Each year companies strive toward a goal in which the result is the reduction of loss; known to most as a shrink percentage goal. Many companies meet or achieve their goal or better yet maintain an acceptable shrink percentage year over year. Congratulations! Is your loss prevention program now in jeopardy because of your success?
With the current state of our economy and the retail industry, companies are always looking for savings. These savings can be the result of reducing inventory shrinkage, but they could also be the result of minimizing costs. Unfortunately, when a retailer looks to reduce costs, support departments are often the first to be reviewed. These departments “appear” to have the least impact on the overall business, are more difficult to show a direct ROI and carry costs mostly associated with payroll, travel and personnel. Historically, loss prevention departments are included in this category of budget cuts.
But what happens when the retailer needs to make cuts and has a loss prevention program that is successful in reducing loss and/or keeping inventory shrinkage low?
Some retailers will look at the shrink improvement and simply compare these numbers to the cost of their loss prevention program. If an ROI is not there, then it is a simple decision to make cuts and/or changes to the program. Should that be the case for a loss prevention program that maintains good shrink results year after year? Should the program be based on direct ROI from one year to the next, even if it is a minimal decrease, but below acceptable shrink percentages?
A true loss prevention program contains many intangibles, which should be considered the direct result of the loss prevention efforts. These intangibles include; business continuity, deterrence factors, reduced employee turnover, and improved employee education and morale. It is sometimes difficult to show specific ROI for these intangibles as it pertains to the success of the LP program; however they all contribute to maintaining an acceptable shrink percentage.
Think of a shrink reduction program similar to a weight loss program. Many people “invest in” fad diets, pills, exercise programs and the like in order to quickly shed pounds. For some, over time this may work; resulting in the person shedding weight quickly and reaching their goal. Having reached their goal and realizing how much money they’re spending on pills and time they’re spending exercising they decide to cut back; quit the gym, no longer take their pills or stop buying healthy foods. What is the result? Most not only gain back the weight, they often end up weighing more than before!
According to health experts, the best way to lose weight and maintain that loss is through an overall lifestyle change. It is a process, which focuses on changing behavior and provides a well-planned, long term solution. Yes, it does result in the loss of weight, but by staying with these safe and proven techniques there is less chance of a recurring weight gain.
A loss prevention program is really no different. Go fast and quick to reduce shrink and then cut back. What do you think will eventually be the result? A return of high shrink.
A well-thought out loss prevention program that focuses on the need for immediate results (reducing known loss) but changing the behaviors (preventing loss) will give your company the best opportunity for greater long term profitability. Removing the latter will ultimately allow loss to once again increase and now you will be faced with higher shrink and a smaller loss prevention program.
LP Innovations has had the opportunity and privilege to work with many retail partners as well have access to many other successful loss prevention programs across the retail industry. Four key elements we have seen in LP programs that maintain excellent shrink percentages year after year are:
Corporate Buy-In: Loss Prevention is part of the business; involving all levels of the organization, embracing how preventing loss can improve employee relations, operations and the overall profitability of the company.
Company-focused Goals & Objectives: The goals of the loss prevention program are part of the overall company goals and objectives. Everyone understands and accepts the role each department plays, accountability to the company’s success and the consequences.
Focused on Proactive Loss Prevention: Those that are most successful focus on the areas that prevent loss. Training & Awareness programs, shrink strategy plans, perpetual or cycle count programs, data analysis, developing and executing good policies and procedures, proper hiring practices, etc.
React Quickly to Prevent Future Loss: Understand some initiatives are reactive by nature but should be developed keeping a proactive mindset. Investigations, target store programs, compliance audits and even physical security measures are conducted to detect, investigate and resolve loss. However, even these initiatives should be reviewed to learn how future loss can be prevented.
Written by Tim Casey, CPP, CFI
Director of Corporate Services