Receiving errors, theft, misdeeds and inefficiencies accounted for 7% of the total store shrink in the average respondent supermarket for a loss of $35,884 annually. Of this amount, 57% of all backdoor receiving shrink was attributed to receiving “errors” and 43% was attributed to vendor and/or receiver “dishonesty”.

The ten-year trend of companies utilizing automated DSD receiving technology was capped-off in this 2011 survey as 100% of all responding companies now report using automated DSD receiving technology.

There were five backdoor-receiving loss-prevention methods that had the most measurable effect on reducing store shrink in 2011. Companies with these programs reported 36% less receiving shrink, fewer incidents of vendor errors and vendor dishonesty. These loss prevention methods were:

• Top performing companies conduct Receiver re-training every 6-12 month.
• Top performing companies rotate backdoor locks every 6 months.
• Top performing companies have formal, written Receiving Practices coupled with an internal audit function to assure compliance.
• Top performing companies have strict inventory control limits on vendor backstock.
• Top performing companies periodically use replacement Receivers for 1-2 weeks at a time to discover and/or disrupt shrink causing activity or practices.

Begin with a smart order. While improper ordering is the #1 largest contributor of perishable shrink, proper ordering is the easiest thing to implement and sustain over time. The #1 solution to eliminate improper ordering is simply to utilize written ordering guides and follow 3 practices for smart ordering:

1.      Take an on hand inventory before each order.

2.     Review previous product movement from similar sales weeks.

3.     Order quantities that will be enough to get you to the next truck.

Back then and still today, I work every day to develop and help companies to implement practical solutions for “optimal profit.” Here’s what I have discovered.

Industry benchmarks and averages are interesting but irrelevant to great leaders. Great leaders lead with a crystal clear vision of what their “great” looks like. They do not operate to get to the industry average. They lead and operate everyday with determined persistence to discover and achieve their optimal best and to reset optimal best constantly in their relentless pursuit of great. And, their relentless pursuit is internal; it’s nearly spiritual – just because they have to prove it – especially to themselves.

Over the years I have found that a clear vision and a bias for action are the two vital leadership attributes that truly inspire and mobilize people. Separately, these qualities are limited and ineffective, but combined they create a powerful toolset for organizational engagement and progress.

As Mayor of New York City, Rudy Giuliani understood this when he painted the picture for all New Yorkers and the world that “we are going to make this the safest city in the world.” Many New Yorkers wondered if that was really possible. Still, that BIG vision of the future was one that people desperately needed to believe because it offered them hope and clarity. Giuliani operated with a clear and definite bias for action and implemented visibly practical plans designed to move NYC towards his greater vision. And, he was relentless. Paraphrasing Tom Peters, Giuliani was not about “too much talk and too little do.” Giuliani was all about great talk and great communication and a whole lot of do. His words, actions, inspirational vision, and realistic approach united the people in a common cause or purpose.
Great Leaders think boldly, act confidently and communicate relentlessly.

It all starts with a bold, fresh vision of the future. Great leaders self-motivated and self-inspired by their dreams and vision of the future, but it is also what motivates or inspires all of us. We all want to know that we are working toward something consequential, something special or important. It gives us something to want to be a part of. This simple truth applies to every single person within your organization. That is why the real job of a true leader — to offer a vision of the future that inspires, thrills and compels people to want to be a part of.

• For Steve Jobs it was to “change the way the world interacts with technology.”
• At Campbell Soup, it was to “build the world’s most extraordinary food company by nourishing people’s lives everywhere, every day.”
• At FedEx it was “to change the world expectation of overnight delivery.”

Achieving a big, grand vision takes time and diligence. And until people join you, it’s a pretty lonely journey. And, as difficult as defining your bigger vision can be, it is not enough. People also need to see, feel and know that you, as a leader, are in touch with reality, that you are willing to roll-up your sleeves and engage in the hard work that execution entails. Great leaders know that “you can’t get there without them…”

As a strategic advisor to executives, I always start my Re-envision discussions with the question: how can things be better? And then, how can things be great? It’s more interesting, and fruitful, to start with optimism and then to move quickly on to how to execute against that aspiration. I also find that it doesn’t matter much if I am working with a big or small company president. Getting them to cast a big, bold and inspiring Vision is a difficult, multi-step process. Most people tend to be “incrementalists,” thinking in little steps rather bold, bright future thoughts of the ideal. It’s an exciting adventure.

Of course, aspirational and inspirational vision achievement sometimes falls short of the ideal. Then, leaders aspire forward being flexible to change and adjust and continue their pursuit. Changing and adapting your vision is okay. Not having a vision is not okay.

In my 30+ years in retail, I have had the good fortune to work for many great leaders. Among them, one quality or trait is [to me] irrefutable. Every great leader I have met or studied has had a clear Vision of what their better tomorrow looks like and a passionate desire to share and achieve that vision. They are always forward thinkers. They never feared making mistakes in pursuit of great results. And they were consistently intolerant of lazy people or people who talked but didn’t perform.

A bold, bright, ideal vision can lift people up and engage them. Great leaders use bold, bright visions to inspire people to rise-up to big challenges and great accomplishments.

2. Stop trying to catch your way to lower shrink. It doesn’t work. “Catching” is simply insignificant. Research shows that only 36% of store shrink results from theft. Further, retailers only catch or stop about 8% of all theft. Excellent awareness and in-store practices can accomplish both (15%) better theft control and (22%) better store profit from operations from shrink control. And, one point cannot be denied: store teams do what they know how to do and what they are expected to do; no more, no less. If you want better shrink reduction and profit performance, you simply must train your teams in better practices proven to get you there. ^1,2

3. Avoid “QF” Training. Quick Fix, one-off training most often doesn’t “stick”. QF training makes us feel better because we’re doing something, but quality training must be bigger and better thought out than quick-fix or sporadic in nature and designed to impact beliefs and behaviors, both short and long term. Training must engage and inspire every store team member through curriculum-based, culture-impacting training to join you in your drive for profit through shrink reduction. We must educate, teach, train and pro-actively coach store teams to be able to see the many faces of shrink as profit loss. It’s an “evolution” that makes shrink training bigger than waste or damage or even theft. People are the real solution and cure when they are taught, coached, engaged and motivated properly.

4. Stop Relying on Technology. Technology assists people to do their job, but technology is not the cure. People using technology, people following best practices and people who understand the business of profit-making are at the beginning and end of the optimal profit equation. Technology can certainly provide quicker and more data, quicker (providing you don’t create a paper-glut) but people have to use that data. Technology can monitor activity and report it and even see it, but I’ve never met a camera or a computer that can tab a shoplifter on the shoulder and ask for your product back. Technology assists. People do.

5. Forget Your Budgets. Budgets are based on anticipated, accepted or expected shrink levels. We build-in historical profit loss because we don’t know what to do to eliminate it. Budgeted profit always builds-in a factor of your historical shrink level. I say: Stop It! In 2012, we can exceed expectations. Let’s calculate your optimal profit margins, determine your best case shrink loss based on your operating conditions and accept no less than optimal profit. This often requires a fresh look, an un-accepting or unbiased eye at your operations and practices and technology utilization.

6. It’s NOT About Shrink. Shift the paradigm. People get stuck thinking too much about shrink and not enough about optimal profit. The 2011 National Supermarket Shrink Survey reports that “average” shrink is 2.70% of retail sales and net profit is 1.47%. Top performing companies report 1.72% shrink and nearly 2.62% net, bottom line profit. If you are “average, your optimal profit (which combines improvements is shrink reduction, labor saving, sales increase and cash flow) has
potentially a 78% upside.

In any shrink reduction initiative or expenditure, we must couple every concept of shrink prevention with all related “profit” opportunities that can be achieved. In truth, loss prevention training should discuss shrink as an obstruction to profit. Shrink is about profit. We have to teach Store Manager’s and teams the business of profit-making and Supervisors must support and reinforce this thinking at every opportunity. What’s needed is a cultural thinking shift to get out of old expectations and into new ones.  

By now it should be obvious that I believe in “people”. Even in the toughest of hiring and retention environments, I believe that people are at the essence of retail sales and profit making. Avoiding these 6 mistakes and not allowing yourself to be sold a false hope or ill-founded expectation can and will lead you to higher profit.

When it comes to shrink control and prevention give me a well-trained store manager leading a well trained store team and supported by an excellent and well trained supervisor, and I’ll give you best-in-class shrink control and optimal profit.

¹ Numbers expressed in parenthesis may vary by company and implementation effectiveness.
² Numbers expressed not in parenthesis are from the 2011 National Supermarket Shrink Survey.

2011 research by FMI and The Retail Control Group into the ‘causes and cures’ of retail supermarket shrink indicates that 64% of store shrink is directly caused by a breakdown in or the absence of effective store operating best practices, while 36% of store shrink is cause by theft and/or misdeeds.  

With the evolving recognition of this condition, 47% of companies report a growing shift in the roll of Loss / Asset Protection departments to expanded focus into operationally centric “profit protection and realization”, and a more collaborative partnership with store operations.   

54% of responding companies said they do not have formal LP training for District Managers, Store Managers, cashiers and/or employees. When loss prevention and shrink control budgets are examined, evidence suggests a disproportionate allocation of budget dollars when comparing company investments in technologies to catch theft versus budget dollars allocated to training of store personnel in effective store operating practices known to prevent shrink loss.

Survey respondents reported overall store shrink at 2.70% of retail sales, with the low average of 1.76% of retail sales and the high average of 3.10% of retail sales.

Three (3) emerging key factors:

1. Technology: Certain technologies have become ubiquitous in stores today. Over 82% have Automated DSD, POS Monitoring and CCTV, yet shrink loss remains at 2.70% of retail sales. Emerging Technologies include Store Task Management, Advanced Data Mining Systems and business intelligence analytics. Companies’ further report plans to slow technology investments
in coming years.

2 Integration & Collaboration: Companies that report lower than average shrink utilize cross-functional training of loss prevention, audit and store operations personnel to implement coordinated profit improvement through traditional loss prevention combined with operational Best Practices.

Throughout this survey evidence persists that consistent and on-going store manager and store team operational Best Practices and Loss Prevention training is the number 1 factor in controlling store shrink. Operational controls and
processes form the foundation for all sales and profit optimization efforts.   

3. Control Conditions: Extensive cross-tabbing and ‘cause & effect’ correlation analysis revealed when certain operational “conditions” are present, they had an effect of systemically and significantly restraining shrink loss.

Most evident among these control conditions are 6 influencers:

(1) Formal “Known Loss” Control

(2) Strict ‘Ordering Controls’

(3) Inventory Management and Turnover’ controls

(4) “Connected Store Manager’ with ‘Clear Standards of Operation’

(5) Organizational Best Practices

(6) Measurable Accountability 

When store teams are trained and held accountable to execute these “6 Control Conditions” with discipline the affect is a systemic reduction in store shrink of up to 15%.

Where’s the shrink?

Shrink Fast Facts:

• Companies’ report 66% of stores are of conventional supermarket format and 34% of their stores followed the super-store format.
• 43% of survey respondents reporting using the COST accounting method while 57% reported using the RETAIL method of accounting.
• 29% of respondents reported that stores can ‘positively’ affect their reported shrink loss in 5 primary ways: Forward buying (most common), execute prices early, deal buy, break open quantity packs for inflated price single item sales and writing- off product for credit all practices that serve to mask actual shrink loss.
• 80% of respondents expect shoplifting will increase in the coming 1-2 years.
• 74% of respondents have self-checkout lanes in Super Store format stores with an average of 4.43 self-checkout lanes per store. 58% of respondents have self-checkout lanes in Conventional format stores with an average of 3.25 self-checkout lanes per store.
• Stores reported average net cash shortages of -$6.00 in conventional Store format and -$21.15 in their Super Store format.

Summary:

Significant in the survey findings for 2011 where x primary points:

1. The reveal that 64% of all shrink was caused by the breakdown of Operational practices at the store exposing significant new focus on operational practices to prevent shrink and disrupt shrink causing conditions.
2. The expanded focus of Loss Prevention into a more collaborative partnership with store operations.
3. Certain core technologies are now present in most companies, but shrink remains essentially flat at 2.70%.
4. Continuous training of all operational personnel in the operational best practices to reduce and control store shrink has the most significant impact potential. 

Tips for controlling Backdoor Receiving Fraud, Vendor Theft and Errors by Vendors and Dishonest Employees in supermarket and convenience store retail loss prevention.

·        72% report a medium-to-high confidence level in their physical inventory results – up from 56% in 2006. <read more>
·        Companies with best in class backroom stock level controls reported 60% fewer inventory count “bounce” results and 70% smaller “bounces” than companies with weak stock level controls.

Backroom Organization and Inventory Control. Effective organization and backroom discipline creates a condition that breeds organization throughout a store. Companies that report using strict back-room controls achieve better than average shrink control, cash flow management, labor productivity, sanitation and organizational discipline. Surveyed companies report that optimal shrink and organizational control is achieved when backroom stock levels are kept to no more than  8 – 10% of total non-perishable inventory and further produce to inventory turnover of approximately 15 turns per year. Except as part of an organized forward buying program, surveyed companies reported that excessive back stock negatively contributes to store shrink.

More than spirits are being lifted this holiday season.

During the four weeks leading up to Christmas this year, an estimated $1.8 billion in merchandise will be shoplifted from U.S. retailers, according to The Global Retail Theft Barometer, a survey of retailers worldwide. That’s up about 6 percent from $1.7 billion during the same period last year.

“They shoplift for Christmas gifts, they steal for themselves, for their family,” says Joshua Bamfield, executive director of the Centre for Retail Research and author of the survey.

Sticky fingers are common during the holidays. The crowded stores and harried clerks make it easier to slip a tablet computer into a purse or stuff a sweater under a coat undetected. But higher joblessness and falling wages have contributed to an even bigger rise this year. People steal everything from necessities (think food) to luxuries they can no longer afford (think electronics or Gucci purse).

“It’s really a question of need versus greed,” says Joseph LaRocca, senior adviser of asset protection for the National Retail Federation trade group. “People will rationalize what they are stealing: ‘Oh, I’m feeling the economy. I lost my job.’ But it’s hard to make the argument you need a $900 handbag.”

Experts say the economy’s influence is largely a cop-out. They say shoplifters are stealing for myriad reasons this holiday season that have nothing to do with economic turmoil. Some do it for a rush or thrill. For others, it’s about filling a void. Still others are trying to relieve anxiety, boredom or depression — all emotions that are particularly common during the holidays.

“Shoplifting is generally a crime of opportunity— and opportunities abound at the holiday,” says Barbara Staib, a spokeswoman for the National Association for Shoplifting Prevention, a nonprofit that provides shoplifting prevention education programs. “The stressors that come with the holiday will certainly help them rationalize their need for bad behavior.”

Shoplifting is surprisingly common. An estimated one in 11 Americans shoplift, according to the National Association for Shoplifting Prevention. It bases its information on academic research and information from those who are ordered or choose to enter its counseling programs for shoplifters.

About 75 percent of shoplifters are adults — equally men and women — while kids make up about 25 percent of them. More than 70 percent of shoplifters say they did not plan ahead to steal and they acted spontaneously.

A report from the Justice Department and Federal Bureau of Investigation showed that there were 1.06 million shoplifting offenses in 2010 known to law enforcement nationwide, up from 875,191 such offenses in 2006.

It adds up to billions of dollars in losses for retailers.

Theft of all kinds — including shop lifting, organized retail crime, employee theft and vendor fraud — cost retailers more than $119 billion worldwide in the 12 months ending in June, up nearly 7 percent from the same a year earlier. That’s the biggest increase recorded by the Global Retail Theft Barometer since it began the survey in 2007.

In the four weeks leading up to Christmas, retailers in the U.S. are expected to lose $5 billion in theft and other crimes. About 36 percent of those losses come from shoplifting. Employee theft represents about 44 percent. Vendor theft and administrative error make up the remainder.

Several major chains declined to discuss their efforts to thwart the growing theft in stores by shoppers and employees. But the National Retail Federation says big merchants are spending about $11.5 billion a year to fend off losses.

They’re trying to improve their technology, such as surveillance methods and tagging of merchandise with security devices. They also are working with competitors and law enforcement agencies more than ever by sharing more information, such as what criminals are taking and how they are targeting individual merchants.

Retailers’ efforts are important, prevention experts say, because theft not only costs them, but society as a whole. Theft drives up retailers’ costs and those are often passed on to consumers in the form of higher prices on everything from blueberries to blouses.

“I think one of the things we have to remember is shoplifting is a crime,” says Staib, with the prevention group. “Shoplifting is not just an economic issue, it’s a social issue.”

Shop owner Travis Maynard, who has been on both sides of the shoplifting fence, agrees.

As a teenager running with a bad crowd, he used to steal regularly — Visine to cover up his drug use, condiments to finish off his sandwich and even a flowering tree as a gift for his mother. Then he got caught stealing a Misfits CD at age 16 and changed his ways.

Maynard, 31, now watches for shoplifters at Lime Tiger Studio, a shop in Murfreesboro, Tenn., where he sells antiques, vintage clothing and other items. He says he knows the tricks and is on high alert when someone is lingering too long in a certain spot.

“For someone to come in and pretend to be a patron of my business and steal, to me it’s the most disgusting thing someone could do,” Maynard says. “It’s one of the highest levels of dishonesty.”

___

Sarah Skidmore reported from Portland, Ore.

OVERVIEW

Backdoor receiving is a cornerstone business function that must include consistent and disciplined shrink loss control and store operations practices. Every supermarket has supplier groups delivering goods that must be received. These include: the main or central wholesaler that supplies the majority of product needs, secondary suppliers and Direct Store Delivery (DSD) vendor companies that supply direct delivered products.  Each of these suppliers cause their own unique shrink loss opportunities that must be addressed.

FACTS AND FINDINGS

• Vendor Theft accounted for 3% of total store shrink. Vendor theft as defined includes any incident of intentional fraud or theft or misdeed by a vendor.
• 44% of survey respondents reported that they used the “piece count method” to check-in  warehouse deliveries,  22% reported only checking pallet counts, 17% stated they performed random spot checks and 13% did not specify any receiving method for primary supplier deliveries.
• 68% of this year’s survey respondents reported that they are involved in various stages of Scanned Based Trading (SBT) use. This is up significantly from 2006 when only 5% of respondents reported engagement with SBT.