In consumer based businesses we operate on interesting planning time-lines. We plan our first quarter budgets and activities well before the previous year ends, we tend to wait on mid-year results to enact new strategies and by September new, even critical initiatives are held off on until January. In many cases the selling cycle mandates such tactics and it makes sense. In other cases, it simply doesn’t fiscally add up. Shrink or loss control is a good example of the latter.
For many companies the fourth (or last quarter of the year) is a “make or break” proposition. The final months of the year will represent in the neighborhood of 40% of our total business. And yet we save many of our key loss prevention strategies for January - a time when it is too late to impact the just passed holiday season. There are, of course, budgetary reasons for this decision. It can be difficult, if not impossible, to wrestle new funds in the fourth quarter. Since success, however, is equal part planning and equal part execution, the final months provide many opportunities to both implement strategies and save on losses. If it is, in fact, 40% of our revenues then shouldn’t that time period get an equal share of loss prevention?
I won’t burden you with a lot of math - mostly because it isn’t my strong suit - but even some simple figuring can demonstrate the value of extra loss prevention efforts. So let’s just say for figurative purposes that your company does 100 million in sales and averages about 2.5% in shrink (or loss). That means that throughout the year it’s losing 2.5 million dollars. As experts, we can surmise that if the last three months are 40% of our sales than they are also 40% of our losses. So of that 2.5 million loss, 1.5 million occurs in the first three quarters and the balance or 1 million occurs in the final quarter. If we are truly going to impact our losses - we need the greatest focus during the period of greatest risk.
So lets look at it another way. Assume we have a great program running and with our regular season efforts we are reducing that 2.5 million dollar shrink at a rate of 30%. In the regular season we slice off $450K from the $1.5 million of loss in the first three quarters. If we continued our full efforts we would then slice off another $300K in the final three months (30% of $1 million). Unfortunately we reduce our efforts (fewer audits and less training) or fail to add additional resources to this busy time period. So we get half the results - say 15% reduction. What we have left on the proverbial table is about $150,000 in shrink. That pays for a lot of program additions we don’t think we can afford in the final quarter.
I’m not suggesting that extra resource is an easy conversation to have with the CFO or that new programs will sit well with the Operations team. I’m not even suggesting that you should upturn the world in these final months. I am suggesting that waiting until next year to implement programs is a costly delay. There are several small low cost things that can be done to balance the fourth quarter risks with the current budgetary or operational restrictions.
Focus additional resources on target stores - you’ll get the biggest bang for your buck and they need the help
Add or increase mystery shops - even if you don’t use the scores for performance reviews they provide some great insights
Have a solid seasonal store plan - see previous blog
Create and execute a short form security inspection
Create a report for Key Holiday Loss Prevention Indicators
Start developing and executing new LP plans that have low resource impact - such as protocols, awareness, educational material.
Consult with one of our experts to develop holiday strategies Henry Ford said, “You can’t build a reputation on the things you plan to do.” The final quarter may be busy, there may be operational and budget restriction, but you just can’t save this year’s shrink next year. The final quarter is as important for loss as it is for sales. It’s not too late to save your shrink, but it does require a strategic plan.