change their thinking as well.
This next phase of evolution is what made the product protection program at CVS mature to the state it is in today. It was important that all groups understood that the goal is to protect product in a manner that will keep the product on the sales floor, make the shopping experience as easy as possible for the consumer, reduce losses, while at the same time driving sales. To make this happen, operations, loss prevention, merchandising, and store layout had to agree on a product-protection strategy. Most importantly, we had to agree that not all stores or items could be viewed the same. This would mean some give and take for all departments involved in the decision-making process.
At this phase, the testing of certain unique fixtures and labels for high-risk categories was under way. These items, like the security cap and security peg before, were a radical departure from the standard approach we had taken in the past.
Pusher Fixture. Two types of fixtures were tested in select high-risk stores. The first fixture was a shelf management pusher-type fixture not unlike what you see in the market today. The difference is that we would leverage the visual and operational benefits while building in a loss prevention component to the fixture.
The challenge for us is to have product available for the customer, make the shopping experience as easy as possible, while reducing losses on high-risk items.
This fixture was designed to eliminate swiping of product to reduce the rate at which an item could be stolen. The fixture was designed with a canopy for the top shelf. This canopy does not allow items to be grabbed off the top shelf by the handful.
The pusher fixture gave the departments a cleaner look, provided a labor savings benefit because of its ease to front and face, and made it difficult to steal multiple pieces of product (wipeouts).
Clicker Fixture. The other fixture tested was designed for razor blades. Called a “clicker fixture,” this fixture was designed to eliminate the swiping of razor blades. It makes an audible clicking noise that sounds when the consumer or thief takes a piece of product.
Security Label. The third item tested was a security label that was applied to high-risk merchandise in an attempt to stop the resale of the product and therefore discourage the theft of the product in the first place.
The labels are clear with the CVS logo that states it is a security label. The label has an aggressive adhesive that adheres to the packaging and cannot be removed. If there is an attempt to remove the label by hand or chemicals, the packaging will be destroyed before the label can be removed. This frustrates the professional thief and makes it difficult to resell the merchandise at flea markets, to the bodegas, or in the organized crime network.
Test Results. Throughout the test period, the fixtures and labels proved to be effective tools against external theft. The security labels proved to reduce wipeouts of high-risk items in all the markets they were tested in.
The test results of the two shelf systems showed dramatic results both in reducing loss and increasing sales. For example, the clicker fixture was tested in 1,300 stores with the Gillette Mach3 and Venus brand razor blades. For the period January through June 2002, prior to the installation of the systems, the test stores reported pilferage at an average rate 127 percent higher and a sales volume averaging 3 percent lower than the rest of the chain. After the installation for the test period, July 2002 through March, 2003, pilferage averaged 42 percent lower and sales volume averaged 6 percent higher than the rest of the chain.
Loss Prevention Matrix
While the devices in test were putting positive numbers on the board, the LP department was working with other departments developing a loss prevention matrix for the business.
The LP matrix breaks the stores into groups by risk and then aligns the store’s risk level to a store layout design. The LP matrix uses a level A, B, or C layout approach. Each layout option has a unique menu of product-protection devices that are implemented when a new store is built, remodeled, or relocated. For example, each layout level may have one of the following product protection solutions aligned to it over and above the prototypical layout:
- Primary positioning of high-risk categories in all stores
- Clicker anti-sweep razor blade fixtures in all stores
- Locking cases in select high-risk categories
- Anti-sweeping peg hooks in select high-risk categories
- Pusher shelf management system in select categories
- EAS tags
- Security labels
- Multilingual loss prevention signage kits in all stores
- Cigarette locking cases in high-risk stores
- SKU reduce planograms in high-risk stores
- CCTV DVR with signage kit
The LP matrix was implemented in the second quarter of 2003. To date, the implementation of the matrix has been a success for us. This new process enables various departments throughout the organization to react to external theft in a coordinated, well thought out plan.
Looking for New Solutions
We believe that CVS/pharmacy is in the forefront of product protection. Many of the security devices and fixtures discussed here were the first rollouts of such products in our industry.
But, we have not stopped looking for new and better solutions. We are continuing to test new types of product protection devices to help us bring even greater profit to the company and to help us maintain a competitive advantage over the competition.
We are committed to continue to research and partner with solutions providers who can bring fresh, creative thinking to the problem. We are diligently working with category management in efforts to reduce losses and increase sales within high-risk categories.
For example, we are currently testing solutions for baby formula, family planning products, EAS alarm management, and remote customer service devices.
We are also pushing forward this year with an EAS tag that is encased in a desiccant. This solution will be used for internal pharmacy investigations.
We are also working with a supplier to develop a plastic bottle that has an EAS tag embedded into the side of the bottle. Such a product would have uses across multiple categories, but our initial focus will be on vitamin and diet products.
While we continue to look beyond EAS to other solutions to external theft, we have certainly not abandoned EAS as a primary product-protection strategy. CVS depends on EAS and good customer service as two best practices in the war against external theft. What we are attempting to do is add to the tools and practices that will not only move CVS/pharmacy, but the entire retail loss prevention industry forward in stopping loss.
“As a result of the increasing pressure that the organized retail theft organizations have been putting on mass retailers, and the desirable, resalable merchandise that we provide to our core customers, CVS had to do something to impact this growing epidemic,” says Deyle. “Jon and his team of product protection solution providers have really taken designed counter measures that significantly impacted our ability to keep more product on the shelves, increase our top-line sales, improve our in- stock position, and decrease our inventory shrinkage risk.”
With revenues of $26.6 billion, CVS/pharmacy is the thirteenth largest retailer in the U.S. and second largest drug store chain. The company currently has 4,175 stores in thirty-two states and the District of Columbia. CVS fills one out of eight prescriptions filled in the United States.