loss leaders

New technology convinces Town & Country and WESCO Inc. that slashing losses can be just as profitable as growing sales.

About three years ago, WESCO Inc. (Muskegon, MI) implemented its "Churn Busters" program as a means of slashing turnover. The savings gained from the program—the company reduced its turnover by 50% in just one year— convinced the chain it could apply the same concept for cash and inventory (see "Busted," April ’04, p.12).

But for WESCO, tracking cash inventory by monitoring register behaviors and data has been difficult. In the past, the company manually recorded cash over-and-shorts, returns and no sales. It tried to monitor associates’ behaviors to see if it could deter stealing, but the process proved time-intensive. The company’s shrink had reached a high in 2003, representing 0.59%. That’s when WESCO realized it would need help finding a solution.

"At WESCO, loss prevention is everyone’s job," says Mike Esh, the 53-store chain’s loss prevention manager. "Our goal for 2005 is to reduce losses to 0.29% of merchandise sales. It’s easier to reduce losses than to gain sales, so exercising a loss prevention strategy presents a lot of opportunities."

Esh discovered Trax Retail Solution’s new loss prevention "power suite" called ShrinkTrax while searching the Internet for loss prevention and education tools. ShrinkTrax utilizes DM2 data-mining and analytics to drill down into transaction-level data. Web-enabled DM2 uses exclusive analytics to apply more than 1,600 "expert rules" to automatically pinpoint loss and sales data abnormalities. The program helps identify dishonest and/or underperforming cashiers, while maximizing customer service and checkout efficiency. Essentially, the system prevents shrink before it occurs. And while the program points out problem areas, it also uses effective training methods to encourage positive employee behaviors.

"Trax offered the best solution based on its ability to track everything on the registers and use data-mining software to identify high-performance behavior as well as high-risk behavior," says Esh. "It also provides a process for improving behavior. It will provide us with a way to identify high-performance sales associates as well as behaviors associated with high shrink."

Now WESCO can monitor what’s going on in the field by providing key performance indicators for its associates. Employees rank between a Level 1, which is the best, and Level 5, which indicates the most room for improvement. Operations supervisors monitor the indicators and are responsible for coaching one store per week, similar to the way managers coach within stores.

"You can really dig deep with the program and use it for investigating suspect activity," says Esh. "The key to making it work for us is to get the coaching to happen at store level. If you can do that, you start monitoring performance and you can see people improving. Overall, it’s a positive coaching experience, but like all things it takes time. We discipline our people to [coach others on a weekly basis] and we’ve seen our inventory shrink decrease as a result."

The chain began testing the program in February 2003 in four stores. The test ended in April and by May the technology had been rolled out company-wide. Each store now spends 30 minutes to an hour per week looking at reports and coaching one to two sales associates on improving their performance, resulting in higher productivity and reduced losses. So far the company is seeing a reduction in shrink—currently at 0.4% of merchandise sales.

Such a substantial improvement in shrink is enough to put a smile on any loss prevention manager’s face, but Esh is especially grateful for the additional tools he has gained to help cultivate his stores’ most valuable resource: people.

"People want to do a good job," he says. "If you have a built-in recognition process that tells them where they need to improve, they will get better. This recognition process also helps us keep people, which of course is a substantial savings in itself."

The big picture
Town & Country Food Stores (San Angelo, TX) takes pride in its people, as evidenced by its motto—"Good Values, Great People." But it’s well aware that just a few "bad apples" can spoil the bunch. In the past, the chain thought it had implemented every possible idea to help it reduce shrink, but, like WESCO, it still was spending way too much time trying to identify those bad apples.

"We tried a number of technology solutions, from digital video recorders to an electronic journal that overlays video transactions," says Devin Bates, chief financial officer for the 150-store chain. "Initially they would work great because our people were trained and they were aware of the project—our associates knew we were watching. But everything we tried required someone devoting themselves to reviewing hours of video or pulling up journal tapes to analyze voids. It was just too much to ask of our already overworked staff."

Town & Country is in line with shrink industry percentages, but Bates feels even 1% is a big number if a company has strong sales. And as gas and cigarette margins continue to dwindle, the chain realizes it has to save money or make money if it wants to stay ahead of the game.

At a recent NACSTech conference, Bates caught a glimpse of Trax’s loss prevention suite. He was intrigued and saw it as a way to liberate his managers and return them to their main duties.

"The program mines the data for us and tells us where issues are in plain English, so our store managers don’t have to be loss prevention experts," says Bates. "The reports spot the trends in our associates’ behavior and tell managers exactly where to go to solve the problem. It makes a good store manager better because the attributes of a good store manager don’t always correlate with someone who is strong when it comes to loss prevention. The program allows our managers to keep their focus on selling. We just hope that since it doesn’t require as much of the manager’s time, it has a better chance of sticking."

Town & Country is currently implementing a test of the Trax program, having recently completed training sessions for its operations people. It spent a great deal of time gathering data and getting an interface set up between Trax and its point-ofsale systems. The company already has an SQL Server in place from which the program can be run, but should it decide to take the system company-wide, a separate server would be required so as not to disrupt store functions.

Data is captured at store level and sent to Town & Country’s offices for analysis, then reports are e-mailed to the stores. The company’s wide area network (WAN) allows for easy distribution of information, and it will make reports available to regional managers and supervisors for more detailed analysis.

Town & Country chose 20 stores in three separate districts for the test. The districts all have varying degrees of shrink problems, and one has a fairly new district manager while others have more experienced DMs.

"We want to see how the program performs with newer district managers and in areas with more seasoned field management," says Bates. "We picked this thing to see how it works in situations where shrink is bad, to see if [shrink] is worse than we think, or if we can see an improvement in an area that we believe is doing well. Hopefully it will help us weed out any problems we may have."

The Trax program has been a "considerable" investment for Town & Country, which is why the company is taking a long test period—about six months, perhaps longer—
to make sure it sticks with employees. But according to Bates, while the expense of getting the technology in place weighs on the company, if the program delivers the results the vendor is promising, the return on the investment will be well worth it. For now, Town & Country will have to wait and see.

"Payback looks to be about a year or a little less if the program can help reduce our shrink by 18%, which the vendor says is a conservative projection," says Bates. "We’re hoping we can catch bad seeds early and scare them straight or else lose the ‘dead weight.’ And hopefully it will help our turnover. If you can keep your employees honest, that’s worth something."

Making the grade

WESCO Inc. uses the following key performance indicators to grade its sales associates:

  • value per customer—how much each customer purchases in a transaction
  • value per item—divide the number of items purchased by their total price
  • items not scanned—to get a percentage of what’s being scanned, because "’free-ringing’ is a common way to steal," says Esh
  • item corrections or voids—these take additional time, slow down customer service and reduce customer confidence
  • customers per no sale—this indicates how many times sales associates are opening the cash drawer without making a sale

"There are another 25 or 30 indicators we can use to monitor our sales associates," says Mike Esh, loss prevention manager for WESCO. "But for six months we’ve been watching how long cash drawers are open between customers and how long they take with each customer. We’ve learned a lot, but there’s still a lot more knowledge to gain and this is what we’re focusing on."


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