Shrink Report - McKinsey

txho/Steal back your profits - Retail Conference.
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3/31/2010 8:29 AM
CONFIDENTIAL
Steal Back Your Profits!

A Practical Approach to Shrink
Reduction
Retail Conference
December 8, 2003
This report is solely for the use of client personnel. No part of it may be
circulated, quoted, or reproduced for distribution outside the client
organization without prior written approval from McKinsey & Company.
This material was used by McKinsey & Company during an oral
presentation; it is not a complete record of the discussion.
txho/Steal back your profits - Retail Conference.ppt
OVERVIEW OF SHRINK MODULE
• High-level discussion of shrink
• Case study from U.S. small-box

specialty retailer
• Case study from European hypermarket
1

specialty retailer
2
WHY ARE WE TALKING ABOUT SHRINK, ANYWAY?
• Shrink is a huge cost to U.S. retailers, but the

traditional approach to shrink reduction has proven to
be ineffective – retailers must do something different
• Our basic beliefs about shrink are counter-intuitive and

reveal some of the reasons why the traditional
approach isn‟t working
• We have developed a client-proven 4-step approach

that can reduce shrink by 20-30 percent for a typical
retailer
3
MARGINS ARE TIGHT FOR RETAILERS…
Revenue Operating Margin Operating Margin

$ Billions $ Billions Percent of revenue
Home Depot 58 5.8 10.0
Kroger 52 2.7 5.2
Target 44 3.3 7.4

Average
Costco 39 1.2 3.0
operating
Albertsons 36 1.8 5.0 margin for all
retailers = 5.9
Safeway 32 2.3 7.2 percent of sales
Walgreen 29 1.6 5.7
Lowes 26 2.5 9.6
CVS 24 1.2 5.0
Best Buy 21 1.0 4.8
Source: Compustat
4
… AND SHRINK HAS SIGNIFICANT IMPACT ON PROFITABILITY
Shrink by type of retailer

Percent of U.S. retail sales
Jewelry 2.24
Children’s apparel 2.01 • Shrink represents 30 percent of
Women’s apparel 2.01 average operating margin
Drugstores 1.91
• Cutting shrink in half would
Discount stores 1.90 increase operating profit by 80
Cards/gifts/novelties 1.85 basis points at a typical company
Home centers/hardware 1.77
Sporting goods 1.68 • Impact is even greater in high-
shrink categories, like apparel
Department stores 1.67
Shoes 1.67
Grocery 1.50
Men’s Apparel 1.19
Retail shrink
Convenience stores 1.09 costs over $30
Office supplies 1.07 BILLION per
Books/magazines 0.90 year in the U.S.
Electronics 0.74 alone
Average = 1.7
percent of sales
* Percent calculated at sales value
Source: 2002 National Retail Security Survey
5
SHRINK HAPPENS ACROSS THE SUPPLY CHAIN AND INCLUDES THEFT,

SPOILAGE, AND ADMINISTRATIVE ERRORS
Distribution Centers Employees
Theft Customers
Suppliers
Transportation
Broken goods
Loss of
Food past “sell by”
perishable
date
Shrink goods
Out-of-season goods
Store stock
rooms “Merchandise
bought, but Unrecorded wastage
neither sold
Inventory mistakes
nor present
in inventory”
Sales floor Delivery mistakes
Admini-
Check out strative Errors at checkout
errors
Cost-price*
Purchasing price
discrepancy**
Selling price
* Example: baker not respecting a cake recipe discrepancy***
** Example: caterer not updating purchasing price of some ingredients
*** Example: selling price not updated after a one-off special discount
6
TOTAL COST OF SHRINK INCLUDES MORE THAN

JUST STOLEN PRODUCT
Percent of U.S. Retail sales
0.5 3.4
0.3
0.4
0.6
Total cost Reducing shrink by
1.7 of shrink is 20-30 percent
$60 billion across the U.S.
per year in retail industry
the U.S. would create $200-
300 billion in stock
market value*
Shrink Check Cash Credit Loss Total

losses losses card Preven- shrink-
charge- tion related
backs costs costs
* Based on average P/E ratio of 19 for top 10 retailers
Source: 2002 National Retail Security Survey; Yahoo
7
THE RETAIL INDUSTRY HAS PROVEN ITSELF INCAPABLE OF

FUNDAMENTALLY REDUCING SHRINK OVER THE LAST DECADE
Shrink
Percent of U.S. retail sales*
2.50
2.0
2.00 1.9 1.9 1.9
1.8 1.8 1.8
1.8 1.7 Average = 1.8
1.7 1.7
percent of sales
1.50
1.00
0.50
0.00
1991 1992 1993 1994 1995 1996 1997 1998 2000 2001 2002
* Percent calculated at sales value
8
OUR BASIC BELIEFS FLY IN THE FACE OF CONVENTIONAL WISDOM

Conventional wisdom Our basic beliefs
• Shrink is the result of local crime rates, 1. Local crime rates don’t correlate with high
so there is nothing we can do about it shrink
• Most of our shrink is from “professional” 2. Roughly 70 percent of shrink is thought to be

shoplifters and burglaries, and we can’t internal or administrative
stop them
• We need to spend more money on Loss 3. There is little correlation between security
Prevention and security measures in order expenses, scores on Loss Prevention audits
to reduce shrink and shrink; many security measures are not
cost-justified
• We have to get tough on district 4. Shrink needs to be addressed at the store

managers with high shrink level, with support from the district manager
• What we really need is another company- 5. The best way to reduce shrink is to start with
wide shrink program the “ugly” stores first
• We already have a Loss Prevention 6. Shrink is too important to be handled by Loss

department that is responsible for Prevention alone – it requires an end-to-end
controlling shrink approach and top management involvement
9
1. LOCAL CRIME RATE EXPLAINS ONLY A SMALL PART OF DISGUISED CLIENT

EXAMPLE
VARIATION IN SHRINK ACROSS STORES
Total shrink
Percent of revenue
10
9 R2 = 9%
8
7
6
5
4
3
2
1
0
0 200 400 600 800 1000
Local crime rate index
10
2. MOST SHRINK IS THOUGHT TO BE INTERNAL OR ADMINISTRATIVE –

NOT THE SHOPLIFTING IT„S MOST OFTEN ATTRIBUTED TO
Percent of sales
Vendor
error/
Administrative fraud
error
5 Employee theft
15
48
Shoplifting
32

11
3. MORE “SECURITY” IS NOT ALWAYS THE BEST ANSWER – DISGUISED CLIENT

EXAMPLE
INVESTMENTS IN LOSS PREVENTION SHOULD RECOGNIZE
TRADE-OFF BETWEEN COST AND IMPACT ON SHRINK
Total shrink Technology cost/benefit

Percent of revenue $ millions
10%
8%
6% 20
4%
2% 3
0%
0 5 10 Investment Projected annual
Loss Prevention audit score required to shrink reduction
(score range is 0 to 10) upgrade anti-theft
sensors
• Low correlation between audit score • Shrink in stores with new anti-theft
and shrink (R2
= 8%) sensors was 0.10 percent lower than
• Current annual Loss Prevention other stores
spending = $30 million • Potential benefit does not justify
investment in new technology
12
4. SHRINK IS A STORE-SPECIFIC ISSUE AND DISGUISED CLIENT

EXAMPLE
MEASUREMENTS AT THE DISTRICT LEVEL CAN DISGUISE
THE REAL PROBLEM
Shrink index*
100 = Similar store average
225 District average
Shrink varies by 5x across

200
stores, even after
accounting for major
175
external factors
150 Possible causes

Typical 3X • District managers implicitly
125 variation vs. ignore the “ugly” stores –
similar store “Everyone knows that those
100 average stores just have high shrink”
inside
district**
• One or two dishonest
75 employees can cause a
tremendous amount of
50 damage
• External factors (e.g., crime
25 rate) may have some
impact, but they do vary by
store
0
District A B C D E F G H I J K L
13
5. THERE IS TREMENDOUS VALUE IN FOCUSING ON THE DISGUISED CLIENT

EXAMPLE
“UGLY” STORES FIRST
Total shrink
Percent of revenue
12%
10% “Ugly”
5% of stores
15% of shrink
8%
6%
4% “Bad”
15% of stores
25% of shrink
“Best” “Good”
2% 25% of stores 50% of stores
10% of shrink 50% of shrink
0%
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000
Total shrink
Dollars
14
6. LOSS PREVENTION TYPICALLY FOCUSES ON STORE Primary LP

focus
SHRINK AND IGNORES OTHER IMPORTANT AREAS…
Vendors Central DC Stores

Transport Transport Regional DC Transport Returns
“Paper” shrink
• Actual units in • Number of • Units of one SKU • Store number • Box of • Store number • Units of one SKU • Saleable
order do not match boxes on are received as is misread product sent is misread and are received as product
invoice shipping another SKU and sent to to wrong sent to wrong another SKU, or returned as
manifest is • Product is put regional DC store store as different defective
overstated away in wrong • ASN quantity • Product
location indicates • Product scanned scanned to
• Actual units wrong as “unsaleable” “returns” or
picked do not number of but not destroyed “transfer”
match order boxes in • Markdown taken but not
shipment on missing sent
product before
being logged out
to shrink
Physical shrink
• Theft from vendor • Boxes • Employee or • Boxes • Product is • Boxes crushed • Shoplifting • Employee
shipping dock crushed contractor steals crushed damaged by during transit • “Smash and steals
during transit product from during transit forklifts in • Driver steals grab” burglary product
• Driver steals shipping dock or • Driver steals regional DC box or opens • Employee after is is
box or opens storage area box or opens • Boxes box and steals passes product logged out
box and • Pallet is dropped box and opened and a few units to accomplice to returns
steals a few or speared by steals a few product • Cash theft • Driver
units forklift units removed by • Credit/coupon steals box
regional DC fraud/abuse or opens
employees or box and
contractors steals a
few units
15
… THUS SHRINK CANNOT BE MANAGED BY MULTIPLE Loss

Prevention
DISCONNECTED LOSS PREVENTION GROUPS
Typical Loss Prevention Organization Recommended Loss Prevention Organization
Shrink
Distribution Transportation Stores Distribution Transportation Stores Czar
centers centers
DC Loss Freight Retail Loss Loss Prevention

Prevention claims Prevention
Typical role of Loss Prevention Typical role of Loss Prevention

• Primary focus is • Primary focus • Primary focus • Primary focus is reducing end-to-end shrink
personal safety is filing claims is legal • Shrink Czar reports to CEO/CFO/COO
(e.g., lifting against compliance • Shrink Czar is responsible for all aspects of shrink, including
techniques, falls) carriers for and internal and external theft, damages, and spoilage
• Provides physical missing preventing • Operating unit leaders are measured and responsible for specific
security at DCs shipments shoplifting parts of shrink that take place in their areas
(guards, cameras) • Carry out • Provide
• Not accountable periodic security tags
for or measured freight carrier and cameras
on DC shrink inspections in stores
– Theft • Not • Accountable
– Damaged accountable for store
products for missing shrink
– Vendor errors/ product or
fraud un-paid
claims
16
SO, YOU WANT TO DO SOMETHING ABOUT SHRINK – WHERE DO YOU

START?
Gather a fact base Diagnose the opportunity with a “Shrink EPR”
Components of shrink Shrink control costs
0 1 2 3
• Common definition of
shrink exists
• Reported shrink includes
all components
• Clear accountability for
shrink at operating and
corporate level
Shrink by product Shrink by store • Loss Prevention focuses
and root cause on internal and external
shrink
10
2
15
3
2.5
0.5
15
3
10
2
• Information flows match
physical flows
•
5 2 3 4 2
5 2 3 4 2 No uncontrolled handoffs
35 20 60 10 15
3.5 2 6 1 1.5 between operating units
4
1
2
0.5
16
4
2
0.5
0
0
• Store shrink is measured
relative to comparable
stores
Employee shrink Peer group analysis • Line employees are
attitude surveys trained and held
• Employee definition of shrink
accountable for shrink
• Shrink control
• Perception of shrink levels in your
store
investments trade off
costs and benefits
• Other…
17

specialty retailer
18
WE USED A TARGETED 4-STAGE APPROACH TO CAPTURE THE SHRINK

IMPROVEMENT OPPORTUNITY IN THE VERY NEAR TERM AT A SMALL-
BOX SPECIALTY RETAILER
6-8 weeks 2-3 months 4-6 months 4-6 months
Do it
Gather fact 1. Implement 2. Launch SWAT 4. Upgrade field

base, corporate quick teams to cut shrink shrink
conduct wins (e.g., by at least 50% in management tool
diagnostic reporting, highest shrink stores kit/interaction
and develop monitoring, and align LP
recommen- accounting) organization with
dations updated role
3. Test improvement
ideas and roll out to
store network when
ready
Fix it
Client experience has shown 50+ percent shrink

reduction in the pilot phase – on-track to achieve
20-25 percent overall shrink reduction
19
TOTAL SHRINK HAS BEEN REDUCED BY 20-25 PERCENT Company

average
COMPANY-WIDE AND BY 50 PERCENT IN SWAT TEAM STORES SWAT
team
Total shrink March: Creation of stores
Percent of TNR the Shrink Task
Rolling 3m
Force
8.0
June: Identified
7.0 194 SWAT Stores
6.0
5.0
August: First
4.0 SWAT “witnessed”
inventories
3.0
2.0
1.0
0.0
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
2002 2003
Annual savings for client: $20-25

million
20
1. TYPICAL CORPORATE QUICK WINS IMPACT ACCOUNTING,

MONITORING, AND REPORTING
Accounting
• Apply uniform unit value to shrink units at different
points in supply chain
• Charge known DC shipping errors as shrink to DC Implementing quick
• Establish “internal vendor shrink allowance” for stores wins has significant
to account for DC picking errors and remove excuses indirect impact on
at store level shrink reduction
• Increased reliability of
Monitoring reported shrink
• Create standard tool to automatically detect signs of • Increased visibility into
inventory manipulation and generate “Red Flags” amount of shrink
• Create standard tool to monitor performance of major across the company
shrink initiatives • Increased
accountability at DC
Reporting and store level
• Create overall shrink report that includes all elements • Increased awareness
of shrink from the DC to the stores through better
• Explicitly include store transfer control shrink in field communication to the
reporting field
• Include units lost to shrink in store P&L (as well as
value)
21
1. ESTABLISH DC SHRINK ALLOWANCE TO ELIMINATE DISGUISED CLIENT

EXAMPLE
EXCUSES FOR STORE SHRINK
Audit of actual DC packing accuracy Simulation of impact on typical store
Percent of DC errors Percent of stores**
26 16.9
16.2
15.4
20 13.4
17 11.1
7.2 7.7
10
9
4.7
6 6
4 4 3.1
3 1.7 1.5
1 2 1 1 0.8
0 0.4 0.2
31+ 21- 11- 5- 3- 2 1 0 1 2 3- 5- 11- 21- 31+
0
0
0
0
0
0
00
0
20
40
60
80
0+
12
10
12
-8
-6
-4
-2
30 20 10 4 4 10 20 30
-1
14
<-
Under Mispick* Over
Difference between actual box contents and ASN Annual difference between actual inventory and ASN
Number of units Number of units
• Simulation reveals that 99.5 percent of stores are no worse off than
100 units short of all products over an entire year
• This represents approximately 0.1 percent of sales for a typical store
• This should be set as an internal “shrink allowance” to eliminate
excuses for high shrink at store level
* Mispicks are boxes where the total count is correct, but the SKUs do not match the ASN
** Simulation run for a typical store receiving 2,000 boxes of product per year
Source: Audits of 10,000 boxes received at stores over 4 month period; team analysis
22
2. WE LAUNCHED A SHRINK SWAT TEAM TO FOCUS ON THE WORST

STORES
What it is . . . What it is not . . .
Scope • Focused effort in 200 stores with shrink 2x higher than • Broad effort across all stores
company average
Objective • Cut shrink in half in 4 months with no reduction in • Reduce shrink to company
revenue average in worst-performing
stores
Approach • Start process in one region (10 stores) to refine process • Additional priority on top of
and train team members existing work load
• Roll out to all 200 stores within 2 months of launch • Things done “to” the store
• Explicitly over-ride alternative priorities in stores management team vs. “with”
• Beginning and ending inventory is validated the DL and store management
• High degree of store manager coaching and team
development • Ad hoc effort that will
• Weekly follow-up with store and District Leader disappear in a couple
• Explicit plan to “make it stick” of months
Resources • Up to $1 million to invest in resources, physical • Reducing shrink without

countermeasures, increased operating costs, and investing money and people to
incentives tackle root causes
• Full-time team leader (Regional manager level – not • Part-time support by Loss
from Loss Prevention) Prevention
• 4 full-time LP coaches (1 per area) • Driven by LP without field
• Part-time HR, District Leader support as needed management involvement
• 1 analyst (part-time) to support monitoring and reporting or buy-in
23
2. STORE SWAT TEAMS VISITED STORES AND DEVELOPED SPECIFIC

STORE ACTION PLANS
A. Pre-work B. Store visit C. Action plan
SWAT team Store • Review compliance with key • Specific
• Utilize peer metrics performance operational standards
training and hiring
and deep dive reviews – Accurate receiving
plan
reports to “paint a – Pre-inventory compliance
– Post-inventory report
picture” of shrink in • Specific store-
the store verification
and product
– Product organized on sales
category-specific
Store team floor and in back room
objectives
• Conduct full • Hold individual discussion
Employee
inventory with with every employee to gain • Specific counter-
support (e.g., SWAT reviews
insights into causes of measures
team member, LP shrink in the store
coach, District • Coach employees to • Follow-up plan by
Leader) present develop basic financial DL and SWAT
understanding team (e.g., weekly
HR visits, calls)
• Start hiring and • Revise store-level
training replacement Reporting inventory reporting to
employees include “Red Flag” reports
24
3. EXAMPLE IMPROVEMENT IDEAS FOR DETAILED TESTING
Topic Improvement idea to test
High-shrink • Re-merchandise product category that has very high shrink (e.g.,
categories razor blades, DVD box sets)
• Evaluate cost/benefit of taking high-shrink categories “dead” (i.e.,
lock product in case – often seen with cigarettes, video games,
high-end portable electronics)
• Improve “dead product” operating processes using lean approach
Product • Evaluate cost/benefit of product security measures (e.g., lock

security boxes, “cages”)
• Test effectiveness and rationalize investment in electronic security
(EAS) systems
Management • Test dedicated “inventory teams” that move between stores

processes conducting inventories and training store managers in inventory
audit techniques
• Modify employee bonus plan to include shrink gain-sharing or
other incentive
25
4. HELP FIELD BETTER MANAGE SHRINK BY CREATING TOOLKIT TO

INCORPORATE INTO DAY-TO-DAY MANAGEMENT
Build shrink Reinforce with

Roll out to field
management toolkit appropriate incentives
• Create set of specific • Develop field training • Evaluate opportunities to

shrink management tools materials that introduce modify store management
for field management shrink toolkit incentive plan to reinforce
teams (Regional, District, need for aggressive shrink
Store level) • Hold District Manager management
– Updated reporting tools training sessions to – Shrink performance
using “peer metrics” to practice using shrink becomes a “bonus
highlight shrink issues toolkit to address specific multiplier” (e.g., store
and improvement shrink issues managers’ entire bonus is
opportunities contingent on shrink
– Best practices around • Involve Loss Prevention performance)
shrink management coaches in field rollout – Implement “gain sharing”
– Problem solving tools to plan for field managers
address specific shrink (e.g., shrink improvement
issues (e.g., employee savings shared)
reviews, operational
process audits)
26
4. ALIGN LOSS PREVENTION ORGANIZATION WITH IMPROVED

APPROACH TO SHRINK MANAGEMENT
Current situation Recommendation

Loss Prevention Managers
• Loss Prevention Managers spend about • Redefine role of LPM to be a coach for DLs
20 percent of their time coaching and and store management teams on shrink
training store managers and DLs on prevention
shrink reduction techniques • Increase time available for LP Coaches to
• Majority of LPM time is spent reacting to train/ coach by reducing need for custom
losses (e.g., crime, investigations) and report creation by utilizing standard red flag,
performing administrative tasks exception, and peer metric reports
27

specialty retailer
28
CASE EXAMPLE – EUROPEAN MULTI-CATEGORIES RETAILER

% of sales, 2002
Aggressive
2003 EBIT
growth target
• Leading retailer facing a • Top management

significant deterioration of decision to launch
S&W indicators a project involving
• S&W went up 20% CAGR* over McKinsey
3 years (1.81% to 2.62%) and client teams to
develop, test and refine
practical solutions Achieved impact
• 3 phase project:
– Phase 1: conduct a
50 M€ in 2003
• Several large organizational
diagnostic on selected
changes have affected
stores
operational execution
– Phase 2: pilot on 8
• No clear idea at store staff
stores representative
level on how to address S&W
of the network
• Fatalism and preconceived
– Phase 3: roll-out lead
ideas
by internal champions
29
OVERALL APPROACH FOLLOWED
4-6 weeks 8-10 weeks 12 weeks
Phase 1 Phase 2 Phase 3 Phase 4
1. Conducting the
4. Ensuring a lasting
diagnostic and defining 2. Testing on pilots 3. Rolling out
impact
the approach
• First assessment of major • Test, improvement • Definition of store/ • Regular communication

shrinkage sources and validation of the department objectives • Durability the approach
• Definition of problem approach on pilot sites • Roll-out of the approach and focus on priorities
perimeter with the • Formalization of high- (all stores) • Training of new store
Main organization impact actions and • Development of employees
end- • Preliminary assessment of best practices at store the shrinkage/wastage • Sharing of experiences
products potential gains level and per type of knowledge and • Updating/upgrading of tools
• Key levers to reduce department competences of store • Effective control of
shrinkage identified • Validation of the teams the actions/results
improvement potential • Rewards/sanctions
for the organization
• Methods to identify top • "Roadmaps" and action • Training kits • "Control checklists"
priority stores and plans • "Imposed figures" • Inventories and KPIs
departments • Inventories and other • "Shrinkage committees" • "Shrinkage committees"
Tools • "3 key analyses" KPI • Performance reviews
used • Assessment of practices • "Shrinkage • Existing communication,
through interviews and committees" people & performance
and site visits management processes
• Database of shrinkage
rates per store/warehouse
30
FORMULATION OF EARLY HYPOTHESES OF IMPROVEMENT DRIVERS
Step 1: Step 2: End products:
• Formulating preliminary • Selecting a representative • Correlations between key

hypotheses of key sample store store metrics and store
performance drivers (e.g., shrinkage/wastage
store environment on a safety • Collecting the KPIs/measuring performance
scale, quality of in-store store performance on
operational execution, security the different dimensions • Assumptions on key
expenses and expenditures) of the score cards improvement drivers based
on interviews and correlation
• Designing tools to calculate store analyses
metrics if they are not readily
available (e.g., operational CORRELATION BETWEEN OPERATIONAL EXECUTION AND SHRINKAGE/
WASTAGE
Sample of 16 stores, 2001 Group S 1
execution score cards) Quality in

Group S 2
Group S 3
3
execution
C.
AGM. P.
MEASURE OF IN-STORE OPERATIONNAL EXECUTION Sample store 1 2 CC. R2 = 0,90
CSD.
2001 Sample store 2 E.
Sample store 3 G.
Evaluation criteria Levels* A. CS.
REDUCING THEFTS  Completed
0 1 2 3
AM.
N° Objectif à atteindre • Accueil des transporteurs CORRELATION BETWEEN SECURITY
CB. LABOR
B. EXPENSES AND
Checking
CONTROLING
Surveillance
WASTAGE
Surveillance générale
générale du
du magasin
magasin
 Completed Checking
deliveries
deliveries
• Contrôle des livraisons par les métiers et la réception SHRINKAGE/ WASTAGE
1 L. BE.
N° Objectif à atteindre • Contrôles inopinés des livraisons par la Sécurité 2001 I.
• Le magasin dispose d'un pointeau : les entrées y sont contrôlées et notées (animateurs, marchandiseurs, fournisseurs, etc.)
CHECKING 29
DELIVERIES
Surveillance
30 des
 Completed
• Les visiteurs sont clairement identifiés par un badge distinct et l'accès en réserve leur est interdit sauf dérogation écrite
• Surveillance des bennes
Security labor
V.
Surveillance des bennes
bennes Controlling
Controlling • Application de la procédure casse-destruction
N° Item wastage expenses (€/m²)
31 • La répartition des effectifs de surveillance entre agents internes et prestataires est conforme aux préconisations nationales (pour l'interne, entrée du wastage
17 • Les bennes sont hermétiquement
personnel, fermées
vidéosurveillance, cour; de
elles sont ouvertes
réception, à heures
entrée clients, nuitfixes,
; poursous le contrôlesurface
les prestataires, d'un agent de sécurité
de vente, arrière-caisses, parking) • Rangement des réserves F
Welcoming
Welcoming road
road haulage
haulage contractors
contractors •
32 • Sauf levée de doute fiable, toutes les alarmes font l'objet d'une intervention physique Surveillance générale du magasin 0
Application
Application de la
33 de la procédure
procédure casse-destruction
casse-destruction
1 • Le gardien de la cour• est
Lesposté
interventions
pendantsurtoute
alarmes de nuit ethoraire
l'amplitude week-end
dessont effectuées par du personnel Carrefour en présence d'un prestataire sécurité ; elles sont toutes
livraisons • Application des 14 procédures clés sur les marchandises 0 1 2 3 4
notées sur la main-courante du pointeau Shrinkage/ wastage
2 18 • •34Les
Les grilles sontzones
fermées entravaux
permanence enclairement
dehors des heures de livraison Reducing
Reducing thefts
thefts • Contrôle de l'application des procédures par la Sécurité
•deLes
transit casse sontse
de nuit matérialisées
font en présence d'un agentetde
nettoyées chaque jour
sécurité Carrefour et les parties du magasin non concernées par les travaux sont sous alarme rate* (% )
3 •
L'entrée35de la cour n'est pas utilisée
avec par le personnel pour entrer et sortir dusécurité
magasin • Équipement du magasin en matière de sûreté
19 • La procédure• End'enregistrement
liaison les managers métier
et de contrôle concernés,
de la casseleest
service
formalisée s'assure que les produits sensibles au vol (lames de rasoirs, DVD, nouveautés, CD, S R2 = 0,1
4 • logiciels,
L'agent de sécurité dispose du etc.) sont protégés
planning de manière appropriée (cerclage, coquage, piégeage...)
des livraisons • Gestion des réserves déportées 6
20 • L'agent de
Tous les36numéros de• plombs
sécurité présent
Les produits à la benne
sont stockés
vérifiésdans lesexige l'étatsensibles
réserves de chiffrage
(en sesont
de la démarque
protégés
à la(cerclage,
Anabel avant
coquage) d'accepter
avant leur sortieledes
bennage
réserves; il signe l'état Anabel •
R I
5 • et notés à l'arrivée référant lettre de voiture)
et le remet au manager service sécurité qui l'archive ; si un rayon PFT ou PLS ne présente pas de casse un jour, le manager service
Implication du management du magasin
M E
• 37
Tous les camions • repartent
sécurité qui
Les interpellations sont analysées par jour, par secteur et par type de marchandises afin de définir les plans d'actions efficaces ; elles sont commentées
avec des marchandises pour un autre magasin sont plombés au moment de leur départ et le nouveau Motivating • Communication interne / externe
6 le signale en brief
une fois par mois en ED Motivating andand R
plomb est conforme à la lettre de voiture training
training teams
teams • Communication transverse
21 • Équipement
Au début de chaque mois, le manager service sécurité contrôle les écarts rayon par rayon, entre le TB du magasin et son tableau de suivi A Y
Équipement du du magasin
magasin en en actifs
actifs liés
liés àà lala sûreté
sûreté • Gestion de l'environnement E A C
Checking deliveries de la casse journalière
Checking deliveries N I
L
22 •38Les produits• La surveillance vidéo couvre toute la surface de vente (y compris l'arrière-caisse)
EPCS sont cassés avant mise à la benne • Suivi de la performance en matière de démarque K
L
E O
7 • Toutes 39
les livraisons• sont contrôlées vidéo
La surveillance au minimum au support
couvre toutes en présence du chauffeur
les réserves Measuring
Measuring the
the
• Formation de l'équipe Sécurité
C
N
•40Undu
23 • Le directeur agent de sécurité performance
performance N
8 a définicontrôle
• L'enregistrement
magasin les
le typevidéo marchandises
de contrôle (colis, destinées
dans les réservespoids, UVC,
sensiblesaux organismes
estetc.) à opérer
asservi caritatifs
par rayon
à l'ouverture de laou pardes
porte produit et la fréquence de ces
réserves
contrôles • Formation du personnel I
24 •41La société•deLanettoyage
surveillance vidéodans
place couvre
un laendroit
cour deconvenu
livraison,(par
les quais de réception,
exemple, le parking
des paniers et lad'allée)
en bout station les produits qu'elle trouve afin qu'ils
9 • Toutes 42
lessoient
livraisons
tous• sont contrôlées aucasse
comptabilisés détail et tous les bons de livraison sont signés
Le PC vidéo estenéquipé d'un contrôle d'accès avec traçabilité
Average 0,5
0,5 2,1
2,1 2,1
2,1
10 • Toutes 43
les livraisons des opérations
• L'entrée incluant
du personnel des produits
d'un sensibles au volavec
ou provenant
traçabilité de fournisseurs directs sont contrôlées au détail Shrinage/ wastage (%) 2,8 0,7 0,4
• Les
25 (Foire aux vins,produits laissés
animations en et est
caisse nouveautés
charcuterie, danséquipée
les rayons contrôle
culture,sont
d'accès
etc.)collectés au fur et à mesure de la journée
5 0,0 0,2 0,4 0,6 0,8 1,0 1,2 1,4 1,6 1,8 Shrinkage/
44 • Les réserves sensibles sont équipées d'un contrôle d'accès avec traçabilité wastage (%)
11 26 • Au moins 12 contrôles
•45L'équipe inopinés au détail
sécurité sont réalisés chaque semaine par la sécurité, après le casse-destruction
contrôle réception et reporte tout manquement au
• Le PCeffectue
sécurité des contrôles
est équipé d'uninopinés réguliers
contrôle d'accès dutraçabilité
avec respect de la procédure
12 • Le magasin directeur
disposedud'une
magasin
zone(analyse
de retours declairement
la poubelleidentifiée
des rayons ou de la société de nettoyage, etc.)
et fermée
46 • Le magasin est équipé d'une installation de détection d'intrusion conforme à la préconisation : soit un système électronique relié à une station centrale de
13 • Le magasin dispose d'une zone de contrôle
télésurveillance de type détail
P3 (si clairement identifiée
le magasin est et fermée
fermé plus de 3pardans
jour), laquelle les marchandises
soit une surveillance destinées
par veilleur auxle réserves
de nuit (si magasin est fermé moins de 3par
sensibles sont
Rangement desplacées dès leur sortie du camion et stockées jusqu'à leur transfert sous surveillance dans les réserves
jour)
réserves
Rangement des réserves 7
Dealing
47 • Quel que soit le type d'installation choisi, l'installation de détection d'intrusion permet une traçabilité totale de toutes les alarmes et des opérations
Dealing with
with the
the disputes
disputes effectuées sur la centrale d'alarme
27 • Dans les réserves, il n'y a pas d'emballages ouverts, les allées sont dégagées et les produits sont regroupés par famille dans les
14 • La réception • En
48 emplacements
transmet
cas d'installation
prévus
chaque à cet effet
semaine
de détection d'intrusion électronique, la ligne est surveillée par Transveil
au directeur du magasin une statistique du montant des écarts de livraison par rapport au montant
• Le permanent
28 de la marchandise contrôlée en précisant
de direction les noms
fait chaque jourdes fournisseurs
un tour des réserves et signale au brief tout manquement au rangement des réserves
6
15 • Le manager service sécurité transmet chaque semaine au directeur du magasin la liste des contrôles effectués et des anomalies
constatées
Source: Team
16 • Le contrôleur de gestion du magasin transmet chaque mois au contrôleur de gestion régional les écarts de livraisons identifiés par le
magasin
5
31
1
TOP-DOWN ASSESSMENT OF THE REDUCTION POTENTIAL
ILLUSTRATIVE
INDEX 100
Preliminary and Current Scenario 1 : Scenario 2 :

rough top-down situation bring all stores to bring all stores to
assessment the average the best-in-case
of the reduction shrinkage/ shrinkage/
wastage rate wastage rate
potential,
At stake:
based on internal
a 14 - 43%
and external reduction
100
benchmarking 86
(ideally with
similar format 57
and environment
scopes)
Source: Team 32
KEY ELEMENTS OF THE PILOT PHASE
The team • A mixed client/McKinsey team, 100% dedicated to the project

• Client team members with strong analytical skills and a good knowledge of store systems
and procedures
• Strong involvement of the store management teams (20% of their time) and managers
of the priority departments (40% of their time)
The stores/
warehouses
• Closing a store sample that both ensures a valid statistical approach taking into account the risks,
and allows a one-day visit per store and per week by the team
• Selecting a balanced mix of stores (large and small), with different types of environments/issues,
and located in different areas
The approach • Implementing of a fact-based, iterative and pragmatic approach with store employees, e.i.
designing corrective actions based on quantitative analyses, testing them, measuring the impact
and formalizing the learnings
• Focusing on:
– Store cross functional actions (e.g., wastage scanning)
– 5 priority departments (usually representing 60 to 70% of the store wastage/shrinkage
improvement potential)
• Having the project team spend one day minimum per store and per week to work with the store
management and priority department managers
Source: Team 33
EXAMPLE OF A DEPARTMENT-SPECIFIC APPROACH TO REDUCE THEFT
1. Among all departments, the Hygiene 2. … within this department, a preliminary 3. The hypothesis of client theft is
& Personal care holds a significant analysis reveals that razorblades have voiced during various interviews…
shrinkage reduction potential… high shrinkage rates
Selection of priority departments STORE XXXX ANALYSIS OF INVENTORY GAPS STORE XXX
K€, December 2002, % of total sales Priority department
selected
10 departments Top 10 inventory gaps on Hygiene & Personal Care Products

4184 1174 represent 80% of total June-October 2002
1174 232
shrinkage reduction Category Value* Number of items
potential in the store
K€, June-October 2002 #, June-October 2002
136
95 Razor blades 7.6 98
3009 91 Perfumes 7.4 14

77 Deodorants 5.9 21
73
65 Toothpaste 4.0 44
62 50 47
• Razor blades show the largest
246 Hair care 2.4 5 innvetory gaps, in value as well
Body care 2.4 10 as in volume
Current store shrinkage Store target Shrinkage Hygiene XX XX XX XX XX XX XX XX XX Others
Nail care 1.4 80
• Perfumes and deodorants are
shrinkage reduction shrinkage reduction Personal departments
potential potential care
also priority categories in terms
Make-up 1.3 8 of shrinkage
Sun care 1.2 92
Accessories 1.2 15
Current shrinkage 3.07
3.07 7.93
7.93 8.31
8.31 9.52
9.52 2.54
2.54 2.92
2.92 4.16
4.16 1.76
1.76 1.23
1.23 6.26
6.26 4.86
4.86 …
…
(%)
34,8 K€,
34,8 K€, i.e.
i.e. 83%
83% of
of
Target shrinkage 2.24
2.24 4.34
4.34 5.83
5.83 6.18
6.18 1.47
1.47 1.23
1.23 1.83
1.83 0.91
0.91 0.88
0.88 0.69
0.69 1.96
1.96 …
… negative gaps
negative gaps
(%)
* In purchasing price at the inventory date

Source: Store Financial Controller Source: Store Financial Controller
3 1
4. … the decision to take action to 5. …and daily measures validate both 6. …further analysis will show
protect Gillette razorblades is taken… each hypothesis and action… increased theft on Wilkinson blades,
which will be also protected
PROTECTION AGAINST THEFT STORE XXXX THEFT REDUCTION ON THE SHOP FLOOR STORE XXX EVOLUTION OF SHRINKAGE/ WASTAGE OF THE PILOT DEPARTMENTS
Actions implemented Actions implemented
% of sales End 06/2002
• Definition of an action-plan for each product category • Coquage of Gillette razor blades (Mac3 et Sensor) on the shelve End 10/2002
• Progressive implementation starting mid-November • Boxes, display units and decoupling sets at cash desks paid by Gillette End 11/2002
• Usage of anti-theft devices on all razor blades • Removal of blades in the warehouse 4,2
6,5 5,6 5,2 5,9 5,5 5,6 6,0 6,4 6,8 6,5 5,4 5,6 5,5
4,4 5,2
2,2 1,0 1,1 2,6 1,51,2*1,2 2,4 2,5
Cost
Cost €0
€0 (all
(all Pilot
Pilot store
store 11 Pilot
Pilot store
store 55
Daily inventory gaps on Gillette Mac3 blades (x8 et x4) supported
supported byby
Protection plan (abstract) Cat1
R12 Cat2
R25 Cat3
R23 Cat4
R24 Cat5
R62 Cat1
R21 Cat2
R22 Cat3
R25 Cat4
R35 Cat5
R63
Gillette
Gillette
Number of units missing
Family Protection Expected impact Before

Before protection
protection After
After protection
protection Impact observed 9,4 9** 8,88,5
6,9 8,0 7,0 6,3 5,5 7,0 5,8
5,2 4,3 4,12,7*
2,2 2,52,8* 2,92,9*
Gillettes Plastic boxes • Implementation of an 19 • Sharp decrease of theft on Pilot
Pilot store
store 22 Pilot
Pilot store
store 66 1,0
Mach 3 x1 additional barreer against shop floor

theft Cat1
R12 Cat2
R20 Cat3
R22 Cat4
R43 Cat5
R44 Cat1
R14 Cat2
R21 Cat3
R32 Cat4
R33 Cat5
R34
Gilette Mach 3 x2 Plastic boxes • Inventory decrease
• Reduction ofwastage rates 54
28
Gilette Mach 2 Plastic boxes • After a few weeks, theft of 7,4 7,4 8,5 8,3 8
6,1
4,3 3,3 4,5
(…) • Increased customer Wilkinson blades, which Pilot
Pilot store
store 33
3,3
1,0 1,2 1,0
3,6
Pilot
Pilot store
store 77
confidence were then also box-protected
6 Cat1
R12 Cat2
R25 Cat3
R43 Cat4
R44 Cat5
R34 Cat1
R24 Cat2
R43 Cat3
R45 Cat4 Cat5
5
53
12 10 8,8 20
1 7,96,66,4 22 5,54,7
0 0 0 0 0 4,7 3,3
5,25,14,9 4,5
Pilot
Pilot store
store 44 2,21,71,6 Pilot
Pilot store
store 88 1,8 0,9 1,8*
Thu Fri Sat Fri Sat Mon Tue Wed Thu
Source: Store XXX, Project Team R12 Cat2
Cat1 R20 Cat3
R22 R63 Cat5
Cat4 R67 R10 Cat2
Cat1 R24 R32
Cat3 R42 R43
Cat4 Cat5
Source: Store Financial Controller 30
2
Source: Team 34
EXAMPLE OF A CROSS-DEPARTMENT APPROACH TO REDUCE

VOLUME DISCREPANCIES
1. Over several interviews, errors in the 2. …the team decided to measure 3. ..tests were conducted internally,
delivery were mentioned as a primary the importance of delivery errors… and external parties performed several
source of shrinkage … audits…
4. … in parallel, the delivery procedures 5. Results showed that delivery errors

application was assessed accounted for nearly 10% of total store
shrinkage
ASSESSMENT OF THE WEIGHT OF DELIVERY ERRORS

Analysis Description Results
• Daily measures
• Focus on 3 departments
Internal
Internal • Two stores covered :
test
test ## 11 store XXX and XXX
Total Delivery Others

shrinkage errors
• Daily measures
• Rolling teams including employees 0,25 à 0,35%
Internal and Department Managers
Internal
test • Reporting of all errors identified and
test ## 22 immediate investigation

shrinkage errors
• External party conducted

30 unannounced audits
External • Ten stores were audited
External audit
audit

shrinkage errors
Source: Project Team

0
Source: Team 35
RESULTS – S2 2002
% of 2002 Turnover
Shrinkage
Waste
-32%
4,9
-15% 3,3
- 6%
3,1 How can we rapidly
2,7 2,7 3.6 achieve a lasting 30%
2,6
decrease in S&W in the
1.8
2 entire network ?
Shrinkage 1.5 1.5 1.5
Waste 1.2 1.2 1.3 1.5

1.1 1.1
S1 S2 S1 S2 S1 S2
Total France Pilot stores Departments with

(except pilot stores) team focus in pilot
stores
36
SHRINKAGE REDUCTION PROGRAM - AMBITION 2003

A simple and concrete action plan
Strong direction from

CEO, relayed by entire
operational line
• Operational line is responsible of the program (store

+ managers; regional directors)
Set of « must have » • Have a fast roll-out : 100% of roll-out in 3 months

actions
• Leverage regional controllers as roll-out leaders and future
warrant of lasting impact (due to their position)
+
• Define, with each stores management team, a specific
Store-specific action action plan, based with concrete actions at department level
plans
• Systematize a rigorous monitoring of implementation and
impact through monthly business review
+
Rigorous control of
results
37
ROLL-OUT PLAN FOLLOWED
• 2-day training sessions

• Short formal presentation and several real-cases
on which trainees apply the new tools
• Ready-to-implement end-products
February
Regions 3 10 17 24
• Region 1 Part Dieu

Villeurbann
• Region 2 e
UNIT 1
• Region 3
• Region 4 • Combination of three formats :
• Region 5
– One store at a time
• Region 6
– Batches of two stores
• Region 2
• Region 3 – Regional Seminaries of 6-7 stores
UNIT 2
• Region 4
• Region 5
• Region 6
• 24 Intermediary Trainers (Regional • Training delivered to senior store

Finance Controllers) who attend the first Management who then trains
training session and then roll-out the middle-managers and employees
training in their own region
Source: Project Team 38

AGENDA OF THE 2-DAY TRAINING SESSION

Plenary Breakouts
Day 1 Day 2
Objective • Message from CEO • Synthesis of day 1

of the
2 days • Introduction with Regional Manager
• Department road-map (theory)
• « How much id at stake in our store ? »
• Immediate application to priority departments
Diagnostic • Brainstorming « What is exactly shrinkage »
• Synthesis of pilot phase • Pause
Targets
and action
• Pause plans • Immediate application to priority departments
(continued)
• Store analytical diagnostic • Performance indicators (input)
• Selection of priority departments
• Lunch
• Lunch
• In-store communication
• Presentation of the scorecard :98 points
check-list
Analysis
• Evaluation of store performance against the • Redaction of store communication plan
scorecard
• Preparation of synthesis
• Pause
Synthesis
• 3 key analysis to diagnose a department • Pause
shrinkage
• Application to the 5 priority department • Synthesis to the regional manager
39
EXEMPLE OF END-PRODUCTS OF THE 2-DAY TRAINING SESSION
Action plans (and targets) on priority Transversal action plans (controlling; security;
departments reception)
Communication plan Store overall target
40
ROLL-OUT DYNAMICS
ROLL-OUT
4. Role-
modeling
1. Fostering
understanding
and conviction
SUCCESSFUL TRANSFORMED
PILOT PHASE Involves every NETWORK
employee in
his/her daily
work
3. Developing
skills
2. Reinforcing
behaviors with
formal mechanisms
41
CHANGE ACTIVITIES ON THE FOUR DIMENSIONS IMPLY STAFF FROM

TOP TO BOTTOM
Examples of activities
• Set-up kick-off • Schedule regular • Challenge and • Show deep personal

events progress reviews stretch Regional commitment
• Design an incentive Directors
program
Board
Members
• Communicate on • Monitor roll-out • Facilitate best • Maintain momentum

the project progress practice sharing on the field
Regional • Attend performance
Directors reviews to ensure
proper monitoring
• Convince and create • Define action plan • Coach and train • Follow-up on the field
Store team commitment and monitor subordinates to maintain pressure
Management implementation
Teams
• Clear out • Learn and apply • Use new tools • Celebrate the
preconceived ideas procedures thoroughly • Share best practices performance
Employees of best employees
42
MAINTAINING THE MOMENTUM REQUIRES TO ACTION BOTH

COMMAND AND CONTROL" AND "CHANGE BEHAVIOR" MECHANISMS
PUSH TEACH TO RIDE
"Change behavior" mechanisms aimed
"Command and control" mechanisms
at enabling change at every employee
aimed at enforcing change
level
+ Required to control that basic procedures + Builds on every employee's resources to
and processes are applied reduce S&W
- Relies on managers' ability to constantly + Makes S&W reduction a self-sustained and
keep the pressure and set the right direction permanent effort
for each employee - Driven by individual motivation, hence
longer and more difficult to achieve Long-term
impact
43
REGIONAL MANAGERS CHECK LIST



POINTS DE CONTRÔLE DEMARQUE DE/DR POINTS DE CONTRÔLE DEMARQUE DE/DR

Challenger
Challenger pour
pour Challenger
Challenger pour
pour
obtenir
obtenir des
des réponses
réponses obtenir
obtenir des
des réponses
réponses
Interlocuteur Vérifications précises
précises et
et factuelles
factuelles !! Fait Interlocuteur Vérifications précises
précises et
et factuelles
factuelles !! Fait
Pour le(s) rayon(s) prioritaire(s) dont il/elle est responsable : • Montants et taux de DI et de casse au dernier inventaire semestriel
• Montants et taux de DI et de casse • Potentiel de réduction (k€) et taux cible du magasin
• Potentiel de réduction (k€) et taux cible • Évaluation des pratiques magasin en matière de démarque (98 points)*
• Édition de la démarque journalière à la famille sur le dernier mois • Dernier compte-rendu du comité anti-démarque
• 3 sous-familles et 5 produits les plus cassés sur le dernier mois DM • 5 rayons prioritaires en terme de potentiel de réduction de la démarque (k€)
RS/ • Édition du fichier article et explication des marges les plus fortes (+/-) et • Plan d‟actions le plus récent pour l‟un des rayons prioritaires
MM des prix d‟achat les plus anciens
• Montants et explication des principaux écarts au dernier inventaire • Contrôler 5 figures imposées au choix
• Montants et explication des principaux recalages sur le dernier mois • Contrôler 5 points de la grille des pratiques magasin
• Plan d‟actions le plus récent • Contrôler les réserves (rangement, protection/surveillance, nature des
• Contrôler les figures imposées au rayon / secteur produits en réserve sensible…)
• Contrôler 3 actions mises en place au cours des 3 derniers mois
• Contrôler les réserves (rangement, protection/surveillance, nature des
produits en réserve sensible…) • 5 rayons prioritaires en terme de potentiel de réduction de la démarque (k€)
C. de
• Contrôler les analyses les plus récentes effectuées sur un rayon prioritaire
• Évaluation des pratiques magasin en matière de démarque (98 points)* Gestion (analyse journalière de la démarque à la famille, chiffrage de la démarque à
Chef • Dernière analyse partagée en ED des produits les plus « interpellés » la sous-famille, top 40 de la casse, analyse des principaux écarts au dernier
Sécurité • Contrôler 5 figures imposées au choix inventaire et/ou recalage de stock, mise à jour du fichier article)
• Contrôler 5 points de la grille des pratiques magasin
* Sur la base du compte-rendu du dernier audit effectué par le Relais Sûreté * Sur la base du compte-rendu du dernier audit effectué par le Relais Sûreté
44
QUESTIONS
45

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OVERVIEW OF SHRINK MODULE

• High-level discussion of shrink

• Case study from U.S. small-box

• Case study from European hypermarket

OVERVIEW OF SHRINK MODULE

• High-level discussion of shrink

• Case study from U.S. small-box

• Case study from European hypermarket

WHY ARE WE TALKING ABOUT SHRINK, ANYWAY?

• Shrink is a huge cost to U.S. retailers, but the

• Our basic beliefs about shrink are counter-intuitive and

• We have developed a client-proven 4-step approach

MARGINS ARE TIGHT FOR RETAILERS…

Revenue Operating Margin Operating Margin

Home Depot 58 5.8 10.0

Kroger 52 2.7 5.2

Target 44 3.3 7.4

Walgreen 29 1.6 5.7

Lowes 26 2.5 9.6

CVS 24 1.2 5.0

Best Buy 21 1.0 4.8

… AND SHRINK HAS SIGNIFICANT IMPACT ON PROFITABILITY

Shrink by type of retailer

SHRINK HAPPENS ACROSS THE SUPPLY CHAIN AND INCLUDES THEFT,

TOTAL COST OF SHRINK INCLUDES MORE THAN

Shrink Check Cash Credit Loss Total

THE RETAIL INDUSTRY HAS PROVEN ITSELF INCAPABLE OF

OUR BASIC BELIEFS FLY IN THE FACE OF CONVENTIONAL WISDOM

• Most of our shrink is from “professional” 2. Roughly 70 percent of shrink is thought to be

• We have to get tough on district 4. Shrink needs to be addressed at the store

• We already have a Loss Prevention 6. Shrink is too important to be handled by Loss

1. LOCAL CRIME RATE EXPLAINS ONLY A SMALL PART OF DISGUISED CLIENT

2. MOST SHRINK IS THOUGHT TO BE INTERNAL OR ADMINISTRATIVE –

Source: 2002 National Retail Security Survey

3. MORE “SECURITY” IS NOT ALWAYS THE BEST ANSWER – DISGUISED CLIENT

Total shrink Technology cost/benefit

4. SHRINK IS A STORE-SPECIFIC ISSUE AND DISGUISED CLIENT

Shrink varies by 5x across

150 Possible causes

5. THERE IS TREMENDOUS VALUE IN FOCUSING ON THE DISGUISED CLIENT

6. LOSS PREVENTION TYPICALLY FOCUSES ON STORE Primary LP

Vendors Central DC Stores

… THUS SHRINK CANNOT BE MANAGED BY MULTIPLE Loss

DC Loss Freight Retail Loss Loss Prevention

Typical role of Loss Prevention Typical role of Loss Prevention

SO, YOU WANT TO DO SOMETHING ABOUT SHRINK – WHERE DO YOU

OVERVIEW OF SHRINK MODULE

• High-level discussion of shrink

• Case study from U.S. small-box

• Case study from European hypermarket

WE USED A TARGETED 4-STAGE APPROACH TO CAPTURE THE SHRINK

Gather fact 1. Implement 2. Launch SWAT 4. Upgrade field

Client experience has shown 50+ percent shrink

TOTAL SHRINK HAS BEEN REDUCED BY 20-25 PERCENT Company

Annual savings for client: $20-25

1. TYPICAL CORPORATE QUICK WINS IMPACT ACCOUNTING,

1. ESTABLISH DC SHRINK ALLOWANCE TO ELIMINATE DISGUISED CLIENT

31+ 21- 11- 5- 3- 2 1 0 1 2 3- 5- 11- 21- 31+

2. WE LAUNCHED A SHRINK SWAT TEAM TO FOCUS ON THE WORST

Resources • Up to $1 million to invest in resources, physical • Reducing shrink without

2. STORE SWAT TEAMS VISITED STORES AND DEVELOPED SPECIFIC

3. EXAMPLE IMPROVEMENT IDEAS FOR DETAILED TESTING