It’s always refreshing to see a company that’s been in operation for nearly a century adapt new technologies and move away from old ways of doing business. There is somewhat of a danger in being in continuous business for that long—the danger of complacency; the danger of thinking “We’ve always done it that way;” or even the danger of simply bucking change for the sake of taking a safe, risk-free position.
Pep Boys is a company that has seen substantial change in the ninety-one years it’s been in business. This American auto parts icon hardly needs an introduction. Originally founded in 1921 as a single retail location in Philadelphia, Pep Boys is now a $2 billion powerhouse that operates over 700 stores throughout the U.S. and Puerto Rico, as well as running over 7,000 service bays.
It’s a multi-faceted business operation that caters to all aspects of the consumer automotive industry, from parts and service to shade-tree, do-it-yourself mechanics. Pep Boys thoroughly embraces the unique American love affair with the automobile, and carries thousands of aftermarket parts for customizing your ride; a pastime that is perhaps more important to Americans than any other culture in the world. If it belongs on a car or truck, there is a good chance Pep Boys can sell it to you, fix it for you, or upgrade it.
A Multifaceted Loss Prevention Landscape
It’s hard to encapsulate the loss prevention challenges endemic to Pep Boys without having a good feel for the landscape of this very diverse company. While Pep Boys has the usual retail challenges, it must also contend with some issues that are peculiar to the type of business it conducts, which is more or less unlike anything out there. The business model isn’t solely retail, it is also comprised of a service segment with lots of parts, tools, and other consumables to track, as well as a massive reverse logistics model to track core returns. On top of that, Pep Boys also has five distribution centers, where the chain’s gargantuan parts supplies are stored. Finally, there are over 19,000 associates who work in the stores as well as the distribution centers.
Not only is Hoppe a career loss prevention and operations professional, he’s also a career auto parts expert. Hoppe got his start in the industry in 1995, when he began a stint with Western Auto Supply Company, where he was a store manager for two years. After that, he embarked on a ten-year career with auto parts giant Advance Auto Parts, where he started as a store manager. By the time he left Advance in 2008 to join Pep Boys, he was in charge of asset protection for the company.
While career loss prevention executives aren’t particularly rare, it’s definitely rare to see an executive who has worked within the same industry segment for his whole career. Typically, loss prevention executives tend to cross-pollinate, moving from retail segment to retail segment, even though the actual product each company sells might be totally different. In this case Hoppe brings a remarkable amount of focused expertise from which Pep Boys can directly benefit.
The Way Things Were
When Hoppe came on board in 2008, he found Pep Boys to be pursuing an asset protection model that was, for the most part, outdated. “We were following an SOP-based model,” says Hoppe, “a model where we would conduct lots of investigations and audits.” As a matter of fact, Hoppe found that the LP staff in place included top-notch professionals who believed in what they were doing and gave asset protection their best efforts. Whereas a substandard AP model can oftentimes be blamed on substandard personnel, clearly, this wasn’t the case at Pep Boys. It was just a matter of the way they were looking at the problem.
Hoppe has an interesting, but poignant anecdote to describe the problem: “When someone walks into a Home Depot and asks for a drill bit, what do they really want?” he muses. “They want a hole. That’s the problem. We were so focused on the drill bit that we lost sight of the hole.”
Essentially, what the LP department of Pep Boys was trying to do was to kill the shrink problem with standard operating procedures, almost, in a sense, trying to legislate the shrink problem out of existence. Areas of shrink would be indentified, and then large, detailed, and expansive audits would be performed. The audits would in turn prompt the genesis of a new series of rules, procedures, and checklists that needed to be followed by the individual store—all the while completely missing what the root cause of the shrink problem was in the first place. “Our entire shrink plan was SOP based, with not a lot of root-cause analysis,” states Hoppe, “We were doing things that were industry best practices for years, but we wound up with hundreds of SOPs.”
As with other companies, Pep Boys also had a strong investigative loss prevention model that focused heavily on investigations, both for internal and external theft. The investigations model is a vestige of early loss prevention efforts, a mindset of cops versus criminals, and curiously, it still pervades modern loss prevention even though it’s been proven multiple times in different market sectors that outright theft isn’t usually the major cause of shrink within an organization. “We were seeing shrink as a theft problem rather than a business problem,” says Hoppe.
All of these audits and SOPs were eventually becoming burdensome to the stores and store managers, who simply couldn’t keep up with the rules and procedures being pushed down from above. “With all the stuff a store manager has to think about, you’re getting his attention for around 15 to 30 minutes per week,” states Hoppe, who soon realized he needed to remove burdens from stores, rather than add to them.
Turning the Rudder
It didn’t take Hoppe long to realize that the ship needed to change course. He took stock of his situation, and found himself surrounded by quality and seasoned loss prevention professionals, but ones who needed a new focus. According to Hoppe, “In my mind there are three different types of loss prevention organizations. The first is the police/audit type, where everything is a criminal investigation. The second is the consultant culture, where extensive rules are developed and an attempt is made to legislate shrink out of existence. The third is what I call ‘operationalizing the LP,’ and that’s what we went with.”
Even though you might not find “operationalizing” in your dictionary, Hoppe’s concept of the idea definitely bears looking into. Essentially, Hoppe implemented a structure in which loss prevention professionals started to perceive themselves as business partners with operations. They began to take ownership of loss prevention problems rather than blaming it on another department or even some unseen thief. “Cradle to the grave, we now own the shrink problem,” states Hoppe. “We all share the responsibility to manage shrink.”
An excellent example of this was Pep Boy’s move to have high-shrink products spider-wrapped at the distribution centers as well as reaching out to vendors to have them rethink their packaging rather than letting the stores deal with the problem. It was a classic loss prevention problem—certain products were packaged from a sales standpoint rather than from a security standpoint. In the old way of doing things, “We would build an extensive audit and then update the SOP,” says Hoppe. In the new way of doing things, “We had the distribution centers wrap the merchandise. They’re set up to do that, while the stores aren’t.” The solution not only solved that particular shrink problem, it shifted the burden of dealing with that problem away from the stores and onto the distribution center, which was better equipped to deal with it. “We needed to take the job of merchandise protection out of the stores,” states Hoppe.
Ownership of shrink is also a big theme in Hoppe’s master plan. He describes former practices at Pep Boys like this: “In the past, we’d send an auditor to a store. Twenty-one days later, an investigator might come by. Seven days after that, perhaps an AP manager would pay the store a visit. Then there would be a question; who owns what?” This example illustrates the overlap in duties, as well as the complete lack of ownership of the actual responsibility for the problem.
Like many loss prevention executives who have seen the light on outdated LP models, Hoppe started out in part by eliminating certain roles within the LP department. The investigator role and the auditor role were axed, with those personnel shifted over to the larger, more overarching asset protection role. Hoppe then modeled the organizational structure of these personnel after the operations division. For each operations position, a corresponding asset protection position was created, and thus the area and divisional levels of operations and LP became perfectly aligned. Currently, each AP manager is responsible for everything shrink and claims related within the stores under his control.
New Ideas and New Technology
Hoppe’s new ideas came in the form of an “eye-level” shrink program, comprised of three separate components. First off was the requisite corporate culture change needed in order to convince non-asset protection employees that AP was important and reducing shrink was everyone’s responsibility. This was followed by innovation, which comprised of SOP refinements and the building of a better AP process. Finally, some investment was inevitably needed to equip Pep Boys with a much needed shot in the arm technology wise.
Part of Pep Boys’ technology purchase was devoted to the widespread roll out of CCTV systems and DVRs, which the company had previously not devoted much attention to. This also helped the company curb in-store theft as well as the inevitable shrink and accidents that are associated with Pep’s service-bay operation.
One of Pep Boys’ biggest process refinement and technology rollouts revolved around the reverse logistics model that necessarily pervades their operations. It’s a problem that’s peculiar to auto parts and similar stores, and it revolves around the concept of a core charge. The way it works is that the customer orders an auto part, and besides the cost of the part itself, the customer is charged what is known in the industry as a “core charge.” The customer then installs the part he or she purchased, and brings the old part back into Pep Boys, and is subsequently refunded the core charge fee. From there, Pep Boys sends the old part to be refurbished and then the refurbished part is sold again, starting the process over again.
With this model, the customer had an overwhelming incentive to return the old part, because they inevitably wanted a refund of their core charge. Pep Boys associates, however, had no such incentive, and subsequently, many core return parts were thrown away, forgotten, or lost, resulting in a huge expense. Realize that without the rebuildable core, Pep Boys can’t resell that part, and the part therefore becomes a loss to the company. “Ninety-five percent of our reverse logistics never made it onto the pallet,” says Hoppe, speaking of the way it used to be. “It was process shrink, not theft.”
Hoppe decided to curb this by giving each core part a bar-coded “license plate.” Now, when a core part is returned, it’s scanned into the system and tied to a manifest. Hoppe and his team can now tell whether that part made it onto the pallet, and subsequently made it to the distribution center. “Before, there was a lack of buy in at the store level. It resulted in a big, black hole at the end of the year,” says Hoppe.
Associates were also polled, asking their opinions on the AP process in general. During this process, it was noted that the conventional LP awareness program using posters that were posted in each retail location were universally disliked and seldom if ever read. Hoppe and his team replaced these with a fun course and more personalized instruction at the behest of employees, which has thus far turned into a success. In addition, the program includes an online training technology that encourages associate participation and reinforces the messaging (see sidebar page 46).
The Road Ahead
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| Kevin Cook |
With current shrink numbers literally a shadow of what they used to be, one would think Hoppe would have every reason to sit on his laurels and simply keep going in the same direction, but he’s not. This may be part of the reason he was promoted to the coveted role of VP of store operations. While AP still falls under Hoppe’s jurisdiction, he could have easily filled his old spot with one of his protégés. However, he decided to take a different course of action, hiring LP industry veteran Kevin Cook to lead the charge.
Cook is also a veteran of Advance Auto Parts and is extremely results driven. When asked why he would recruit someone outside the company rather than promote from within, Hoppe stated, “I knew he would come in and question everything I did. Kevin’s mandate is to improve on what we have right now, not what we had four years ago.”
It’s an interesting philosophy to be sure, and it’s a bold one as well, since all of Hoppe’s decisions will be scrutinized for efficacy at his own behest. Putting a fresh set of eyes on what Pep Boys has been doing for the last four years under Hoppe’s watch is also incredibly humble, to say the least. That’s mainly because Hoppe is trying to build a leaner, meaner Pep Boys rather than trying to validate his accomplishments. “He’s going to revisit everything I’ve done,” states Hoppe.
