Editor’s note: This content focuses on some of the different loss prevention management strategies that take place in a retail franchise environment, and how our approach to loss prevention must reflect the needs and challenges of managing retail shrink and profit enhancement in this unique retail setting. While some of the names and related information may have changed since this article was originally published, the content is relevant in today’s retail loss prevention environment as it pertains to the need for flexibility, creativity, partnerships, business acumen, and other essential loss prevention concepts. We recommend that you approach the content from this perspective in order to best apply the important lessons available in the messages discussed.
If you subscribe to the notion that loss prevention management is a proactive, relationship driven support function in the retail environment, the loss prevention department at Ace Hardware sets the pace as a service-oriented entity whose “customers” reap the benefits.
Ace Hardware Corporation is a cooperative, in nearly every sense of the word. It is in this collaborative spirit that our retailers, customers, and business partners thrive and succeed in the do-it-yourself business environment.
Structured as a business cooperative means that our independently owned stores are the stockholders of the corporation. The cooperative began in 1924 when a group of Chicago-area retailers banded together to leverage their buying power collectively. Today, that entrepreneurial spirit has evolved into more than 4,600 stores in all fifty states and seventy countries.
In 2005, Ace generated revenue in excess of $3.4 billion in wholesale hard-line sales that its retailers helped turn into an estimated $13 billion in retail sales worldwide. This ranks Ace Hardware in the top twenty-five retailers in the United States and top fifty retailers in the world.
Our vision is to “Win at Retail,” and each department within the Ace organization is driven by the success of our retailers. The entrepreneurial spirit is self-evident in all we do. We serve the convenience do-it-yourself customer, and our nature is to be helpful. In fact, helping our customers is the most important thing that we do on any given day.
While there are many standards that must be adhered to in order for any retailer to use and promote the Ace brand name, for the most part retailers have the luxury of supporting their businesses by investing in and selecting from a wide variety of corporate-initiated programs designed to enhance the Ace way of retailing as well as the overall experience for the customer in our stores.
Loss Prevention Organization
Loss prevention management at Ace is organized to serve this very purpose. Our vision is “to be recognized and engaged as a proactive business partner in the protection of assets.” This endeavor is supported by our mission statement:
We will identify and reduce potential risk exposure. We will seek to form key relationships with both our internal and external customers in the committed pursuit of protecting the organization’s interests. Integrity and trust will be our guiding philosophy in all our actions.
The loss prevention management team is not a large entity whose scope is broad and undefined. Rather, Ace has assembled a small, intimate team whose focus is on delivering the highest degree of professionalism to specific, measurable programs that benefit the entire Ace structure, whether in our retail stores, supply-chain distribution network, or at our corporate campus.
The department is led by Jim Falk, who is the manager of loss prevention and property administration. The department reports to the legal department under the leadership of Art McGivern, senior vice president, general counsel, and secretary for Ace Hardware Corporation.
When asked about the successes of the loss prevention department, McGivern stated, “Loss prevention has been successful in virtually everything that they have taken on, ranging from sensitive investigations to business continuity/disaster recovery planning. The loss prevention department here at Ace is very highly regarded. It is made up of true professionals dedicated to fulfilling their roles within our company.”
The organizational structure of the LP department was developed to support the various business functions of the Ace family—corporate, supply chain, and retail.
Corporate. The corporate loss prevention and business continuity planning manager is Tom Elward, who is charged with the responsibility of loss prevention functions and operations on the corporate campus and at corporate facilities enterprise-wide. These responsibilities include the development and management of Ace’s business continuity plan, risk management and assessment of corporate facilities, personnel security and physical security on the corporate campus, information and data security, and safety for corporate campus.
Supply Chain. Phil Barney is the manager of distribution loss prevention and supply-chain security. Barney oversees all training, auditing, and investigations in the distribution centers, cross docks, and third-party consolidators throughout Ace. Each distribution center has a facility manager and loss prevention management staff designed to handle all property, physical security, and loss prevention training functions.
Over the last two years, Barney helped facilitate Ace’s successful development and implementation of the Customs-Trade Partnership Against Terrorism (C-TPAT) certification program, which Ace fully expects to be certified at the tier II level. He was also instrumental in helping to develop security protocols and brand-protection initiatives within the Ace global distribution warehouse as well as with third-party manufacturers of Ace products in the Pacific Rim.
Investigations. The department recently added the position of manager of corporate investigations and special projects, which is held by James Summers. He is primarily responsible for the operations and administration of all investigations involving corporate assets to ensure consistency in execution and proper legal protocol.
Summers began his career with Ace on the retail side and admits that working with the independently owned retailers has benefited him in his current role. “It has been very rewarding to work with retailers who are motivated and want to implement a loss prevention culture in their business,” says Summers. “Through my experience of working with retailers, I have been able to better relate to the successes and challenges that come with both implementing a loss prevention management program and operating a small business.”
Retail. As manager of loss prevention services, operations, and long-range planning, I am responsible for all loss prevention management programs offered to our retail stores.
Creating a Legal Entity
Loss Prevention Services, Inc. (LPS) is the wholly owned subsidiary of Ace Hardware created specifically to provide a host of loss prevention management programs and services to our independently owned retail stores.
Under Illinois law, any agency who provides investigative or security services to third parties is required to be a licensed private detective agency. Thus, in 1994, LPS was created to provide Ace retailers (third-party independently owned stores) with the ability to seek out auditing, investigative, and training services from the corporation.
This structure allows our retailers the ability to supplement their businesses with programs and services from the corporate headquarters. These programs include
- Retail training services and classes,
- Local and national marketing and advertising initiatives,
- Fixtures and other equipment and technology,
- Customer loyalty programs, including the Ace Helpful Hardware Club,
- Gift card and bank card services,
- Planogram and category management support, and
- A host of other departmental services and programs.
Loss prevention management is one of those optional core services that the corporation offers to its retailers. Since our inception and through our investigative, auditing, training, and preferred vendor programs, LPS has serviced in excess of 50 percent of our stores.
LPS is both strategic and tactical in its role and mission. As the retail arm of the LP department, LPS continuously consults with our business partners in other departments to provide educational materials and programs as well as benchmarking support with regard to the best practices or standards available within the industry for a given policy, procedure, or operational/financial process at retail. This helps to limit exposure and vulnerability to both our retailers and the corporation itself.
Selling Loss Prevention
The greatest difference between the retail loss prevention management programs at Ace versus those at other companies is that we are not ultimately accountable for the results of shrinkage reduction or profitability in the retail stores that we work with.
Additionally, when our services are required in a retail store, there are fees associated with those services. In effect, the LPS team must gain the buy-in and support of the owner/manager in advance of any program or service being implemented within a given store.
For the LPS staff, especially those who come from other retail companies where those companies own their stores and everyone works for the same company, the idea that we have to “sell” our services is a philosophical hurdle that must be overcome. Having come from the big-box, department store format myself, I can attest to the initial difficulty in grasping the inherent sales function imbedded in all that we do.
As the sole source for retail loss prevention best practices and strategies at Ace, LPS receives literally hundreds of calls from our retailers on a wide variety of subjects. In fact, we encourage our retailers as well as our retail operations field staff (the district, regional, and divisional managers who act as liaisons and business advisors between the corporation and retailer) to call us with any issue in which they seek counsel—twenty-four hours a day, seven days a week, 365 days a year.
There is no fee associated with seeking our expertise, and many times, a retailer’s concerns, questions, or fears can be handled in the course of a fifteen-minute phone call. However, where our services are required, or where a retailer needs on-hand, in-store assistance in assessing the situation, the LPS staff must “sell” the retailer on the benefits of our involvement.
In the orientation of new LP professionals, this point is discussed in great detail, often with apprehension and skepticism on the part of the new Ace employee.
How do I tell an owner/manager that I have to charge him for a service when they are already experiencing a loss?
The answer to that question is intrinsic to the philosophical foundation of what makes a good loss prevention management program in any retail setting. At Ace, though, and probably more so than in any other company or position most of our LP professionals have worked, the return-on-investment or cost-benefit analysis is an area where we spend a considerable amount of time in our discussions with a retailer.
If one truly believes…
- That loss prevention sells itself,
- That loss prevention pays for itself multiple times over,
- That a good program is not a series of tasks, but the building of a culture within a store…
then, Ace’s loss prevention department is right in line with other best-in-class retailers in the industry. Because of the nature of our business model, we are forced to prove that each and every day by gaining the “buy-in” and approval of business owners and entrepreneurs.
As Teri Vertullo, a LP specialist for Ace states, “LPS is able to provide the best quality in retail loss prevention management assistance without penalizing a retailer for being a member of a wholesale cooperative.”
In fact, the ability for the LPS staff member to build a relationship with an owner or store manager is probably the most important aspect of their job.
My experience before coming to Ace involved working in large department stores, at corporate offices, and as part of multi-store field staff teams, and I can tell you unequivocally that, whether you are in loss prevention management, operations, or merchandising, you are selling yourself and your programs even though someone may not be physically writing a check at the end of the presentation. Each and every day, loss prevention associates across the retail industry are analyzing risks and seeking the buy-in from operations managers, store managers, or other corporate or store personnel in order to provide the greatest return to their efforts.
Loss prevention is not about forcing someone to do something, but about establishing the relationship with someone so that they do what is necessary or right because they understand the reasons for and benefits of that standard, process, or procedure.
The LPS staff practices this philosophy every day. At the core of all that we do is the concept that we will provide high-quality programs, services, and vendor products to assist our customers in loss reduction. At the end of the day, while we are not responsible or accountable for a store’s performance in shrinkage reduction, revenue growth, or overall profitability, there is no greater sense of pride than knowing that we are helping to assist independent business owners in each of those areas. If we do not make a compelling argument for the need for loss prevention management …let alone our services…our retailer customers may not recognize the value that we can add back to their bottom line. If LPS does not substantiate a significant return on investment in both the short- and long-term, we do not succeed in our mission as professionals in the LP industry.
One member of the LPS staff is Bill Cafferty, a national training and account manager based out of San Antonio. Cafferty was semi-retired, but working with LPS on a limited basis for nearly eleven years when he joined the staff in October as a full-time national manager. He has over forty years of retail experience and was once the deputy director of loss prevention for the Army and Air Force Exchange Service, the highest ranking LP civilian position in the organization that operates PXs and BXs on Army and Air Force installations worldwide.
On numerous occasions, Cafferty has been told by Ace store owners, “You saved my business” or “I never realized there were so many holes in my operation.”
Cafferty holds a great sense of pride for this unique relationship with Ace retailers. “We are invited into our retailers’ stores…their lives for that matter…rather than descending on them from on high and dictating a corporate you-will-or-else policy,” he explains. “They respond in a much more positive manner to our observations and recommendations when they are included in the development of a program specific to their stores.”
Loss Prevention Services
At the core, LPS’s menu of products and services includes training programs, investigative and auditing services, and security products through our preferred vendor network.
Training. Our training programs have grown by leaps and bounds over the last three years. While we conduct training specific to requests from a store, two programs have been widely accepted and received by our retailers.
The first is our Associate Awareness Training program. This three-hour session is designed for all associates throughout a store’s operation. The program focuses on
- Anti-shoplifting strategies that rely heavily on customer service and preventative methods of deterrence,
- An associate’s role in combating internal dishonesty,
- The prevention of point-of-sales scams, including quick-change artists, short-change artists, and counterfeiting, and
- Robbery prevention strategies.
Also included, upon request, is a discussion centered around electronic article surveillance (EAS) and proper training on how to tag, what to tag, and how associates should respond at the entrance/exit when an EAS alarm is activated. The session utilizes video examples and role playing. This training program typically takes place in our stores.
The second major training program is designed specifically for owners and senior managers. This workshop is a full-day seminar and concentrates on strategies and legal issues of various loss prevention management components, including
- Anti-shoplifting strategies,
- Hiring and training practices,
- Conducting internal investigations properly, and
- Various other components of developing and executing a successful loss prevention program.
Auditing. From an auditing perspective, LPS offers two full-scale audits for our retailers. The security assessment survey (SAS) is a full-day audit that focuses on determining where a store might be vulnerable to loss, fraud, or theft from a loss prevention management and operations standpoint. Nearly every aspect of a store’s operations are examined during this process, including receiving, point of sale, physical security, technology concerns, cash office functions, hiring and training practices, and to a lesser degree merchandising concerns.
The SAS generally begins the evening before with closing procedures being observed and continues for an average of six to ten hours the next day, depending on a store’s size and sales volume, beginning with the arrival of opening personnel at whatever time the key is turned in the morning and the alarm is deactivated.
The next level of audit, the fraud risk assessment (FRA), includes everything in the SAS above, but also includes the services of a fraud risk examiner, forensic accountant, or certified public accountant to assess a store’s finances and accounting practices. This is an especially useful tool where an owner either owns multiple stores and the finance/accounting functions are centralized or when the owner gives total financial/accounting control and responsibility to one associate or third-party provider.
Investigations. Obviously, we handle our share of investigations for our stores. Over the past two years, we have brought telephone interviewing and other investigative programs to our retailers in an effort to reduce overall expenses to the organization and to decrease the amount of time an associate has to commit any dishonest act before they are discovered.
Security Products. Through our preferred vendor network, Ace offers a host of security products and services that can be purchased by Ace retailers. These products and services include
- CCTV systems,
- Access control systems,
- Intrusion detection and fire alarm systems,
- Electronic article surveillance systems,
- Tool alarms,
- Drug testing services,
- Pre-employment and background screening services, and
- Other miscellaneous security devices.
Each of our vendors goes through a series of rigorous tests that include ensuring that they are compatible with other Ace preferred technological platforms—POS interface and remote access for CCTV systems, for example.
While our retailers are free to buy these products from whomever they choose, when they purchase from our preferred vendor network, they can utilize Ace financing options for capital purchases. Plus, they can trust the source as having been tested and vetted by the loss prevention department. By purchasing from the preferred vendor network, retailers are allowing the corporation to leverage a national buying contract that has lowered prices and driven customer service from our vendor partners.
The concept of LPS in providing loss prevention management programs and services to our retailers is not based on the notion that a retailer will just use our services once or call as needed. While this does occur, the best benefit is in the development of a long-term, regular relationship between LPS and the retailer. As is often explained to our preferred vendor network, you may have one national contract with Ace, but hundreds of relationships with our retailers. LPS operates that very same way. Each retailer is a customer and not just a part of the whole.
Adding Value to the Stores’ Bottom Line
Philosophically, LPS promotes a host of specific best practices, policies, procedures, and beliefs that are at the core of what Ace loss prevention management believes should exist in a best-in-class retail setting. That being said, LPS staff members are required to have a wide variety of retail loss prevention…even operations and other retail positions…experience in their background so that they are not only subject-matter experts in retail operations and loss prevention management, but also so that they can amend or expand upon strategies that might need to be specifically developed in a store based on that owner’s own beliefs, philosophies, layout, and personnel.
LPS continues to be successful and sought after because we believe in keeping it simple. We do not implement a process, procedure, or policy simply because we can, but only as needed in a particular store or environment. The retail business does not need to be more complicated by loss prevention. We understand the concerns and demands on our retail operators, and we strive to ease that burden without sacrificing quality of service or profit in the process.
As corporate LP and business continuity planning manager, Tom Elward is the newest member of the Ace loss prevention department and has a history of loss prevention management in the franchise environment. His first impressions of LPS and our role in the Ace retail environment are at the heart of what LPS seeks to provide to its retailers:
“In my over twenty years in loss prevention, I have not seen a better model for partnership with local retailers,” says Elward. “LPS provides value-added services to the independent members of the Ace Hardware cooperative. Independent retailers obtain world-class best practices, professional consultation, and a significant return on investment. LPS operates as a profit center, to the point where they break even. Additional cost and overhead savings by using this methodology is returned to the retailers, further enhancing LPS’s already excellent product.”
Indeed, LPS is fully funded by the retailers who utilize its services. At the end of the year, LPS must break even. Everything LPS raises in revenue is invested directly into the retailers it serves. It is a misconception that LPS seeks to add profit back to the corporation’s bottom line. Rather, LPS seeks simply to add profit back to the store’s bottom line.
By operating at break-even status, LPS has been able to keep these services in-house with a professional team who understands Ace and the retailer as well as to keep rates well below the industry average as compared to the third-party vendors in the industry who provide similar services.
In LPS Ace has provided a resource to its retailers for the sole purpose of creating a safe and ethical working environment that roots out dishonesty and seeks to drive revenue growth while reducing the store’s overall exposure to loss. In each of the last three years, LPS has grown in the volume of each service offered and has touched more and more stores in each subsequent year. The ability to work with owners whose bottom line…whose own pockets, essentially…is being directly affected is a very worthy and noble venture.
For me personally, I have never known a more rewarding position professionally. There is an instant gratification in knowing that the LPS staff on a daily basis is helping America’s best entrepreneurs add value to both their bottom line and businesses. Some of the greatest individuals I have ever known own and operate Ace Hardware retail stores. It is an honor to be allowed into their businesses to assist them.
Headquartered in Oak Brook, Illiinios, Ace Hardware Corporation is a retailer-owned cooperative of more than 4,600 independent Ace stores in all 50 states and 70 countries, with 14 distribution centers throughout the U.S. With $3.466 billion in wholesale hard-line sales equating to more than $13 billion in retail sales (2005), Ace ranks in the top 25 of all retailers in the U.S. and top 50 in the world.
Founded by Richard Hesse in Chicago in the early 1920s as a small hardware store, the entrepreneur began buying merchandise in bulk to save money and sharing the goods with other small retailers. In 1928, the company was incorporated as Ace Stores, Inc. During his time as company president until his retirement in 1973, Hesse continued to innovate. One example, Hesse introduced the concept of retailer conventions. These allowed retailers to meet in one common marketplace and see all of the national products and promotions available to them. Today conventions remain an integral part of the basic activities Ace offers its retailer-owners and have become a common fixture in all industries.