Having an established corporate strategy for loss prevention and shrink reduction is absolutely necessary, but is it the best approach to reducing overall company shrink? The Pareto Principle, also known as the 80/20 rule, often holds true when looking at a company’s shrink loss; 80% of a company’s shrink comes from about 20% of the retail locations.
Not all stores are alike, nor are they contributing the same to your company shrink. Having a singular strategy or program designed and executed the same across all locations will not help you drive shrink down in an effective and efficient manner.
Results from the 2010 Global Retail Theft Barometer revealed that having a geographical or target store program proved beneficial to overall shrink reduction. Professor Joshua Bamfield, Executive Director of the Centre for Retail Research and author of the study stated in this report, “understanding geographical differences and trend lines is invaluable to LP professionals and retail executives looking to craft ideal strategies for each store.” Professor Bamfield added, “That’s why smart LP professionals not only have a corporate strategy for shrink management, but a tactical plan for each major geographical region.”
A company that has both a corporate strategy and a target store program to combat specific locations (based on certain criteria), will most certainly find better results in the reduction of shrink.
The following is a 3 step process for attacking locations with a targeted or geographical plan of action.
Selection: Identifying the right group of stores is the first step in the process. Analyze your stores not only by shrink percentage but by other factors as well. Sometimes only reducing the shrink percentage will not give you the biggest bang for your buck. Look at dollars lost, incident history, store performance and historical trends. For more information on this topic, read Researching Inventory Results for a Targeted Approach.
Another beneficial review would be to benchmark your shrinkage with other retailers within the same geographical area or retail category. The National Shrink Database is a FREE online resource for a retailer providing statistics and analysis of shrink rates and loss prevention countermeasures displayed across the industry, by retail categories and geographical areas. Knowing the “landscape of loss” from a collective group can assist you in better understanding what you should expect from your locations.
Program Development: Come up with a specific plan of action to improve loss prevention performance in each targeted location or geographical area. This should include increased in-store presence by LP personnel, additional shrink audits or visibility visits, focusing on reducing loss. Additional store or district meetings and awareness materials should also be considered. Of course, all initiatives should be developed and executed so they can be measured and analyzed to determine success.
Execution: Building a target program for individual locations across your chain or within specific geographical areas will take additional resources. The execution of the program is what makes the difference. Often the natural decision is to put the ownership on Operations (regional or district management) as they are the ones most often in the retail locations. Although Operations will have a role and responsibility in the overall program, it is not advisable to have them lead the execution of the program. With the focus being the reduction of shrink, the proven approach is to have a team most familiar with loss prevention and shrink reduction to be the team executing and analyzing the initiatives. (Read “Why don’t my audit scores predict shrink?”)
If internal resources are not available (travel restrictions, expense or payroll costs, personnel headcount), there are resources available to support your initiatives. Loss prevention outsourcing has become widely popular over the past several years. With proven strategies and results in reducing shrink, outsourcing has also shown to be very cost-effective. This resource can be available to support target store programs, temporary oversight for specific regions of stores and even as a long-term solution in lieu of internal resources.
When it comes time to develop your initiatives to reduce shrink, remember the Pareto Principle (80/20 rule). Focusing on the right locations will most certainly improve your overall company shrink and therefore, the overall profitability of your company.