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The View from the Top

EDITORS NOTE: Thomas Coughlin began his career as a store detective with Macys in California. After several years in various LP positions with Cook United in Cleveland, Coughlin joined Wal-Mart in 1978 as director of loss prevention. While at Wal-Mart, he has held numerous positions including, vice president of human resources, executive vice president of Sams operations, executive vice president of specialty groups, and executive vice president and chief operating officer of Wal-Mart store operations. He currently is president and chief executive officer of Wal-Mart Stores/Supercenters USA.

Coughlin currently serves on the board of directors of the California State Hayward Educational Foundation, ChoicePoint, Inc., LakeWest Group, National Association of Chain Drug Stores, NorthWest ArkansasCommunity College Foundation, St. Edwards High School, Students in Free Enterprise, and Wal-Mart Stores, Inc.

Loss Prevention sat down with Coughlin in his office at Wal-Mart corporate headquarters in Bentonville, Arkansas, in January 2002.

- Digital Partner -

EDITOR: Thank you very much for meeting with us. Let me start by asking you why you agreed to have this interview with LossPrevention magazine?

COUGHLIN: Its real simple. I believe ours is an industry where people have the tendency to stratify themselves to relegate themselves to one piece of the business. I’ve had the great fortune to be with a company that doesn’t believe in that at all. Fortunately, Ive had opportunities offered to me through the years that have allowed me to grow in the business. I know there are a lot of people out there who can do the same. We have some very, very high placed executive talent in this company who started in either loss prevention or audit. Its good for your readers to understand that the base skills that you develop in LP are a sensational base for a generalist. While there are certainly needs for people with specific talents in every company, I believe most of the best leaders are generalists. While typically I don’t do interviews, I decided to do this interview because I want your readers, especially the young people coming up,to know that there is a lot of opportunity out there. There’s nothing magical. I was in the right place at the right time with people who thought I had enough talent to do more. I was given that opportunity and I just want to see other people get that same kind of opportunity.

EDITOR: Here at Wal-Mart, the vice president of loss prevention reports directly to you. Thats somewhat unique in retail. Why has Wal-Mart made the LP function report so far up in the organization?

COUGHLIN: I believe that it has to be at minimum at the level of the president because theres an independence thats necessary to have true preventative powers. Politics being what they are, its too easy for decisions to be misguided when you allow internal politics to enter in. With loss prevention reporting to me, that allows me to set the tone, the discipline, about what effective loss prevention is. That does not always fare well. But, there has to be someone who umbrellas the organization that is the final word. I believe its appropriate. Its time consuming when you have as many direct reports as I do, but I think necessary. Incidentally, I dont take any credit for this philosophy. Thats the way the organization was structured when I came in. Of course, we were somewhere a little shy of 200 stores at the time and I know it fit better at that time. But I think that driving the importance level, the independence level, is not even second guessed in our organization. Its a part of the culture. Quite frankly, I wouldn’t have made the decision to come here had it not been this way. I was fortunate to see it work the right way at Cook United in Cleveland from 1973 to 1978, where the VP there, reported to the president as well.

EDITOR: Lets step back for a minute. How did you get started in loss prevention?

LP Solutions

COUGHLIN: I started as a store detective at Macys in California working for a lady named Kathy McAuliffe, who was one of the really great teachers. She was probably as fine a loss prevention manager as Ive ever run into in the business. She was great teacher and Macys was a great organization. Macys very much believed in training teaching you leadership, the financial aspects of the business, merchandising. It was a great, great starting ground.

EDITOR: Then you went to Cook as what?

COUGHLIN: I went to Cook as the Cleveland area supervisor. When I first started work, the Cleveland area had a rowdy bunch with a terrible reputation. Here I was 23 years old, and I went in and laid the law down. I told them this was how it was going to be and if they didnt like that, they didnt need to be there. There were fourteen people at that meeting and twelve of the fourteen got up and left. So, I got my baptism into management under fire.

EDITOR: You played football in college, didnt you?

- Digital Partner -

COUGHLIN: Yes, at Cal State University in Hayward.

EDITOR: Did you take anything from your experiences as an athlete and apply them when you went into management?

COUGHLIN: I dont know that I did exactly. But I will tell you that I played for a coach named Les Davis at Cal State. I remember him telling us that working hard was essential to success, but he also emphasized having fun with what you did. If I brought anything from sports, it was thatwork hard, but have fun. And we do a lot of crazy things around here and always have. Retailing is a pretty tough job. You have to out =work your competitors and we have some great competitors out there. I believe that how you out work them is by having people who are engaged in what theyre doing, enjoying what theyre doing, and having fun at what theyre doing. That would be the piece I brought from sports more than anything.

EDITOR: How did you get to Wal-Mart?

COUGHLIN: I got a phone call one day from Jack Shewmaker and Ferold Arend. Ferold was president of Wal-Mart at that time and Jack was the executive vice president of merchandise and operations. Sam Walton was the chairman. They had asked the head of loss prevention at Cook for recommendations on someone who could help them. They were impressed that I had been promoted 14times in five years, so they asked if I would be interested in coming down to talk to them. It was certainly a culture shock. Bentonville had only 4,000 people in 1978. There was only a single lane road each way. The newspapers headline when I came down the first time was that Bentonville was getting its first traffic light. Wal-Mart was small and just becoming known. The reason I knew them was because Cook was selling some stores to them in Oklahoma and Texas. At that time, they had about 190 stores and had just acquired the MOHR Value chain and the shrinkage was off the charts the highest they had ever had. I saw it as a good opportunity. Cook was in trouble. I was at an age when I could. My wife and I were pregnant with our first child. So, I told them if they were interested in me, I was interested in giving them a commitment of two years. I didn’t know if it was something I’d want to do long term. And they agreed to that. So, I came here as director of LP.

EDITOR: People have mentors. You had the great experience of knowing and working for one of the great geniuses of retail in Sam Walton. Was he one of your mentors or were there others here or elsewhere that left impressions on you that you live with daily?

COUGHLIN: I have been blessed with more people who have taken an interest in my career than any one person should have the good fortune to have. Sam certainly was one, but it wasnt right away with Sam. Jack Shewmaker certainly did. Jack became president just months after I arrived. Jack was the first loss prevention director that the company had ever had. When he left LP, he took over human resources, which also is the part I took over when I left loss prevention. Jack is still on our board of directors. He still checks in regularly. He has always taken a personal interest in me. He was a big difference in my life.

Later on, after I had run human resources, they gave me the opportunity to take over the operating end of SamsWholesale Clubs as it was getting started. Building that business was a lot of fun. I worked for a fellow named Al Johnson, who was, in my opinion, one of the finest merchants who has ever been in retail. Al taught me so much about merchandising. I also had an opportunity to work for a fellow named Bill Fields, who was one of my predecessors as president of Wal-Mart. Bill and I remain close today. We still go out and see stores together once a quarter. Bill left to pursue other avenues. He went to Blockbuster and then Hudson Bay. Hes now on a number of boards. Bill was one of those people that taught you categories of merchandise. He was always so willing to give. I was like a sponge. I really wanted to understand how it all worked.

EDITOR: What caused your move out of LP? You had grown up in LP from college and had become the director of LP for a growing retailer. How did it happen that you felt it was the right move for you to go into other directions in the organization?

COUGHLIN: I didnt think it was the right direction, actually. Jack Shewmaker came to me one evening at a party and told me the VP of human resources was retiring and that he wanted me to step over into that role. I was looking to expand my horizons, but I wasnt looking for a staff role. I was really wanting to get into the action in operations. Jack advised me that there would be networking throughout the organization with this role and it wouldbe a very good move for me for a period of time. I asked how long and he said two years. So, I asked him if I could hold him to that and he said I could. Two years and one day later, Jack was good to his word; they moved me to Sams.

And he was right. Through that period of time I had some great opportunities. For example, I was given the assignment by Sam and Helen Walton to start up what is known as the Walton Institute, which is a leadership training program that we have. We started it on the campus of the University of Arkansas, Fayetteville. I had a Walton family checkbook, because the family underwrote that project personally. I was to bring in guest lecturers from the best schools in the country. It was just a marvelous learning experience. We also put in a new human resource system, so I had to become very tuned in with the IT people. Those kinds of exposures were benefits that you never see on the front side. I think they were some of the great learning opportunities that I had. But I was also glad to be out of there. I wanted into the game in the stores.

EDITOR: At Wal-Mart, or anywhere for that matter, what do you see as the role and objectives and priorities maybe thats three different things of what loss prevention ought to provide for a corporation?

COUGHLIN: I think the move in the industry that weve seen from security to the term loss prevention is probably as good an explanation as there is. I do not believe in boundaries in business. I believe if you have good business people that they should be able to engage themselves across departmental lines for the good of the company. I believe that an effective loss prevention program needs to be at least in the back of everyones mind relative to how you ultimately drive yourselves and profitability. It also has to be done with the customers perspective in mind, which Id say is one area throughout retail that still leaves something to be desired.

I also think that LP programs should change as technology changes. For example, today you have so much more capacity to understand exactly where you are relative to your inventory shrinkage if you make full use of all the tools that the merchants and operators are using. Dave Gorman (vice president of loss prevention) and his organization are required to sit in on every single management meeting that we have. They are a part of that management groups core decisions that are made about whats right for the business. They have to look at anything that were doing as the first line of thought from a loss prevention standpoint, because most merchants and operators arent given to go there first. They have to be able to detect, through the same information thats provided for sales replenishment purposes, that problems are occurring as early as possible. Thats critical when youre impacting, in our case, 7,000-plus stores.

I think, in business, speed to market is the most critical component for success. And I dont think its anydifferent in loss prevention. There has to be a thought process. When something presents itself, whether its a sales opportunity, an operating opportunity, it needs to be looked at from a preventative base as well. Thats why I think the people in the LP organization, to optimize their effectiveness, have to understand the business much better than they did twenty years ago.

EDITOR: What are your expectations of loss prevention people?

COUGHLIN: I want them to be business people. I want them to be seen as a vital member of the teama coga spoke of the wheel that helps us be to our customers what we arethe everyday low price leader. The only way the everyday low price works is if youre the everyday low cost. Loss prevention is an essential piece of driving the everyday low cost. They are a competitive advantage. They are not a profit drain or burden when they are operating correctly.

The View from the TopEDITOR: What role do your store managers play with loss prevention or store shrinkage in terms of accountability or responsibility?

COUGHLIN: Its huge. They have to own it. You will never have an effective loss prevention program unless its owned in every location. Our managersare paid off of the net profitability of their store. They have the most lucrative opportunity, I believe, there is in retail. It significantly dictates what their bonus is going to be. Plus, theres an attitude issue. Ive tried to convince managers thorough the years that the most effective thing they can do in their morning store meetings is talk about the importance of protecting the assets of the company. We do an extensive amount of closed circuit in our stores .The most effective managers, the most effective loss prevention supervisors, use those videos to talk about the importance of customer service and the safety of customers. The subtle, subliminal message that the video taping is taking place is a very effective deterrent. Yet, its also multi-purposed. And, I think, to get a good return on an asset, it has to be.

EDITOR: Did you start the program where store managers were incentivized on shrinkage?

COUGHLIN: I will not take credit for starting it, but I was part of the start of that. Sam literally had heard from a French retailer that they had tried an incentive related to shrinkage

EDITOR: For all employees in the store.

COUGHLIN: Yes. He brought that back and we talked about it. He asked me to work up some details. Jack Shewmaker and I worked on it, and we came up with a program that was very, very effective that drove the ownership down to the associate level in the store. Because of the profit sharing opportunities they have with us, because of the stock they own in the company, our associates have a keen sense of ownership. That need to protect our assets is there, sometimes to a fault. I think were blessed to have an unusually high percentage of our associates who care about our assets.

EDITOR: That would have been late 70s

COUGHLIN: It would have been 1979.

EDITOR: Way out ahead of retail loss prevention thinking of getting it down to the lowest level, to the associate level. It was a great way to get that value.

The View from the Top

COUGHLIN: Ive had people through the years give me credit for that, but I dont deserve credit. That was part of the culture of this company. This was just another component, another reason to take care of assets, because they were taught the sense of ownership from the beginning. Again, I wont take credit for anything but helping them get it structured and getting it out and communicated.

EDITOR: That program finally died, didnt it?

COUGHLIN: No, it didn’t die. It was converted into a broader bonus program that allowed for much bigger payoffs. It is a key component of our bonus program as it is for the manager’s program.

EDITOR: How do you as the CEO lend support to the loss prevention function?

COUGHLIN: I think its every bit as important for me to be talking about loss prevention on a regular basis as it is for Dave Gorman. For example, I believe when I initiate a conversation about our gratuity policy, it gives a little different meaning that when Dave does. It says that everybody in this organization supports the mindset that we dont want anything extra from anybody. We want the lowest cost from our suppliers to be able to provide everyday low price. Its necessary for me to talk about these issues.

Its necessary for the guys in charge of merchandising to talk about them. The chief operating officer, its acritical role for him, as it is for the people working for him in other areas. Just like it is for the regional operating vice presidents and district managers. When everyones on the same page, the entire organization sees it as a priority.

EDITOR: Youve been on both sides. Youve been a director of LP and had to present your case to try to get things done to support your LP objectives. And youve been on the CEO side where youve had those presentations made to you. Whats your advice on how an LP director or department gets buy in within an organization to their agenda?

COUGHLIN: Ive got a little story to tell you. It was in 1979. Id been here less than a year. I happened to be at lunch with Jack Shewmaker and Sam. And Im trying to look for an intelligent comment to make. You know, youre trying to impress the bosses. They asked me how things were and what I wasseeing. I told them that with the escalating alarm costs, with the geography problems that we had in getting alarm companies to even service our stores back in those days. I told them I believed it would be in our best interest to buy an alarm company and to develop our own alarm company as a subsidiary. Well, we talked about it for a while and they told me to go do it. Now, what the hell do I do? I didnt know that much about alarms back then and even less about buying a business. I want to tell you, thats what is unique about the culture here. If something makes sense, well do it. Well try it at least.

I do know what youre talking about though. I watched it at Cook through the real tough times. All the things that were cut out. Trying to get anything done. The rationalization. Here, you have an obligation to come forward with thoughts that will make the organization better. If they make sense, at minimum they’ll be tested. If they work, they’re going to be expanded rather quickly. Thats why we sit here with the largest alarm company that nobody has every heard of. Its probably one of the largest alarm companies in the world. And its been very, very successful for us.

Theres a good story that goes with this that you ought to know about Sam Walton. I entered into negotiations to buy the company that had been doing our alarm business. The owner of the company wanted a certain amount for his company. Well, I went through the inventory. I went through every piece of the business that I could think of with a couple of people helping me ask the right questions. And, finally I entered into an agreement with him for just over half of his asking price. I came back in to Sam to tell him. I was just so proud of myself.

Sam said, Thats good. Im glad that you acted with the urgency you did. When will you take it over?
I told him.
Then he asked, What are we paying for it?
I told him.
He said, I thought he wanted X for that business. So, I told him what I had done in going through the business.
He said, Tom, I want you to do me a favor. I want you to get a check drafted for the amount hes asking for.

I was crushed. But he said something to me that day that resonates with you when you think about it. He said, That man believes thats a fair price for his business. If we buy it for the price you negotiated, he will not feel good about what has happened. Hes been there for us as weve built this business. So, I want you to pay him his asking price.”

It took me a while to get over it at first. In fact, I came back to Sam about a week later and said, Im struggling with this decision.

He told me, If you do the right things, the right things happen to you. And these are the words I remember more than any: A good deal is only a good deal when its good on both sides of the table.

So, I learned a lesson. Thats how you deal with your suppliers. Yes, were tight. And were tough. But I can tell you that I believe were fair in what we do. And I think its because of the legacy like that.

EDITOR: In the worlds largest retailer, what unique LP challenges do you have or are there unique LP challenges?

COUGHLIN: Youve used twice the phrase the worlds largest retailer, and we are. But to answer your question, Ithink the biggest challenge loss prevention has is the same that the corporation as a whole has. And that is to be this large organization, but act likea small one. I really mean that. I believe so firmly that to be grounded in this community and in every community we operate is extremely important. That same priority needs to be on Dave Gormans agenda in our loss prevention division, with our audit division, with our merchandise division. Everybody needs to understand, to effectively run this huge company, we have to act small.

For example, if you need access to the head buyer of sporting goods, its as easy as your dialing up on that phone there. And most often youll find the buyer answering the phone. With the executives, its the same thing. You may get an assistant answering the phone, but you should not have trouble getting through to anyone. Thats what a small business does. A small business acts fast. I mentioned that earlier. We need that same thought process, that same set of priorities, to act small even when we are big. To act quickly. To do things where people say I cant believe they got that done that quickly is just as important when youre preventing loss as it is when you are acquiring merchandise, companies, real estate, or whatever it might be.

EDITOR: What qualities do you as an executive look for in loss prevention professionals, especially in the context of young people coming out of college into the loss prevention industry?
The View from the Top

COUGHLIN: I dont look for anything different in the qualities of a potential loss prevention manager than I do for a buyer or financial person. I look forsome very specific things though. I look for how well they listen faster than anything. I look at judgments theyve made while theyve been in school. Forexample, if they chose to work and help pay for their education, they have a far greater likelihood of succeeding here, no matter what they do for this company. Were a bunch of plain folks. You dont see anything fancy about the offices. Somebody thats looking for thatand theres nothing wrong with looking for thatis not going to be happy here. Being happy with what you do, what your attitude about being a part of something like this is a critical question. Ive seen great kids who I knew would not fit in. But I see so many more who want to be part of a team as opposed to being the star.

You certainly have your opportunities here. Think about it. If you were to run our transportation division, youre running the largest trucking company in the world. Just like Eric Zorn, another former loss prevention professional, who is the senior vice president of our real estate and construction division. Thats the largest real estate construction group in the world. You could be in charge of recycling and youd have the largest recycling operation. Not, again, that you want to be the biggest, but the opportunities for responsibility are here if youre willing to be a part of a team. But its not for everybody. Thats why I caution our people, know these young people that were talking to about coming in here. Know what they aspire to. Understand whats important in their life and does it match.

Naturally, you look for integrity, straightforwardness. Those are things I look at before I begin looking at grades, not that grades arent important.

EDITOR: For those loss prevention professionals, regardless of their level, who want to look outside of a career in retail LP, whats your advice on how to go about making those changes?

COUGHLIN: The first thing they need to do is make sure they are as well trained in the basics of the business as any management person. They should have all the training that goes into basic retail managers repertoire. Because understanding what people are going through as you make decisions to me is critical. Understanding what the operators going through and what would be a help to the business instead of a hindrance causes you to make much better decisions and develop much better programs.

EDITOR: If you could counsel other executives, what would you say on how they can get the most out of their loss prevention organization?

COUGHLIN: I say again that its the same thing I would tell any associate in any area, because I really dont believe its any different. Its the little things that you do. I send out every day about 3000 emails wishing people happy birthday. That blows me away, but thats what the numbers are in our population. I obviously dont send those out individually. But its nothing more than saying, I appreciate what youre doing for us and I hope you have a special day. And Ill get a hundred a day writing me back saying, You dont know what that means to me.

Its little things that make people understand that you care about them. And until they understand that you care about them, theyre never going to give you what theyll give someone else who does demonstrate that. So, if I ever sense that things arent as tight as they should be. That the morale isnt as strong as it should be. I go back and check myself on how well am I communicating with them to get back what I need out of them. Its the little things that you dothe birthday message, asking how their kid is doing after the auto accident, sending flowers when somebodys ill in the family. I know it doesnt appear to answer your question, but that is my answer: Do the little things for them and theyll do the big things for you.

EDITOR: Where do you see retail loss prevention going?

COUGHLIN: I think this RFID (radio frequency identification) technology is one of the most exciting new things, not just for loss control, for inventory control, for knowing where your product is, for replenishment. Im excited to see that finally somethings being done in the same priority and class level to deal with cost concerns as it is with inventory concerns or sales concerns. Were one of the founding group on the MIT (Massachusetts Institute of Technology)auto ID group. And, were committed to this concept. Youll see throughout our stores and offices, posters and brochures directed at the associates that focus on the relationship between sales and service and source tagging, which is evidence of our commitment to shrinkage and cost reduction. I think that shows that Wal-Marts loss prevention program is an effective piece of the whole picture.

EDITOR: Thank you for your time and your insights. You’ve been great. Im sure our readers will be extremely interested in what you have to say.

COUGHLIN: You’re quite welcome. Best of luck with the magazine.

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