The Eleven Habits of Low Shrink Retailers

The Eleven Habits of Low Shrink Retailers

In his bestselling book, “the Seven Habits of Highly Effective People”, Stephen Covey presented a holistic, principle based approach for solving personal and professional problems. This got the ECR team thinking, what if for highly effective people we read low shrink retailers, and what then would be the habits of low shrink retailers? Would there be seven?

With this as a brief, Professor Adrian Beck, the academic support for the ECR Retail Loss Group, undertook research to first of all, identify the low shrink retailers and then secondly, to discover common practices and themes that help them deliver their results, or put another way, their habits.

Based on an original survey of leading academics and experts in the loss prevention business, five USA based retailers were consistently identified as the leaders in low shrink, namely Target, The Gap, Limited Brands, CVS and Best Buy. When made aware of the study results, each of the five retailers agreed to participate in the research and welcomed Adrian to their head offices and stores to meet with the loss prevention team and the broader organisation to learn more about how they delivered their shrink results. After visiting all five, Adrian completed a report introducing the loss prevention pyramid, a framework that described the common strategic, operational and executional “habits” he found in these five low shrink retailers.

While there was no question as to the validity of the findings presented, the ECR group believed there was a big opportunity to bring this research up to date, and to turn this research into a practical tool for loss prevention professionals to use in their own organisations, from the board room all the way down to a high shrink store, to help inspire improvement efforts by illustrating the greatest gaps Vs best practice.

Thus, a simple tool was developed with three versions. For top management and for more rapid assessments, there are eleven questions and for each, the respondents, say the CEO would be asked to score how they think their organisation is aligned to each of the habits. Where the respondent judges the organisation to be fully aligned, the score would be 3 and where there is no alignment, the score would be 0. For deeper analysis, there is a version of the tool with 61 sub questions for each of the eleven habits. A third version, aims to strike a balance between the two and has 33 questions

This blog is about introducing the tool, and for you to reflect upon the potential relevance to you and your organisation. To make the blog a bit more interactive, write down and total up your score for each of the eleven questions based on how well aligned or not you think your organisation is to each of the habits. Once done, share your score with your colleague to see whether you both reach the same conclusions.  

Habit #1: Senior Management Commitment: There is senior management commitment to prioritise retail loss, oversee an action plan, allocate resources and monitor results.

In organisations that score nearer three, the CEO is crystal clear on the significance and the impact that good shrinkage management can deliver. They see shrink improvement as a clear part of the company priorities and is able to articulate the benefits of shrink reduction in terms of impact on sales growth, net profit improvement and earnings per share.

In these organisations, the CEO makes shrinkage a regular item at every business review meeting, they communicate shrink to the board, all associates and to key external parties at important occasions and times during the year. In some organisations, the CEO also personally chairs the multi-functional shrink task force.

How does your organisation score?

·        My company is fully aligned on this habit – 3

·        My company is aligned but more needs to be done – 2

·        Some evidence of alignment but at a low level – 1

·        Completely non-existent within our organisation - 0                      

Habit 2: Organisational Ownership: All parts of the business recognise the value of prioritising shrinkage.

Perhaps one of the most challenging of all the habits to align the organisation against since the targets and key performance indicators per function can sometimes be in violent conflict with the goal of reducing shrink. For example, the marketing function may create an over trusting refund policy or a new store design that promotes an open feel for the customer that at the same time may send a message to thieves that the retailer has become a “soft touch”. So while both of these marketing decisions look right against the metric of shopper satisfaction and loyalty, for the store manager, it will likely increase theft and returns fraud. However, in those organisations that score closer to a three, all functions are in fact very aware as to the impact their decisions and choices have on the shrink number. Moreover, there is a broad recognition from all functions that they can be part of the solution. For example, buyers and merchants understand that by reducing range, promotions, pricing complexity, pushing less inventory into the stores and via developing more collaborative relationship with hot product suppliers, that they can prevent and reduce losses.

How does your organisation score?

·        My company is fully aligned on this habit – 3

·        My company is aligned but more needs to be done – 2

·        Some evidence of alignment but at a low level – 1

·        Completely non-existent within our organisation - 0       

Habit #3: Embedded Loss Prevention: All parts of the business are taking action to address the problem of shrinkage.          

Beyond just awareness, in those organisations closer to three, there are clear accountabilities and action plans related to shrinkage in all parts of the organisations including Human Resources, Buying, Store Design, Marketing, Supply Chain, Information Technology, Replenishment, Store Operations, Store Associates and of course, Loss Prevention.

A key enabler to fuller collaboration is trusted, credible and inarguable data, at item and store level, on shrink and sales or indeed a common metric such as Inventory Record Accuracy as argued by Nicole DeHoratius in her research on Engaging the Buyer on Loss Prevention. For example, providing the buying function, with visibility to item level detail on sku integrity, helps inform them that there are negative and positive variances, and helps shine a light on the true profit of each item where there is a high level of negative variance. This helps the buyers take the appropriate decision to continue to carry those items that may have a negative profit after shrink or find appropriate solutions. The retail organisations in the original research were all the very closest to regular item level data on shrink.             

How does your organisation score?

·        My company is fully aligned on this habit – 3

·        My company is aligned but more needs to be done – 2

·        Some evidence of alignment but at a low level – 1

·        Completely non-existent within our organisation - 0       

Habit #4: Loss Prevention Leadership: There is clear and strong leadership in place to effectively manage shrinkage.

In those retailers scoring closer to 3, the head of loss prevention is a highly visible role within the organisation with the leader very close to the top managers of the organisation. Hierarchically, the leader is positioned close to the CEO, within at least three levels, with the skills to promote the benefits of reducing shrinkage in a very relevant way to each stakeholder from the board, to the CEO, to buyers, to the IT group through to the stores. More than ever, the loss prevention leader, needs to convey passion, high energy and possess the ability to sell to others the need to prioritise a relatively unsexy problem using the language of retail rather than security.   

How does your organisation score?

·        My company is fully aligned on this habit – 3

·        My company is aligned but more needs to be done – 2

·        Some evidence of alignment but at a low level – 1

·        Completely non-existent within our organisation - 0

Habit #5: Prioritising People: The company has developed a strong multi-functional team to deal with shrinkage

Beyond just being made up of specialists in security and investigations, the loss prevention teams of low shrink retailers have experts in the team with expert skills in data management, data analysis, work process improvement, project management and technology. Individuals in the team are strong at working with others and skilful in their ability to build and sustain collaborative relationships. Positioned internally as partners to the business, the loss prevention team are seen as “agents of change”. In these organisations, consistent with habits #2 & 3, accountability for reducing losses lies with the business leaders not the loss prevention team. Through this partnership approach, the experts in loss management work day to day with business leaders in buying, supply chain, HR, stores to create and deliver function specific loss prevention strategies. In low shrink retailers, an assignment or career in loss prevention is seen as aspirational, challenging and thus highly attractive to managers looking to advance their careers.

How does your organisation score?

·        My company is fully aligned on this habit – 3

·        My company is aligned but more needs to be done – 2

·        Some evidence of alignment but at a low level – 1

·        Completely non-existent within our organisation - 0

Habit #6: Data Management: The company has available actionable, reliable and timely data on shrinkage

Low shrink retailers have been found to have available trusted, reliable and inarguable monthly item level data on shrink by store. This allows them to create, share and monitor regularly, for example, a top 100 item loss and over lists. This laser focus drives clarity and focus across the business but most importantly, this data enables collaboration and starts to reveal the very many causes of shrink beyond external theft, for many of the top loss items will be non-malicious and a function of simple operational errors such as weight loss, data mistakes, etc. Beyond the item level loss data, low shrink retailers invest significantly in the acquisition and analysis of all types of data, especially point of sale transaction data. Further, the loss prevention teams of the low shrink retailers are very aware of the importance of robust field experiments to inform investment choices.

·        My company is fully aligned on this habit – 3

·        My company is aligned but more needs to be done – 2

·        Some evidence of alignment but at a low level – 1

·        Completely non-existent within our organisation - 0

Habit #7: Innovation and Experimentation: The company is willing to innovate and experiment to deal with the problem of shrinkage.

Organisations scoring closer to three have a strong bias to learning from other, non-compete, retailers and the providers of loss prevention solutions. They believe in the value of benchmarking and practice it to constantly seek innovation in their approach. Low shrink retailers typically have a pipeline of new solutions in about to be tested in stores. 

How does your organisation score?

·        My company is fully aligned on this habit – 3

·        My company is aligned but more needs to be done – 2

·        Some evidence of alignment but at a low level – 1

·        Completely non-existent within our organisation - 0

Habit 8: Collaboration: There is regular collaboration between Loss Prevention, other functions in the business and third party organisations (such as police, product manufacturers, security providers)

The loss prevention team in organisations scoring closer to three recognise that while there is much they can do to improve shrink that is within their own circle of control, there greatest opportunity often lies in persuading others outside of their immediate team to prioritise and execute solutions that can improve shrink. For example, loss prevention in these organisations typically get a “seat at the table” on teams and cross functional teams working on projects such new store design, new supply chain strategies or self-scan checkouts, all innovations that would all have huge implications for shrinkage. Additionally, in these organisations, deep collaboration and data sharing with the suppliers of hot products, solution providers and law enforcement is the norm and not the exception.

How does your organisation score?

·        My company is fully aligned on this habit – 3

·        My company is aligned but more needs to be done – 2

·        Some evidence of alignment but at a low level – 1

·        Completely non-existent within our organisation - 0

Habit 9: Communicating Shrinkage: The issue of shrinkage is clearly and regularly communicated across the organisation.

In low shrinkage retailers, all parts of the organisation gets to hear about shrinkage and what they can do in their function or location to minimise shrink with the relevance and benefits to them very clearly articulated. Communication starts with the Board and cascades down through all functions, external third parties and finally, to the stores. Imaginative and creative campaign themes, often developed with the more creative associates in the marketing team, are communicated and constantly refreshed via newsletters, message boards, events, videos and computer based training. The key elements of the communications include the shrinkage data itself, the actions that each function / location can take to reduce shrink and the relevant benefits. For stores the benefits translated into the impact shrink reduction can have on the annual bonus or the number of extra hours the store has for replenishment can be very motivating. In these organisations, shrink thinking is included in all recruitment interviews and new joiner training. Dedicated and tailored “shrink schools” are embedded in the company training and store manager support programme

How does your organisation score?

·        My company is fully aligned on this habit – 3

·        My company is aligned but more needs to be done – 2

·        Some evidence of alignment but at a low level – 1

·        Completely non-existent within our organisation - 0

Habit #10: Operational Excellence: All parts of the company recognise the link between poor process adherence and shrinkage                                         

In low shrink retailers, shrink is seen as a problem that is within the control of the organisation and one that will respond to good management and adherence to good procedures, especially related to the high shrink products, people, stores or processes where there is a known heightened risk level. This belief is explained by the widely held view that shrink is the consequence of poor compliance, audited regularly by the company, or a choice made at a functional level that has led to the emergence of an increased opportunity for non-malicious or malicious loss to occur in the stores. In the best organisations, these choices and decisions are made with the consequences on shrink highly visible and transparent in any business case. For example, if the organisation is planning on introducing self-scanning devices, then an adjustment will be planned for the shrink budget to be increased based on the test results. 

How does your organisation score?

·        My company is fully aligned on this habit – 3

·        My company is aligned but more needs to be done – 2

·        Some evidence of alignment but at a low level – 1

·        Completely non-existent within our organisation - 0

Habit #11: Store Management Responsibility: Store managers and associates are given the necessary data, tools and training to enable them to deal with shrinkage effectively

In low shrink retailers, stores are very aware of their shrink numbers, communicated as regularly as the sales numbers and the other cost centre data such as wages. The Loss Prevention team develop dashboards and alerts to help the store focus on the vital few priorities and realistic targets are given to stores on the basis of robust analysis of their previous performance and risk level. All store managers and associates are highly engaged in the reduction of shrink and receive from the company. Most importantly, the store associates engagement on shrink must be lead by the Store Manager, as our research on Employee Engagement and Retail Loss highlighted, when the Store Manager leads by example, sets high standards, listens and positively appraises store associates, high engagement on retail loss follows. The role of the loss prevention team is to provide the right additional support, training and resources to help the Store Manager effectively deal with shrink in their particular operating environment. 

How does your organisation score?

·        My company is fully aligned on this habit – 3

·        My company is aligned but more needs to be done – 2

·        Some evidence of alignment but at a low level – 1

·        Completely non-existent within our organisation - 0

What was your total?

No matter whether you have scored 33 (congratulations) or your total adds up to any other number, the question is whether you think there could be value in enrolling your team to see if they and their peers agree with your assessment, the final number and the particular habits where you are strongest or have the greatest opportunity

For the record, what we have heard back from retailers who have started to use this tool is that the biggest benefit is that it is a great way to start the conversation on loss prevention strategy and how the team can learn from others as to how they are perceived and where their immediate priorities for improvement lies.

If you would like a copy of the tool, please email me, Colin Peacock, at colin@ecrloss.com