ACADEMIC VIEWPOINT

National Retail Security Survey: 20-Year Update

Twenty years ago there was no reliable industry-wide information on retail shrinkage. Not only did we not know how big the problem was, we knew very little about the various sources, causes, and effective solutions to preventing shrinkage. This empirical vacuum convinced Read Hayes, Professor Bart Weitz, and me to begin conducting the first National Retail Security Survey (NRSS).

The basic concept was to collect data on the scope and causes of retail loss, including the various countermeasures that were being routinely used across the industry to fight the problem. The first report released in 1991 was only two pages long, but it was an important first step in assessing a problem that all retailers experienced, but few knew very much about.

Prior to the first NRSS there were studies available on the problem. However, they all were conducted by accounting firms that clearly were not unbiased. Furthermore, the results were being used to sell various services to their clients in the retail industry.

After consulting with key retail loss prevention executives, it was clear that there was a need for an empirical study on the shrinkage problem that was conducted by an unbiased entity that had no vested interest in the findings. The University of Florida seemed like a perfect institution that could conduct this unbiased research. On the faculty we had criminologists who specialized in occupational crime, a nationally recognized Retail Center in the Business School, and a few experienced individuals who knew enough about the problem to develop a useful survey.

Anonymous and confidential

The first issue to be resolved was the question of anonymity and confidentiality of the data. After discussing the survey with senior retail LP executives, most of them thought the results would be valuable, but all indicated that they could not identify the name of their firm when participating in the survey. Any data provided would have to be confidential and participation would be anonymous. This was not a negotiable point.

Second was the question of how the project would be funded. It was suggested that security vendors would be an ideal source of funding as a “goodwill” gesture, indicating their support of decreasing retail losses. However, it was agreed that no raw data or participant identities would be shared with the “solution providers.”

For the past twenty years we at the University of Florida have held to these principles in order to provide unbiased data on the shrinkage problem without compromising the names of the participants. Given this firm anonymity and confidentiality pledge, we can safely say that most all major retailers annually participate in the National Retail Security Survey.

However, not enough retailers in the smaller vertical markets participate each year to give us the robust statistics that we would like to have. Some of this is due to lack of enthusiasm about the research, and some of the declining participation is due to the decreasing numbers of retailers that remain in business during the economic hard times that our nation is currently experiencing. Unfortunately, this is something over which we have no control. Nevertheless, it does put an increasingly higher burden on the viable retail chains to redouble their

by Richard c. Hollinger, Ph.D.

Dr. Hollinger is professor and chair of the Department of Sociology and Criminology & Law at the University of Florida, Gainesville. He is also director of the Security Research Project, which annually conducts the National Retail Security Survey. Dr. Hollinger can be reached at rhollin@ufl.edu or 352-294-7175. © 2013 Richard C. Hollinger

After consulting with key retail loss prevention executives, it was clear that there was a need for an empirical study on the shrinkage problem that was conducted by an unbiased entity that had no vested interest in the findings. The University of florida seemed like a perfect institution that could conduct this unbiased research.

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continued from page 24 levels of participation to keep the findings of the NRSS meaningful and valuable as an annual LP benchmark for the industry.

20-Year Trends

What do we know about shrinkage and loss from our twenty years of research? While I do not have the space to summarize all the findings, I think that it is safe to make the following generalizations that we did not know two decades ago.

Scope of Loss. The level of economic loss that occurs in retail stores is far larger than any other form of property crime in the United States; larger than auto theft, bank robbery, burglary, and personal robbery. The $35 billion in loss due to retail crime is the single largest category of property crime each and every year.

Retailers are the most victimized by property crime according to our results. Most people would not expect that this is the case. Retailers need to do a better job of communicating this message, since ultimately the cost of retail loss either causes businesses to fail or is passed along to the consumer. Neither of these is good for the economy of our country.

Impact of Internal Theft. Despite what most citizens and some naïve retailers would believe, the greatest economic damage is caused by dishonest employees, not shoplifters. In the store the most visible countermeasures are directed at shoplifting, including EAS tags, cameras, and security personnel. However, since the very beginning of this survey, retailers have reported that between one-third and two-fifths of their losses are believed to be the result of dishonest employees stealing from the firm or by letting others steal from the store through behaviors like sweethearting.

Clearly organized retail crime and amateur shoplifting remain a significant problem, however, each and every year major retailers report that their levels of internal theft are bigger problems than external theft. This means that, as the comic strip character Pogo once so clearly stated, “We have seen the enemy and he is us.” Despite the major efforts at screening and monitoring our employees, they still find a way to “bite the hand that feeds them.”

This is a sad commentary on the nature of the relationship been the retail store and its employees. A significant number of retail employees still do not feel equitably rewarded and compensated for the work that they provide. As such, they obviously feel quite justified in taking from their employers to alleviate this perceived inequity. I have seen this phenomenon in retail stores, manufacturing plants, food service, and manufacturing. It is not just a retail problem.

This is probably why the two best predictors of a store’s shrinkage level have been employee “turnover” and “job dissatisfaction.” This fact has been true for my entire thirty-year academic career studying the phenomenon of employee theft and pilferage. Virtually every other academic researcher who has studied this problem has come to the same conclusion. In short, while we occasionally hire “bad people” who are inevitably going to steal from us despite what we do to prevent it, our own employees whom we have screened, trained, and worked alongside of for years, in reality remain the greatest theft and shrinkage threats. Until we solve the problem of employee dissatisfaction and perceptions of marginality, the retail industry will continue to suffer multi-billion dollar loss levels and suffer shrinkage levels that negatively affect the profitability of the entire industry.

No Silver-Bullet Solution. I wish I could report the invention of a single new technology or “silver bullet” that will eliminate shrinkage and loss; but, as we have seen, this is always going to be an elusive search. Each time a new technology or loss prevention system is introduced, there are always problems and deficiencies that prevent optimal implementation until the “bugs” are worked out.

In my opinion, however, the most effective solution to eliminating employee dishonesty and deterring shoplifting is in convincing our own staff that protecting the property of the store from theft is in the best interests of both the employees and the owners of the retail corporation. In short, people “do not steal from themselves.” Sales associates must recognize that protecting the assets and merchandise from losses of all types will not only benefit the company, but will benefit the employees as well.

Your Participation Is critical

There are a number of retail firms that I could name that have adopted many of the lessons from the NRSS and other academic research on internal and external losses, but confidentiality promises prevent me from doing so. Suffice it to say that my past twenty to thirty years of research on retail crime allows me to conclude that solutions to this problem are available and effective. In fact, this past year’s 2011 NRSS report indicates that retail shrinkage is at an all-time low—around 1.42 percent. Clearly, something must be working. No doubt, we can achieve even lower shrinkage. But more research is necessary to confirm whether we are winning or losing the war on retail loss.

If you are a senior retail loss prevention executive and would like to participate in this year’s 2012 National Retail Security Survey, it is not too late if you act quickly. If you have not received a link via email, just send me an email (rhollin@ufl.edu) requesting a personal link to the online survey. I will make sure you and your company can contribute. It is critical that as many retailers as possible participate in the NRSS to ensure that the results are as reliable, useable, and valuable as possible.

ReoRganizing the LP and aP teams at staPLes

A dIscussIoN wIth dAN Provost ANd steve BAcIcA

EDITOR’S NOTE: Dan Provost, LPC, is vice president of global loss prevention for Staples. His career in retail began more than twenty-five years ago as a store manager in a small-box retailer. Provost has served in various roles and positions since that time with Toys“R”Us and is currently approaching his fifteenth year of service at Staples. He is also a charter member of The Loss Prevention Foundation where he serves on the board of directors as well as a member of the editorial board for LP Magazine.

EDITOR: How did you get started in loss prevention at Staples?

PROVOST: I started off here in 1999 running store operations, and not too long after, I was asked to lead the retail loss prevention team. To be honest, until they approached me about it, I had never really considered working in LP. But once I got into it, I realized that for an operator like me it was a natural fit. I think the Staples leadership took a very bold chance giving me loss prevention, and I will always be grateful for that. They obviously saw something that I didn’t. Since then I’ve moved back and forth a few times between operations, store systems, and LP, but I always come back to LP. It’s hard for me to believe this, but I’ve been with Staples for almost fifteen years now, so I guess you can say that I bleed Staples red.

EDITOR: How have your jobs and functions outside of LP prepared you for your current role?

PROVOST: I actually have a pretty diverse background outside of LP. I’ve been in merchandising, supply chain, logistics, distribution, store systems, and, of course, store operations. That may seem a bit strange, but the truth is that each and every one of these experiences prepared me to be an LP professional in some way. Because I had an understanding of a number of different retail disciplines, it was far easier for me to understand the LP aspects of each. I always highly recommend that people explore different parts of the business for career opportunities. You can always come back to LP if that’s really your calling, but the knowledge you pick up along the way can truly set you apart from other LP professionals.

EDITOR: What do you like about working in loss prevention that’s different from some of the other functions you’ve experienced?

PROVOST: The thing that I love the most about LP is the ability to be strategic. In store operations, it can be really difficult to plan a five-year strategy and see it through, but in LP, you really can create a solid five-year plan, execute it, and witness the results. It’s very rewarding. We’ve had a lot of success over the years as an organization. I know some LP industry professionals may disagree with me, but my belief is that our success has been a result of one simple principle— Control what we can control, and contain what we can’t control. In practice this means we end up focusing primarily on internal loss. We keep tabs on external theft, but we’ve got

The thing that I love the most about loss prevention is the ability to be strategic. In store operations, it can be really difficult to plan a five-year strategy and see it through, but in LP, you really can create a solid five-year plan, execute it, and witness the results. It’s very rewarding. We’ve had a lot of success over the years as an organization.

dan Provost, LPc

programs to contain that. My team’s focus is and always will be all about controlling internal loss. Remember, it’s all about need and opportunity. Our job is to make people believe that the opportunity to commit internal theft just isn’t there.

EDITOR: When did you take the helm as VP of global loss prevention?

PROVOST: It was December of 2012 when I took on the responsibility for all of the various LP teams as part of our overall company reinvention strategy. Since then we’ve worked very hard to find synergies between the teams, and we’ve done some intense cross-training of our associates. Prior to assuming the global role, I was responsible for LP for all Staples U.S. retail stores and distribution centers, which was in itself a pretty big job. We put up some amazing results in those years, and I’m extremely proud of the things we accomplished.

EDITOR: What changes did you make from the global perspective?

PROVOST: From day one, we had some really big decisions to make with regards to our team structure. I was very fortunate to be working with very high-performing teams that had achieved terrific results over the years. As I mentioned previously, Staples kicked off the reinvention of the entire company back in the fall of 2012, and at that time we had a loss prevention team and an asset protection team focused on different parts of the business. The skill bases of these teams were really similar, so the big question was, “Should we leave things as they are or should we create one integrated team made up of multi-talented LP professionals?” Ultimately we decided that we could support our company’s growth initiatives far better if we were able to create one integrated team, so that’s what we’ve been working on since February of this year. Creating the plan to restructure this team would not have been possible without the guidance and support of Steve Bacica [see sidebar page 33] and my business partners Lynn Shibley, Hank Tarbi, and Todd Fischer. They were instrumental in helping us think about structure, roles and responsibilities, and, probably most importantly, leading and living through change. We started by creating a set of guiding principles for the reorganization, and then we used that as a foundation to structure the department in a way that we think will have the most payoff long-term.

EDITOR: What were your guiding principles?

PROVOST: We followed five guiding principles. One, no sacred-cow programs. Two, protect every LP critical function, and dovetail with the reinvention of Staples. Three, create a career path for every single LP associate. Four, provide cross-training and development for all team members. And five, assume innocence. While

these might seem very simplistic, in reality they’re very hard to do in a massive restructuring like this.

EDITOR: How did you restructure the organization?

PROVOST: We could have organized the group in a number of different ways and done just fine, but we chose to structure the team completely in a way that would support the future business needs. We looked at everything. Every program, every policy and procedure, literally everything we spent money on. There was quite a bit of nervousness when it was announced that we would combine the teams, and that’s to be expected, but Steve and I really went out of our way to assure everyone that our true goal was to combine great teams. In the end we eliminated a ton of duplicity and a significant amount of extraneous cost. During reorgs like this it’s not uncommon for people to let their fears get the best of them and seek alternate employment. We didn’t want that to happen with this group, and I guess our message was compelling. I’m very pleased that everyone trusted us enough to work through it.

EDITOR: What do the changes mean for the people in the field?

PROVOST: Under the old structure, a field LP manager would have had responsibility for stores or distribution centers or fulfillment centers, and they were mutually exclusive. In the new structure a field LP manager has responsibility for a geographic area. If there are stores in that area, they own them. If there are distribution centers or fulfillment centers, they own those as well. It’s actually a very cool way to structure the team because everyone has an opportunity to grow and learn new things. The team will continue to become more and more highly multi-talented. Short-term this was definitely the hard way, but long-term this structure will pay huge dividends for the business.

EDITOR: What are you responsible for outside of the field?

PROVOST: I’ve got a number of great teams based here in Framingham, including inventory and shortage control, claims and recovery, e-commerce fraud, internal fraud and investigations, wireless fraud, physical security, LP operations, and environmental health, safety, and regulatory. Sounds like a much bigger group than it really is. In reality it’s a pretty small team made up of extremely high-performing leaders and associates.

EDITOR: Do you have any special programs or initiatives at Staples to enhance the LP function?

PROVOST: Every year we host an in-house conference to exchange ideas, make sure everyone’s on the same page, and really define the focus of our strategy for the next year. It’s really far less of a traditional LP conference than you might imagine. It’s actually more of a business meeting. My goal with every conference over the past ten-plus years has always been the same. The business presents their strategies, needs, goals, and objectives to us. We determine how best to support those strategies, needs, goals, and objectives.

We followed five guiding principles. One, no sacred-cow programs. Two, protect every LP critical function, and dovetail with the reinvention of Staples. Three, create a career path for every single LP associate. Four, provide cross-training and development for all team members. And five, assume innocence. While these might seem very simplistic, in reality they’re very hard to do in a massive restructuring like this.

And we deliver training and personal and professional development to the team to enable them to achieve those goals. I cannot emphasize strongly enough just how important our annual conference has been over the years in terms of getting the team on the same page and in making sure that we’re completely aligned with the business needs. We even have a day dedicated to suppliers showcasing new technologies.

EDITOR: So, within the annual conference, you have a mini-expo dedicated to technology?

PROVOST: Dedicated to technology, yes, but also dedicated to our suppliers. Without our suppliers we’d be far less successful. That’s simply a fact. That’s why we make such a big deal out of our supplier day at every conference. We dedicate a full day to our supplier hall and relationship building. We also bring as many of our non-LP senior executives to the event as possible. We ask our suppliers to showcase not just what we currently buy from them, but also products and services they offer that we don’t buy, or haven’t yet. It’s always amazing to see the reactions of the non-LP senior execs when we show them the cutting-edge technology that is available to support their goals. As a result, every year they launch new product pilots, tests, and proofs of concept after the supplier show. In fact this year’s conference launched five new pilots for our suppliers. That’s a pretty incredible hit rate in my opinion.

On a separate note I’m also extremely proud to say that our Staples LP associates and our suppliers raised almost $4,000 for charity at this year’s conference, including $1,500 for the LP Foundation benevolence hardship fund.

I know some LP industry professionals may disagree with me, but my belief is that our success has been a result of one simple principle—Control what we can control, and contain what we can’t control. In practice this means we end up focusing primarily on internal loss. We keep tabs on external theft, but we’ve got programs to contain that. My team’s focus is and always will be all about controlling internal loss.

EDITOR: What is a typical day in the life of Dan Provost like?

PROVOST: I’m an early riser, so my day generally starts around 4:30 a.m. My wife Leslie and I hang out and have coffee, watch the news, and chat.

I get to work between 7:00 and 7:30. From there the fun begins, and I have meetings and numerous phone calls with my team. I have always seen my role as the person that ensures that the team gets what they need to do the job and succeed. I am adamant that we have a seat at the table on every single initiative and decision that the organization makes. We advise and consult, but we never say “No.” Our job is to present the risks and offer alternatives to the business; not to mandate the outcome.

EDITOR: How do you ensure a good balance between work and a quality of life outside of work?

PROVOST: One of the best answers I’ve ever heard to that question was this—“I think that my first wife would tell you that I wasn’t very good at balancing.” It’s a great answer because it’s honest. Getting ahead and climbing the corporate ladder is all well and good, but at the end of the day it’s about spending time with the people you love. I’ve gotten far better at that in the last five years, and I’m pretty sure that getting it right, striking the right balance, has made me a better leader.

EDITOR: You are a member of the board of directors of the LP Foundation. What do you think of the Foundation and other industry organizations and educational initiatives?

PROVOST: To be honest, for many years I was completely unaffiliated with any of the industry organizations. It wasn’t because they aren’t all great groups with great people; I just never really felt a compelling reason to join. Then I was introduced to Gene Smith and the LP Foundation. It’s hard not to get inspired when you listen to Gene, but it was his message that resonated with me. The LP Foundation is the only industry organization that focuses solely on the personal and professional development of the individual. Once I understood that, I was hooked. I am a true believer in the mission and goals of the Foundation. I am

The LP Foundation is the only industry organization that focuses solely on the personal and professional development of the individual. Once I understood that, I was hooked. I am a true believer in the mission and goals of the Foundation. I am extremely proud to be a member of the board of directors, and I preach the word everywhere I go.

extremely proud to be a member of the board of directors, and I preach the word everywhere I go. We actually were the first retailer in the history of the Foundation to offer tuition reimbursement to our associates.

EDITOR: When did you start doing that?

PROVOST: We started in 2009. It became apparent when I was pitching certification internally that people didn’t always have the cash necessary for a LPC or LPQ certificate just laying around, so I organized for the company to reimburse tuition for people who wanted to take the courses and get certified. And I’m very proud that we were the first retailer on the planet to do it.

EDITOR: Obviously, you take pride in developing your people. Along your career, were there mentors who helped push you along?

PROVOST: When I first took over the Staples LP team back in 2001, I was getting lots of advice from just about everyone, and quite honestly it

was a bit overwhelming. Then I was introduced to Dave Gorman. Dave had recently retired from Walmart after twenty or more years and was starting a consulting business. To this day I will never know exactly why Dave took me under his wing, made me his project, but he did. He helped me to hone the focus and the strategy for the Staples LP team. And as I said earlier, our strategy remains the same to this day. I can’t tell you how many times Dave came out to visit with me, walk stores, and just generally make sure that everything was working as planned. We had weekly, sometime daily, calls, and we developed a very strong friendship. Even though Dave was consulting for a living by this time, he would never take a dime from me. Everything that Dave Gorman did to launch my LP career, he did at his own expense. That’s the kind of guy Dave was; just an amazing, true gentleman in every sense of the word. I miss him very much. [Dave Gorman died in May 2012.]

The View of Loss Prevention from the Corporate Controller

EDITOR’S NOTE: Stephen Bacica is senior vice president and corporate controller for Staples.

EDITOR: What did you do before you came to Staples?

BACICA: Before staples I was the evP, cFo, and treasurer of McG capital corporation, a business development company (Bdc) based out of Arlington, virginia. A Bdc functions similarly to a private equity firm. we had investments across thirty different industries, which gave me both an investor’s perspective and an operator’s perspective when taking on new challenges and looking at business opportunities. Prior to McG, I was with Marriott International in corporate accounting and transaction support roles, and I started my career in accounting with Pricewaterhousecoopers. I also spent three years with the securities and

stephen Bacica

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EDITOR: How do you like your first adventure in overseeing LP function?

BACICA: I really enjoy overseeing loss prevention. It gets me closer to the core operations of the company, and it has accelerated my on-boarding into the industry. It is incredibly exciting being part of the LP team during the reinvention of staples.

EDITOR: What LP-relevant assets does a financial background bring to the table?

BACICA: A financial background provides a great analytical backdrop when tackling LP challenges. I spent four years evaluating scores of business plans during the financial crisis and recession with McG’s middle-market investments. I saw what worked and what didn’t The financial backdrop of the controllership function helps to highlight the business equation when deciding on resources to employ in the LP mission. Also, risk mitigation and the performance emphasis in the control environment are key principles both in LP and with the controllership function. There are more similarities than first meet the eye.

work. that broad background really helped me to be a “quick study” on operating models.

EDITOR: What do you find most difficult about the new role?

BACICA: I think the toughest part of the role is getting ahead of e-commerce challenges in the dot-com world. Although I was responsible for information technology at McG, the scale related to LP is much greater at staples, and there are many more moving parts.

EDITOR: What are your views on the people you’ve met in LP?

BACICA: I greatly admire my LP team. they are incredibly engaged with their work, they’re very loyal to each other, and there’s a special bond across the LP team. It’s similar to the bonds that you see with first responders and other close, disciplined groups. the staples team is really amazing; a very tight-knit group of professionals. I think our group is successful because they are viewed as business partners on the broader operational front. the staples LP team is very well-respected throughout the global staples organization.

EDITOR: How do you, as the corporate controller, contribute to the LP function?

BACICA: the financial backdrop of the controllership function helps to highlight the business equation when deciding on resources to employ in the LP mission. Also, risk mitigation and the performance emphasis in the control environment are key principles both in LP and with the controllership function. there are more similarities than first meet the eye.