Profit Protection—A U.K. Spin on Loss Prevention

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EDITOR’S NOTE: Ian Carter is head of profit protection for B&Q plc, the number-one home improvement and garden center retailer in Europe and the third largest in the world. Carter started his career with B&Q working part-time during college. For the past 22 years he has worked in various operations roles, including store management, new store openings, and stock valuation, with the last ten years in loss prevention. Carter regularly speaks at both national and international conferences in Europe and is a member of the ECR Europe Shrinkage team actively promoting the loss prevention/profit protection industry.

EDITOR:  For those of us outside the United Kingdom, what is a B&Q?

CARTER:  B&Q is the leading home improvement center in the U.K. B&Q stands for Block and Quayle, after Richard Block and David Quayle who started the business 38 years ago in an old converted cinema in Southampton, on the south coast of England. Today, B&Q is the third largest home improvement retailer in the world behind Home Depot and Lowe’s.

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EDITOR:  How many locations do you have?

CARTER: We are part of Kingfisher plc, which is a U.K.-based publicly traded company with over 700 stores worldwide. We have 332 B&Q stores in the U.K., another 60 stores in China, and 22 stores in Taiwan. Kingfisher also markets under a number of other brands, including Castorama, the number one market leader in France, Poland, Italy, and four stores in Russia. We also have Brico Dépôt stores in France, Spain, and Poland.

EDITOR: What are your responsibilities?

CARTER: I am head of profit protection specifically for the U.K., although I am called on more and more to share our knowledge across the company. Recently we shared our knowledge with the B&Q China team who were setting up their loss prevention function. I’ve also just returned from Moscow and St. Petersburg in Russia to review the operations there. In addition, I support two of Kingfisher’s smaller operations in the U.K., Screwfix and Trade Depot when required, who market to tradesmen and builders.

EDITOR:  Did B&Q create the warehouse home improvement center concept in the United Kingdom?

CARTER:  It’s fair to say that B&Q led the way in establishing the DIY [do-it-yourself] industry within the U.K. Others have come along, but B&Q has maintained its leading market position, certainly for the twenty-plus years I’ve been with the company. I must say, it is exciting to see how the business has kept changing and innovating over the years. Right now, we are revamping much of our space and bringing on new concept stores. There’s a constant opportunity to create new markets by getting into new product areas. Of course, that keeps us on our toes in profit protection as well.

EDITOR:  You recently made a presentation where you talked about a time just five years ago when shrinkage at B&Q was at an unacceptable rate. Tell us how you set out a program that would change those shrinkage results?

CARTER:  Shrinkage was growing at a rate exceeding our sales growth. We projected that if shrinkage continued at that rate, it would become a serious drain on profit. So I, together with the leadership team, set about looking at the problem both top down and bottom up. We recognized that all stores weren’t equal. We identified some sixty critical, high-risk stores that needed something more than standard loss prevention measures. Those sixty stores probably accounted for almost 50 percent of our shrinkage. Those stores included the usual mix of stores in city locations, but there were other stores that you wouldn’t have expected to have been in there.

EDITOR:  How did you address these high-risk stores?

CARTER: We developed what we called “shrink school,” an employee training and awareness program. All members of the management team in our high-risk stores were put through that program. We also started looking closely at internal theft and fraud. We began developing a data-mining solution to allow us to use our electronic point-of-sale data from the front end to identify internal issues. We set up a robust employee-screening process that hadn’t been as strong and as thorough as it needed to be. The final two actions we took had to do with the physical aspects of external theft and fraud. We put in new alarm and CCTV systems. We also provided high-risk stores with additional manned guarding support. We called this effort our “critical-store program.” In five years we’ve learned a huge amount.

EDITOR: Why do you think there was less emphasis just four or five years ago on employee theft? Was the security mentality evolving toward broader loss prevention or was it a belief that there was less employee theft?

CARTER:  A bit of both. Within B&Q, our loss prevention team was not bad at deterring and detecting external loss. We, therefore, had to look elsewhere for other sources of loss. However, today I still see retailers both in the U.K. and Europe who would rather remain unaware of the internal problem. I have to say that within B&Q that was never an issue. So when we set out to tackle this problem, it was with everybody’s support. It was a natural evolutionary step and a successful one as well.

 

EDITOR:  You have said publicly that reducing shrinkage became a board priority within B&Q. How important was that support?

CARTER:  It was critical. The shrinkage action group we set up five years ago meets every three months even now. That is still supported by our board finance director, operations director, and chief executive. That focus is essential. It creates traction for the initiatives we want to deliver, and that encourages support at all levels within our organization. Shrinkage is often seen as a store problem, simply because that’s where it manifests itself and is accounted for. However, when you study the shrinkage problem deeply, you see the root cause of the problem can be influenced by almost every department. So having board support to go where we need to go and do what we need to do is invaluable.

EDITOR:  I also know that B&Q and some other companies in the U.K. are very good at addressing the front end of the process, starting with the product buying decisions. Your involvement at the front end is different than at most U.S. companies. How critical do you think that is to the shrinkage problem?

CARTER: We’ve only been working in this area with any real traction and success for the last 18 to 24 months, but there have been major steps forward. It’s about the buying team seeing shrinkage and stock loss as a priority, as well as the profit protection team showing the buying department what value we can add. That’s why it has been an evolutionary process. We’re still on that journey, but the profit protection team is being seen more as internal consultants, not just as the security department.

EDITOR:  Explain what you mean by “internal consultants.”

CARTER:  Initially, one can meet with some resistance along these lines: “What is it that you can do for us? Are you just going to tell us to lock our product away? Therefore, I’m not going to sell anything.” You have to destroy those kinds of myths and preconceptions. You can never forget that we are here to support a retailer. We have to remember that we are a customer-led business. Sometimes just doing what is right for reducing shrink isn’t necessarily always what’s right for the customer or for the commercial team. It’s working in partnership with them.

EDITOR:  Once you gained their trust, where did that lead?

CARTER:  One of the things we’ve been able to do successfully is develop a comprehensive line-level database. We can identify product loss right down to the SKU level, which allows us to look at loss by supplier, by category. This helped us identify our highest loss suppliers. So, just as we have target stores, we started to identify our target suppliers. This led to our ability to determine the root cause of the loss; in most cases, in fact, rarely, was it theft. By digging deeper, we found packaging or product quality might be the problem. We were able to build business-benefit cases that we could take back to the buying team and point out that, for example, by spending another £100,000 on improving packaging, we could potentially save £1 million worth of loss and damages, which, ultimately, did impact the customer. A customer doesn’t want to get a product home and find there are bits missing or that it’s damaged and end up bringing it back. So, we have been able to demonstrate that profit protection solutions aren’t just about locking the product up and taking if off sale.

EDITOR:  Your department uses the phrase, “protecting profit grows sales.” Apparently, your company has bought into that as your function’s mission.

CARTER:  I see shrinkage as an output of lots of other things going wrong. All too often, we focus on the outcome, rather than getting to the root cause of the problem. By fixing that, the benefits can be felt in all sorts of areas—everything from making sure on-shelf availability is great so that the product is there for the customer, that the quality is right so we get fewer returns, that the packaging is well designed so that the product looks great, et cetera. And guess what? Shrinkage comes down as well. Sometimes, if you don’t always have reducing shrinkage as your number one priority, you can increase profits even more dramatically.

EDITOR: What do you mean by that?

CARTER:  Here is a recent example. We were looking at specific product protection for a range of products that we were losing a lot of. It appeared we were the target of organized criminals. We came up with a protection solution just for this product. We did a trial and measured the reduction in loss. The level of loss dropped, but not by as much as we had hoped it would. It was only when we were looking at the data that we found that sales had gone up on those lines by over 75 percent. While my team was disappointed that losses had not come down more, it was a great story to take back to the commercial team: “Your sales go up by 75 percent on these products when we protect them in this way.” That’s just one example of working with the commercial team to come up with solutions.

EDITOR:  Tell us a little about your profit protection team…how it’s organized, the types of people, the training and education.

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CARTER: My team consists of eight senior divisional stock loss managers. Four of those are each responsible for one division, so our 332 stores are split into four geographic U.K. divisions and Ireland. Each divisional stock loss manager has regional profit advisors that work for them. So, we have a field team of about 35 people, all working directly to support and educate our stores.

I have a stock loss manager that looks after supply chain, working with our distribution network. We’re focusing on a monitoring and investigation service within distribution, looking at the security of our product from the moment it arrives to the moment it heads off to our stores.

I have a stock loss manager based at our head office in Southampton. His team is responsible for three key areas. The first is the physical security team that manages the traditional aspects—intruder alarm, CCTV, and EAS installation, upgrade, and maintenance. The second is the investigation team that uses data mining and looks at internal and external organized crime and fraud. The third is the commercial stock loss team that works with our buyers and suppliers.

In total, it’s a fantastic team of about fifty highly engaged and qualified people. Our larger warehouse stores…of which we have about a hundred…all have profit protection advisors in them. So, we have another hundred or so people out in the stores that link in to our regional teams. Our stores are also supported by a great team of guards and store detectives.

EDITOR:  I’ve noticed U.K. companies are very focused on the supply chain. Talk about how critical it is to put the right person with the right level of expertise in that position.

CARTER: We have three people who support our supply chain. The team leader is originally from the police force; there is a good-faith receiving manager, who is ex-supply chain; and there is our compliance manager, who is a former regional profit advisor. This team has a fantastic blend of knowledge and skills that complement one another. It’s been critical in getting support from our supply-chain colleagues and earning the respect that the service we offer is not just to benefit stores, but can improve the profitability of their end-to-end operation and reduce their costs as well.

EDITOR:  Do they look at supply chain just as product enters Great Britain, or do they go to manufacturing sources?

CARTER:  The team is U.K.-based, but we have contacts in some instances where the product is sourced. For example, the Kingfisher Asia sourcing office is based in the Far East. Recently, we sent auditors to Germany to sample check a very large consignment that was coming to the U.K. So there is some international work that they do.

EDITOR:  Do you have responsibilities in other areas, such as risk management, crisis management, safety, or business continuity?

CARTER:  I don’t have direct responsibility for health and safety, fire, or insurance. We literally work alongside risk management. Our two teams sit side-by-side in our store support office.

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EDITOR:  How do you deal with potential terrorist activity?

CARTER:  That falls under my wing and is an area were my team works very closely with risk management. The safety of our staff and customers is paramount, so this is an area to which we pay great attention. Having been trading for nearly forty years and with stores in the U.K. and Ireland, we have developed strong links with the police and take guidance from them, the other emergency services, and authorities. With the U.K. security situation in a heightened state of alert, we’ve been impacted in the last twelve months, particularly in Northern Ireland, London, and Glasgow.

EDITOR:  How good are retailers in sharing information and programs as they relate to dealing with potential crises?

CARTER: We’re getting better at it, but it’s not good enough yet. There’s a traditional concern about sharing information…a fear, if you like…that commercially sensitive information will be revealed. But clear guidelines and distinctions can be made about what can and can’t be shared. As long as those are in place, people have little to worry about in terms of sharing information.

EDITOR:  If I’m a young person and I want a career at B&Q in profit protection, what type of experience do I need to be considered? Where traditionally do you find your new people that you bring into the company and move up in your organization?

CARTER:  As a business, B&Q is passionate about employee engagement. I’m proud to head up a team for a business that just received a Gallup Great Workplace Award. The company invests a great deal of time recruiting the right people and striving to bring them on and develop them. We won the Gallop Award because our employee engagement survey scores more than tripled when people were asked how happy they were at work. That means our staff are some of the happiest in the world. Of course, as a manager, everyone knows there is a direct correlation between engagement and profitability, productivity, and customer service, so the investment is a win-win all around.

Employing talented people is key and once they are in the business, we do everything to we can to keep and develop them. One of the benefits of working for a large company like B&Q is that you can, like me, spend an entire career with one company, move around in different roles, and never get bored. I believe talented people come from all different backgrounds. We have people on our team from law enforcement, stores, supply chain, and commercial. I’m proud my team is highly regarded within the business, and they often go on to work in other functions within. So to some extent, we find and supply talent to other parts of our business.

For many of our roles, I believe if you recruit somebody who’s got the right capabilities, you can teach knowledge. The mistake that is sometimes made is to recruit somebody with all the knowledge, but who doesn’t have the capability to impart that knowledge and have the impact that they need to have with it.

EDITOR:  Talk about B&Q’s orientation and training program for new employees?

CARTER: We have a comprehensive induction program that equips new people with the knowledge they need to do a great job. Everybody that joins B&Q is invited to a welcome day. That initial welcome day includes a section on profit protection within B&Q.

For people joining the profit protection team itself, they are given a two-week induction so they get to meet everybody. They spend two weeks with some of the regional profit advisors and divisional stock loss managers. They then have two months of on-the-job training. This is supported by a mentor who’s actually doing the same job as they’ve been recruited to do. There are 30-, 60-, and 90-day reviews with the new individuals to make sure they’re okay and getting everything they need.

EDITOR:  How do you measure performance of your people? At the store level, do they have to catch a lot of people stealing, or are there other measurements that are critical in their performance?

CARTER:  Our policy with regard to shoplifting is one of deterrence. So, I would not necessarily regard a high number of arrests for shoplifting a great result. Good performance to me is a store that delivers under budget and improves year-on-year levels of stock loss. Just measuring arrests would be crude and drive the wrong behavior. I would rather somebody be dissuaded from coming to B&Q who wants to steal. Or when they do steal from us, see that the teams we have in place are thoroughly trained and have the right processes and procedures to make an arrest and deal with it swiftly and efficiently.

EDITOR:  Do the people on your team have a shrinkage reduction goal?

CARTER:  Achieving our budget and driving year-on-year improvement is part of the team’s objectives and that marries up with delivering the company’s business objectives. There are elements specific to the team and measures that are common to the company. That helps the team focus on supporting the whole business and not just delivering our objectives exclusively.

Then there is a store team bonus, of which shrink is a factor. A very poor shrink result can result in a store team missing out on a bonus payment.

Likewise, our commercial buying team is now measured and incentivized via a bonus scheme that includes stock loss—something called net margin. So the cost of stock loss comes out of the margin that their products generate. There is now an incentive there for them to come to us for support in reducing that problem.

EDITOR:  You said that you’ve been at B&Q for over twenty years. How did you evolve into the position you have today?

CARTER:  I started with B&Q twenty-two years ago as a Saturday lad whilst I was at college; that is working on a Saturday and Sunday at my local B&Q store. The bus back from college used to stop right outside of a B&Q store. So I wandered in there one day to see if I could get a part-time job. That was where it started. When I finished college, I was thinking about taking a year off to do some traveling, when a B&Q manager told me about a graduate management training program they were looking for people to join. Since I had thoroughly enjoyed my three years working part time, I applied, was offered a place, and twelve months later was given an assistant store manager’s job. I then became a deputy store manager and then a store manager. At one point, I was the youngest store manager in B&Q, which was a nice accolade.

I did some new store openings and helped support some new stores. I’d also been doing home study on computing. At the time, our finance team was looking for somebody to help them automate the company stock-taking process. The timing was good, so I went to work for finance on that project. That was quite a crucial move because it led me to the loss prevention/profit protection path.

We then started developing the warehouse format—big stores that were selling more than our smaller stores, but also losing more. On the back of the work I’d done with the stock valuation team, I started doing analyses of where the stores were losing money and providing people with that information. That led to my becoming a loss prevention officer for a whole region of stores and then a divisional profit protection manager. Two years ago, I became head of profit protection. Last year I won the David Hart People Manager of the Year Award of which I am very proud.

EDITOR:  Thank you so much for giving us a glimpse into profit protection in the U.K. We look forward to visiting a B&Q store when we’re in London in October for the European LP conference.

CARTER:  Please do stop in. We would be proud to have you tour our stores and see our operation. That goes for any U.S. loss prevention professionals who visit the U.K.

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