The Challenge of Using Target-Store Programs to Control Retail Shrink in Specialty Retail

In order to effectively manage retail shrink, loss prevention strategies must be applied differently according to the specific needs of the retail model. This article focuses on applying the concepts of a target store programs in the specialty retail environment and the need to remain flexible and adaptable in our approach to some of the unique challenges presented when applying global strategies to different retail models.

Shortage reduction efforts in the retail world share many similarities, which seems appropriate since the root causes of retail shrink are often alike. The causes of retail shrink are rarely unique to any particular retailer, with theft, either from customers or employees, accounting for the lion’s share of losses. Throw in problems with data integrity, often termed “paperwork errors,” and you essentially have the recipe that makes up retail shrink. All retailers share these basic issues with only the severity fluctuating due to type of product sold, geographic location, store type, and other factors unique to a particular company.

However, specialty retailers face some unique challenges in addressing these issues. Unlike department stores or other big box locations, specialty retailers must find solutions for retail shrink issues not in one or even dozens of locations, but in hundreds or sometimes thousands of stores. They need to have an approach that works in malls, strip centers, and freestanding stores; a solution that can fit stores staffed by two employees or two hundred employees. In stores that have the support of an in-house loss prevention team, EAS, CCTV, and other tools, or nothing but management and staff.

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Gap Inc. faced this challenge. An industry leader in international specialty retail, Gap Inc. currently has over 350 Banana Republic stores, more than 750 Old Navystores, plus over 2,000 Gap, GapBody, GapKids, and babyGap stores. In addition, the Outlet division has more than 200 stores. We operate nearly 700 stores internationally, including locations in the United Kingdom, Canada, France, Japan, and Germany. As you might imagine, developing an effective, coherent retail shrink reduction program for such a large and diverse organization can be a daunting task. Although the use of technology has proven effective at reducing theft, it comes with a cost attached, which is usually in the form of capital budget dollars…a limited resource for most loss prevention departments.

Implementation of loss prevention staff is also restricted by issues such as approved departmental headcount, payroll budget, and related operating expenses. Because of these financial realities, many LP departments must develop alternative methods to reduce retail shrink. Methods that are effective, yet do not increase capital or payroll spending.

Target Store Program

One such initiative we’ve developed that has been effective at reducing retail shrink is our target store program. This program does not require funding from our capital budget, but instead relies on the use of existing loss prevention personnel combined with partnerships between operations, inventory management services (IMS), regional, district, and store management, and, of course, our dedicated sales associates.

The Challenge of Target-Store Programs in Specialty Retail

The target store program was designed to reduce overall company shortage by aggressively focusing on our highest retail shrink stores. We were able to identify that the majority of our retail shrink dollars came out of only 20 percent of our store population. When dealing with over 3,000 stores, the ability to narrow the focus to under 600 stores enables resources to go further and helps ensure that results are more dramatic. We determined that we could make deep reductions in target location losses that would significantly reduce shortage in the overall company.

Selecting the Targets

Our first step was determining the appropriate stores to participate in the target program. That selection was based on careful review of our inventory results. With the help of our inventory management services department, we were able to separate the top 20 percent of our stores as measured by retail shrink dollars lost. However, that single statistic could not be used as the only criteria.

For one thing, our highest volume stores typically appeared on these reports, even the ones that as a percent-to-sales were running low shortage, thus indicating they likely had effective controls already in place and the opportunity for further improvement would be limited.

We knew that for our target program to be most effective, it would have to enroll stores that combined had both a high dollar and percent-to-sale loss. It is the loss as measured as a percent-to-sales, plus the level of loss that a store experiences relative to the overall company that most closely indicates the need for additional controls.

Working with our IMS department, we created two top-twenty lists. One ranked our stores by dollars lost, while the second ranked them as a percent-to-sales. When these lists are compared to one another, the selection of target stores becomes simple. Stores that appear on both lists are automatically included, and account for about 80 percent of the stores in our program.

The remaining 20 percent of target stores are selected on a more discretionary basis. While still combining the factors of retail shrink dollars and percent-to-sale loss, we must also include some store-specific data provided by the regional loss prevention managers (RLPM). This information will typically include such things as retail shrink history, market trends, and safety issues that should also be factored in and used to determine if a particular store is enrolled in the program.

Still other factors that had to be considered were market saturation. In certain areas, we found a higher density of potential target stores, which sometimes resulted in too many stores for the area RLPMs to handle alone, therefore other resources needed to be identified to support the program.

The Challenge of Target-Store Programs in Specialty Retail

In our organization, RLPMs will typically manage fourteen to fifteen target stores, but can “stretch” to cover twenty, if necessary. Once the number exceeds twenty, the impact is reduced and the program, follow up, and retail shrink reductions are negatively affected.

In order to ensure the success of the program and also determine where improvements are needed, it is important to keep coverage manageable. The time and attention required by the RLPMs is significant, and since they are the driving force behind the program, it is important not to overextend resources.

Establishing Partnerships

Success depends on teamwork. The partnerships formed with operations, inventory management services, and field sales management are all critical to the success of the program and will have a direct impact on the retail shrink reductions achieved. Although loss prevention will be the drivers behind the program and will always be expected to generate the greatest intensity, it is the team effort that ensures success. Store management expects to see LP staff focus on and speak about retail shrink. What makes the target store program different is the frequency with which other members of management address retail shrink concerns.

Operations is a key business partner and essential to helping ensure the program does not conflict with other company initiatives. They also provide the direct communications line to the stores and ensure that the various details for managing the target store program are consistently understood in the field.

Specific Store Visits

The Challenge of Target-Store Programs in Specialty RetailOne of the requirements of the program is that district and regional managers must conduct regular visits to target locations with the visit centered on LP issues. Having the regional manager dedicate a significant portion of his or her time reviewing retail shrink issues with the store management and staff generates a lasting impact. Employees realize that minimizing retail shrink is a priority and are more likely to follow through long after the visit takes place.

Other methods used to heighten awareness include LP newsletters, conference calls, email messages from store operations discussing an LP topic, and loss prevention awareness weeks where various messages, themes, and kick-off events are designed to keep the focus on LP.

Shortage Reduction Bonuses

As an added incentive, one of the divisions created a bonus payout for store managers that reached their store-specific retail shrink goal. To earn the bonus, several criteria needed to be met. First, the division had to meet or exceed its retail shrink reduction goal. This is critical because the bonus payout is fully funded by the money saved from reduced retail shrink. In fact, only 10 percent of the shortage savings is actually needed to pay out the bonuses, the remaining dollars move directly to the division’s bottom line profits.

Second, the store manager must hit her store-specific retail shrink goal. Third, the manager must have worked in that store for the majority of the inventory period.

The response and enthusiasm from this incentive program was outstanding and the overall division has reduced its retail shrink by 20 percent annually for two consecutive years, certainly in part due to innovative programs such as this.

Additional Inventories

One key element to the program is monitoring progress by taking interim inventories in targeted stores. These additional counts serve several purposes. One purpose is to monitor retail shrink as the program is administered, rather than wait until the next company-wide inventory. A second reason is to keep store awareness high. Knowing that the store will get an update on their progress…a mid-term grade so to speak…helps keep associates focused during the year.

In an effort to keep the cost of the program to a minimum while continuing to add inventory reviews, we instituted a “unit count” inventory for target stores that was conducted in between the regularly scheduled year-end and mid-year inventory cycles. While our annual and mid-year counts are conducted by a vendor-supplied service, unit counts are performed overnight by existing store staff, which adds only minimal costs to payroll.

While the unit counts do not provide style and SKU information, they do provide the information we are most interested in, that is, how many pieces (units) of clothing are missing. With the help of our IMS group, we are able to compare our physical count to our book, or on-hand, counts and determine how many items are missing or lost. By assigning each unit an average cost, we can estimate our retail shrink as a percent-to-sales. The method has proven to be accurate and was, in fact, the inventory method Gap Inc. previously used for regularly scheduled counts prior to moving to vendor-supplied services in the mid-1990s.

Knowing what your retail shrink number is as often as possible is key to controlling it. If business partners disagree with this proposition, ask them how it would affect their ability to drive sales or control payroll if they only knew financial results once or twice per year. If there was a cost-effective way to know retail shrink rates on a weekly or even daily basis, most LP professionals would likely opt for it.

Implementing the Program

Once all target stores have been selected, the initial roll out begins. We start with an electronic communication to all field business partners, from vice presidents to store managers. The information notifies field management of the target store selections and describes the program expectations and workload. Each RLPM then follows up with each store personally to ensure that program implementation is properly planned and executed.

Initial Store Meetings

The first step of the program at the store level is to bring store management up-to-speed on the program. The store manager delegates the ten target store requirements that make up the program to the management team. Each requirement takes different amounts of time based on the number of employees and physical complexity of each location.

  • Responsibilities delegated to the management team include
  • Role playing with the staff on how to recover merchandise,
  • Fitting room controls,
  • Paperwork and register audits,
  • EAS and CCTV technology follow up, and
  • Training and awareness.

Once the roll out is started, the program takes very little time to maintain. The program’s main feature is that it helpsmanagement make loss prevention part of the everyday business, not a separate “to do.”

The Challenge of Target-Store Programs in Specialty Retail

The initial management meeting is the first step to letting the leaders in the store know about their inventory results compared to their peers and discussing the actions required per the target store program. At subsequent meetings, the managers are asked to update their area of responsibility with the group and identify opportunities for improvement.

Once store management is on-board with the program, they conduct store-wide meetings with all associates using a provided agenda to communicate the store’s inventory results, information about internal and external theft, and the employee’s role in the target store program. This meeting truly is the kick-off of the program and must be completed within two weeks of store selection.

Awareness Training

A large part of the program is awareness training. In target store locations it is vital that all employees understand their role, so built into the program are weekly communications focused on internal and external theft topics.

These communications may be sent out as voicemail, email direct to stores, or discussed on local conference calls. Sometimes the communication is scripted by the LP department, but sent directly from the executive vice president of the brand. This helps bring further attention to the target store initiative.

Some “fun” approaches are also used to keep the message fresh and the awareness high. Quizzes that measure retention of the information provided and other contest-like activities may be employed. There may be small prizes, such as a pizza party for the staff, awarded at the local or store level to reinforce the message and keep employees’ attention on loss prevention for as long as and as often as possible.

Posters and self-study guides with a quiz at the end are used to get the loss prevention message to the entire staff. After employees complete the quiz, it’s turned in and retained in their local personnel files.
Of course, the store manager has the ultimate responsibility for implementation and continued progress of the program. To aid store managers in assessing their efforts, they must complete a one-page follow up each month and communicate their findings with their district manager and regional loss prevention manager. So, even if the majority of the program has been delegated, the store manager is aware of the target store’s status each month.

Accountability

The best designed and implemented program will not succeed unless the company makes achieving that success a priority. Holding employees accountable…at all levels…is necessary to ensure that reducing retail shrink becomes an increased priority for everyone. The tendency to rely solely on loss prevention to reduce retail shrink is one reason why many programs fail or deliver only marginal improvements.

We hold all management levels accountable by including retail shrink results on their annual review. This is tied to potential bonus and pay increases. The target store program has a separate worksheet for the store manager and district manager to complete monthly as follow up to the ten delegated responsibilities. The brand operations departments work with loss prevention to communicate this expectation and to remind managers of their responsibilities. Zone vice presidents and regional managers are made aware of any problems with buy-in.

The Role of Loss Prevention

The loss prevention department determines what the target store program will look like every year. Based on business needs and updated technology, the program is reevaluated each year to keep it relevant and fresh.

Regional loss prevention managers are the main drivers of the program. RLPMs contact target stores directly and visit them on a regular basis. These visits include follow up on the program components, general loss interviews, physical security walk-throughs, and LP technology follow up. Between visits, RLPMs utilize exception reports to look for possible internal issues.

Audits

Operational auditors conduct two audits per year on all target stores. Stores must receive an 80 percent compliance score to pass. Stores that do not pass the audit are reaudited by their district manager
The audit has a very strong operational focus and is comprised of four main sections: loss prevention, operations, risk management, and human resources. Areas reviewed include checking such things as

• Do managers perform package inspections on employees leaving the store,
• Are alarms or EAS systems properly tested,
• Do employee files contain all legally required documents, and
• Are register procedures adhered to.

Upon completion of the audit, each section is scored between 1 and 100 with 80 or above considered passing. The audit is also given an overall score which must equal 80 or above to pass.

The Challenge of Target-Store Programs in Specialty Retail

Management staff and the auditor meet to review the findings in detail and partner on an action plan needed to correct any noted deficiencies. Store managers are held accountable for the results of their store audits and a failing score may result in disciplinary action.

Interviews

Area investigators (AIs) are also involved with the target stores. AIs provide support to the RLPMs for conducting general loss interviews. AIs have also gone to a specific geographical area of the country and “blitzed” a market. A blitz would consist of using exception reports to identify problems, with RLPMs and AIs completing many interviews in a specified time frame.

The ability of a skilled interviewer to gather information from employees during a professionally conducted interview is invaluable. It is not only the identification and resolution of theft issues that are helpful, but also the quantity and variety of information that comes forward and the insight it provides into that store’s shortage problems.

We use several factors to set up employee interviews. One is to review exception reports to see if particular trends are present that indicate a high likelihood of theft. Another is to speak to tenured members of the staff and gain their perspective on what is causing a particular location to run high shortage. Employee interviews ask such questions as:

  • What types of problems are they seeing?
  • How effective do they feel the management team is?
  • Are policies followed consistently and by everyone, including managers?

Most employees welcome the opportunity to speak to someone and express their concerns and ideas. Many have told us they like the fact that the company takes shortage and other loss prevention matters seriously. They also appreciate that we follow through on the information they provide us.

Technology

The Challenge of Target-Store Programs in Specialty RetailTarget stores come in all shapes and sizes. Part of the target store program for LP is to determine which technology may be needed in each store to help reduce losses. EAS, CCTV, public view monitors, and leather locks all work well when installed in the right locations.

The target store program provides vehicles to track the use of some of the technology we currently utilize today. For example, one of the program responsibilities is to complete a daily EAS compliance based on company guidelines. This ensures EAS is being used to its fullest potential.

Measuring Results

As mentioned above, all target stores conduct numerous inventory reviews throughout the year. By receiving inventory results consistently throughout the year, we are able to react and direct our resources to our biggest concerns. We usually see marked improvement in most stores with the first inventory review taken. Our challenge in those stores is to keep them focused and maintain the program integrity.

The annual inventory results, taken one year after the store was selected as a target store, determine if the store will “graduate” from the program. To graduate from the target store program, the store needs to reduce their retail shrink by a minimum of 25 percent. While it is rewarding for a store to graduate, our goal is to make loss prevention part of the daily routine, not just a specified program to follow. In order to reduce loss in a market consistently it is important to train all managers in how to recognize theft and the steps required to deter and prevent it.

Stores enrolled in Gap Inc.’s target store program have consistently seen a 20 percent or larger reduction in retail shrink. These results hold true regardless of brand. In fact, this year the retail shrink reduction goal for target stores has been increased to 25 percent and is trending at closer to a 30 percent reduction across all brands at this writing.

“The levels of service our various stores require vary quite a bit,” says Keith White, vice president of loss prevention. “Our target store program delivers the right amount of LP resources, awareness, education, and intensity to the stores that demonstrate the greatest needs. The results have been tremendous and have generated significant cost savings for the company.”

AUTHOR’S NOTE: I wish to thank Deb Garvett, senior regional loss prevention manager, for her contributions to this article. Also, thanks to Zak Kaiser for his sidebar on the supply-chain portion of this program.

EDITOR’S NOTE: This is the second in a series of articles speaking to target-store programs. The first article, “Targeting Shrinkage with a Comprehensive Program for High-Risk Stores,” can be viewed by clicking here.

 

This article was first published in 2003 and updated in January 2016.

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