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    INDEPENDENTS REPORT: Loss leader

    Shrink prevention requires policing, but the solutions must go much deeper into a grocer's operation and culture. Here's a procedural from an expert.

    Why do people steal? It's a mind-boggling question that supermarket owners and managers ask themselves practically every day.

    According to Larry Miller, one of the industry's leading loss prevention experts, the answer is simple: because they can.

    "Why do we sometimes speed when driving our cars down the freeway? Most often we do it because we realize that there are no cops in sight, and no radar is tracking us."

    The founder and president of Scottsdale, Ariz.-based Trax Retail Solutions, Inc., Miller is highly regarded by the food industry. His clients include Albertsons, Supervalu, Stater Bros., Farm Fresh, Harris Teeter, Heinen's, Stop & Shop, Osco Drug, Nash Finch, and many others. "Our overall purpose is to help retailers to optimize net profits by implementing in two areas best practices approaches to loss prevention: store operations and employee training," he says.

    While motivations for stealing, and the psychology involved in preventing it, are worth exploring, from Miller's perspective the problem's much bigger than theft. "Shrink, which today costs the average 40,000-square-foot conventional supermarket 2.32 percent of top-line sales, or nearly $450,000 per year, isn't just about employee or vendor theft, nor is it simply about detecting and apprehending shoplifters. There are numerous other causes of shrink in retail that must be consistently managed, including cashier errors, back-door receiving inefficiencies, pricing mistakes, improper ordering, accepting distressed merchandise upon its arrival at the store, overproduction/display of perishable products, and so on. How well we control these things has a profound impact on profitability."

    Miller's convinced that the key to net profit optimization lies in the culture of the individual company itself. "It all starts at the top," he explains. "Leadership must be at all times sales-driven and control-focused.

    "Company presidents must have a legitimate interest in loss prevention in order to drive profits at the core level. Those who establish and personally participate in education programs and shrink task forces within their organizations, and those who insist that the 2.32 percent industry average for shrink is simply unacceptable, will experience great gains."

    Using technology

    The culture is just a start, however. "Building a company culture to improve shrink is, on its own, not enough," cautions Miller. "Management must incorporate into the operation, at a minimum, two or three technologies that enable best practices."

    The portfolio of potential technology-based loss prevention includes:

    -Cashier exception reporting designed to detect theft, fraud, and errors at the front end.

    -A back-door receiving system networked to POS and accounting systems.

    -Data-mining technology, which features built-in intelligence that eliminates wasted time when investigating suspicious POS activity.

    -Closed-circuit television systems and "smart cameras."

    -Case management software to reduce paperwork and improve productivity when managing and tracking shoplifting, cashier fraud, internal theft, risk management incidents, and restitution payments.

    At the same time, the loss prevention expert warns retailers not to expect that buying the right technology will solve all of their problems. "The key is to remember that technology is not a cure-all," he says. "It only enables behavior modification -- it doesn't cause it."

    A 35-year food industry veteran whose tenure includes 25 years in retail store operations, Miller has a prescription for storeowners and managers looking to optimize net profits by stemming the flow of losses streaming out either the front door or the back door.

    Develop an ongoing shrink awareness training program that you apply to new hires.

    "It's important to infuse an organization with new blood that understands the impact of shrink on their company and their future," notes Miller. "An effective shrink awareness training program outlines for all associates the definition and causes of shrink, and provides solutions as to what can be done to reduce and prevent it. Develop the program and make it a mandate for all new hires; then provide the same training for all existing employees."

    Focus on shrink prevention in perishables.

    "During the past six years, the amount of shrink in the perishables departments has consistently increased," reports Miller. "Perishables departments today represent a higher percentage of total store sales and truly set a store's brand apart from the competition. Mass merchants are forcing conventional operators to increase variety and quality as a means of differentiation. This is especially the case in the produce department, which accounts for nearly 57 percent of all perishable shrink."

    Why so much concern for produce? "There's no doubt that produce has become one of the most important departments in that it's exposed to customer senses and is indicative of how customers view a specific store. However, the department also presents great risk for shrink (6 percent to 7 percent of total sales, according to Miller), because most items are unwrapped, displayed in bulk, and are handled directly by the customers."

    He adds, "Proper ordering, handling, and displays are crucial to controlling produce shrink."

    Minimize cashier- and employee-caused shrink.

    "Our latest research indicates that 50 percent to 55 percent of total store shrink is employee-caused," says Miller. "While many make honest mistakes on the job, others are unfortunately involved in theft and fraud, especially at the front end. Proper controls and frequent communication must be in place in order to minimize losses. Be forthcoming with your associates as to their performance as it relates to store shrink, and share with them on a daily basis your commitment to controlling shrink within the store."

    He's not exaggerating when he says "daily." "Remember that there's no 'instant pudding' when it comes to loss prevention. Management must be consistent and provide a constant flow of reinforcing information that causes employees to be part of a solution."

    Provide outstanding leadership and organization within the company.

    Miller stresses that a leader who demands that associates reduce shrink without providing instructions is in no way helping the cause. "We're way beyond a catch-'em-and-arrest-'em approach to reducing shrink in today's fast-paced environment. Professional loss prevention can't be viewed as store security, but rather as a vital imperative for how we must properly manage our stores. Dollars added to the bottom line can be reinvested in stronger ads, improved facilities, or new products."

    He concludes, "Overall, a comprehensive loss prevention program provides a strategic advantage in the marketplace that's as important as pricing, people, and merchandising."

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