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Walmart’s Neighborhood Market Grocery Business

EDITORS NOTE: Gary Smith, LPC, is senior director of asset protection for Walmarts Neighborhood Market line of smaller scale, grocery-focused retail stores. He has held several positions in asset protection, operations, and logistics in his nine years with Walmart. Smith served three years as an officer in the US Air Force after graduating from Delta State University in 2003 with a finance degree.

EDITOR: What are the Walmart Neighborhood Markets? How many stores are there?
SMITH: We are primarily a grocery business for the Walmart small-format group. Neighborhood Market stores are typically around the 40,000-square-feet footprint, so we operate on a much smaller scale than our Supercenter format. We have approximately 750 stores as of the end of 2015. We expect customers to go to the Walmart Supercenters for their big stock-up trips, but for the customer like me that needs to pick up something for dinner on the way home from work, the Neighborhood Market offers a close and quick shopping option.

EDITOR: When you started with Walmart, was it specifically to run the Neighborhood Markets?
SMITH: It was not. Ive been with the Neighborhood Market team since November of 2014, which was when we separated our Neighborhood Market business from the Supercenter business in order to focus on the refinement and growth of the Neighborhood Market format.

EDITOR: When did you start working with Walmart?
SMITH: I was an officer in the United States Air Force for three-and-a-half years before I joined Walmart. I grew up in a very small town in Louisiana where Walmart was a big part of our community. My mom has worked at Walmart since I was in high school, and some of my family members are long-term Walmart associates. I started in the asset protection world spending my first few years in logistics before transitioning into the retail side in a few different roles. I was a market asset protection manager, then a regional asset protection manager. I spent a little time outside of AP in the health and wellness division, and then came back as a divisional AP director. In my current role, I serve as the AP senior director for the Neighborhood Market business. Ive been with Walmart for nine years now, which seems like a blink of an eye when youre doing so many things. But its been a good ride for me.

- Digital Partner -

Gary Smith Walmart's Neighborhood Market Grocery Business Image 2

EDITOR: Having worked on the Supercenter side previously, what differences do you see now that youre in grocery?
SMITH: The difference is really the composition of where shrink occurs. Most of our shrink is driven around process execution. Our focus has been much more in tune with how we manage inventory growth and how we dispose of damaged inventory and returns. Much of our shrink dollars are driven by the grocery division, and weve had to do some things to address that specifically. We also carry a large health-and-beauty merchandise selection that we have to manage for shrink risk.

EDITOR: What are some of the programs you have in place to help manage those processes? Is it auditing, or is it something else?
SMITH: Its a combination. Weve rolled out quite a few audit-based programs, and because I dont have AP resources in each of these smaller stores, its more focused on the operators being very engaged in the shrink aspect of the business. We have weekly checklists for shrink with a few different categories. We have to execute general controls from the back door to the front door. We have to manage our inventory and ensure were carrying productive levels. We have to execute processes for merchandise returns and damages. We have some really robust programs that weve tried to make pretty much plug and play.

EDITOR: How often do you take inventory?
SMITH: We inventory once a year, though weve done some preliminary inventories just to gauge if some of the programs and processes that weve put in place are working. We did a few back in our first and second quarter last year. We saw some wins, but also identified some opportunities weve been able to address, especially those tied to opening up new stores. Weve seen a lot of traction with the key performance indicators that typically tell us that shrink is moving in the right direction.

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EDITOR: Have you established any special interest type of programs for those stores that are tracking higher in inventory losses?
SMITH: We do have some specialized auditswe call them interventionsfor those stores that reach a certain threshold of high shrink. I have a specialized group that does key work around investigations for those stores. Well send them into those stores, complete a very comprehensive audit, and make sure that we have a good plan for that store to course correct. We also have a corporate shrink training class. Once a quarter, we bring everyone to a central location to teach those store managers, market managers, and AP leaders the basic tenants around shrink. We try to keep it aligned with the programs we already have going, because typically when we have a struggling store, its not about deciding if we need to run a different play; its about making sure they are clear on how to execute whats already in place.

Gary Smith Walmart's Neighborhood Market Grocery Business Image 2

EDITOR: You mentioned key performance indicators. What are the components of your KPI program and how do you use them?
SMITH: The key components are around inventory. But the biggest correlator for us when it comes to overall retail shrink performance has been inventory growth. Another KPI that we focused a lot on in the recent quarter has been customer availability. Its a bit more sophisticated than some hard numbers that you can just pull from a financial and profitability index. It gives us a ratio of which items in the store are not maximizing sales throughout the trended time frames, which helps to understand why those items are not generating the sales they should be. Then obviously there is the theft aspect, for both internal and external cases.

EDITOR: How do you sense the balances between internal and external issues?
SMITH: Its really regionalized, to tell you the truth. If Im in a more rural area, just like any other industry, I tend to have less external and more internal. If Im in a more metro or urbanized environment, its more external versus internal. So we tier our stores based on their shrink performance, based on their crime-index scores, and based on some of those historic case data points. Then as we open new stores, we can predict which of them are going to be our opportunity stores, and we make sure we align our resources around those stores. When we launched a dedicated AP team for Neighborhood Markets, our internal cases grew exponentially. Weve since seen it start to taper down as we drive controls, programs, and more aligned store leadership that create a deterrence factor.

- Digital Partner -

EDITOR: Which types of product do you tend to have the most problems with from a shoplifting point of view?
SMITH: Meat has been a big opportunity for us and one that was surprising to me coming from outside grocery. We see large cart push-outs of meatnot just one or two units. Weve also had a lot of issues in beauty. Weve seen issues with the Tide pods in chemicals. Weve had your traditional razor cartridges. Our key areas have been mixed in higher than I would have expected coming into this business.

EDITOR: What types of technology do you utilize to help you better understand losses?
SMITH: We do have EAS in our stores. We also have CCTV systems, and were graduating to more sophisticated 360-degree cameras and digital cameras to make sure that were getting a better return on investment.

Weve also been using an exception-based system for POS to identify internal and external case activity. I have a group of specialists who work only with our exception system to determine if were seeing a process training issue or an integrity issue. Then my field team can either follow up and work the case or partner with the operators to get the opportunities addressed.

Right now we have an expanded pilot of some technology dealing with returns re-engineering and getting more data analytics around how we accept returns in our stores. I think that program will have a big impact on organized retail crime (ORC), which has been quite active for us as we see some individuals and groups abusing the system, especially theft from a Supercenter that ends up returned to a Neighborhood Market. We want to be able to offer returns in a way that provides great customer service while ensuring our programs arent abused. I feel the new returns program will make some great improvements there.

EDITOR: If product is stolen from a Supercenter and returned to you, can you identify that product as not being from the Neighborhood Markets?
SMITH: Its typically items that we dont carry. We carry about 30,000 SKUs in the Neighborhood Markets, while a Supercenter carries about 100,000 SKUs. So when we end up with merchandise we dont carry, all we know is they didnt get it from a Neighborhood Market store. I think as we roll out the returns re-engineering, and we continue to use analytics to see whos returning what and tie together those different methods of returns and payment, were going to be able to curb much of the abuse.

EDITOR: Do you have any special product protection?
SMITH: We have merchandise protectiontraditional Alpha Keepers, things like that. We also utilize in-line, public-view monitors for specific categories. Thats something that weve really pushed this past year, specifically in our beauty department and some of the other key categories throughout the store. And its been very impactful. We piloted about 200 stores last year, focusing on key areas that we knew were opportunities for us, and we saw some big shifts in shrink in those stores compared to the fleet. So were going to expand upon that program this year.

Gary Smith Walmart's Neighborhood Market Grocery Business Image 3EDITOR: How is your LP team organized?
SMITH: Im one of nine senior directors who report to Mike Lamb, our vice president of asset protection and safety. In our Neighborhood Market business, we have six regions, and I have a total of six regional senior managers who report to me. We built a three-pronged approach for supporting the operators. I support the executive vice president and also two of the senior vice presidents of operations. So I have to be in a lot of different places at the same time.

EDITOR: Do you also have people in-store to help you?
SMITH: I do. We have a framework for market asset protection managers, though their markets are somewhat larger than the Supercenters. I also have a core group of asset protection managers, who each cover multiple stores. And I also have a subset of store asset protection associates who catch shoplifters in some of the tougher environments where we have stores.

EDITOR: Do the Neighborhood Markets have pharmacies aswell?
SMITH: We do have pharmacies. Thats a primary driver of our business overall and a key component of our businessmodel.

EDITOR: Does managing pharmacy losses fall under your responsibility?
SMITH: Behind the pharmacy counter, loss is mostly managed by our pharmacy division, but when you look at over-the-counter (OTC) merchandise, that is our responsibility. We do see some ORC opportunity in the OTC pharmacy business. Another process opportunity that were working to mitigate even more has to do with how we fill prescriptions with over-the-counter merchandise and how that merchandise transfer happens from the financial perspective. There are some exposure opportunities for us with those processes that were working to address now.

EDITOR: Is safety a responsibility of your asset protection team?
SMITH: Yes, we are responsible for the safety program. I have a safety department senior manager who is assigned to my business as well. Theyre primarily involved in ensuring our corporate programs from other parts of the organization are considering safety. They also assist with weekly reporting, tracking, and identifying concern areas. But my team is the primary day-to-day driver of the safety program. That includes weekly safety team meetings, making sure that were facilitating appropriate reporting around accidents, and promoting a positive message and culture around safety. Even with the store growth that weve hadweve doubled our fleet since this time last yearour accident rate has actually gone down several percentage points, so to me thats success since youd think that typically new stores would bring a bigger opportunity.

EDITOR: What types of training programs have you developed for in-store associates and operators?
SMITH: Weve used what we call centers of learning to really drive a center point for being able to train our new stores out in the field in order to conduct specifically process-driven tasks. So as we open new stores or as we need to retrain stores, we can send our associates through that center of learning for them to get brought up to speed on theprocess.

EDITOR: Do you have any ongoing awareness-focused programs specifically designed for operators to understand what to do if theres a shoplifter or what the right processes are to reduce operational shrink?
SMITH: Yes, we do have training programs around shoplifting to ensure our associates know their role and what must occur before an apprehension can be made for associates authorized to do so. On a quarterly basis, I require our market asset protection manager teams to go through and do organized training with those authorized associates within a market. Weve also developed an awareness program around the top shrink items in the stores. On a weekly basis we focus on a specific item, so our associates know how much in shrink per store that item has caused for us over the past year. That program really helps to drive awareness around those items as well as awareness of shrink in general.

EDITOR: Is spoilage a process issue that you pay attention to?
SMITH: Definitely. As I meet and engage with my peers in other retail environments, I see that for them just as for us, the fresh departments are a very critical department for the grocery business. At the Supercenters we focus more on the retail shrink side, but from the perspective of the Neighborhood Markets, profit is really driven by being as efficient as possible in the fresh departments. So were partnering with our teams that drive the fresh business to try to optimize our role around the fresh inventory process. You have to know what you have first, and then you have to know what spoilage is happening versus where the shrink ishappening.

EDITOR: When you talk about spoilage, is there also spoilage associated with your deliveries?
SMITH: There definitely is. If we end up with a pallet that falls over and have to incur that loss at the store, it could be a big drain on the profit and loss. So were looking to automate that process now. We are piloting a program that allows our store managers to file a spoilage claim via their mobile devices. They would take a picture, submit it to our distribution center via an app, and within a few minutes theyd know whether theyre going to be credited for it. My AP team doesnt usually get involved in the day-to-day claims process for spoilage, but we do facilitate the process once it happens. If we need to reach out to the logistics team or to any of our vendors, we do just that.

The other logistics piece right now involves how we get freight to our stores. It works basically the same as how get freight to our Supercenters. That might need to evolve somewhat, since typically we cant fill a truck with one Neighborhood Market, so we have multiple stops. So we have to understand trailer seal control, making sure that people are pulling the right pallet at the right store from the right truck. Those types of obstacles are critical for us, so we do a lot of training and awareness building related to that.

EDITOR: Do you have specific delivery controls around vendors bringing items in through the back door?
SMITH: We have several controls. We require our DSD (direct store delivery) vendors to sign in and out. We assign them a badge at the back door. Those individuals who come through the front door are required to sign in at the back door before they come in. No one is allowed to bring in merchandise through the front door. And we make sure that were getting our credits taken care of before we accept deliveries, that were counting the merchandise ourselves, that were validating the invoice to the merchandise. Thats really the nuts and bolts of our program, and its been very successful for us this year. Our DSD shrink is down versus last year pretty significantly, but were going to continue to drive that since we do have quite a few DSD vendors in the Neighborhood Markets.

EDITOR: Will you or anyone on your asset protection team be attending the Food Marketing Institute asset protection conference in Tucson inMarch?
SMITH: Im on the FMI council, so I do plan to be there and spend time with my peers in the grocery segment. Ill also have one of my senior managers there with me this year.

EDITOR: Is anybody on your team making a presentation at FMI?
SMITH: Right now were slated to be a part of a crisis management presentation around rioting and store disruption. Unfortunately, weve had a lot of experience with some of the recent events around the country. Im coordinating between our global security team, our emergency operations group, and some of the field team members to be a part of the panel at FMI.

EDITOR: Thank you, Gary, for spending time to help us understand Walmarts Neighborhood Market business better. As a media sponsor of the FMI conference, well look forward to seeing you in Tucson.

EDITORS NOTE: The FMI asset protection conference is scheduled for March 1417, 2016, at the Westin La Paloma Resort & Spa in Tucson, Arizona. For more information, visit the Events pageat

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