WHERE THE MONEY IS

MINA WILLIAMS

Shrink at the front end is getting bigger, and that is getting the attention of retailers.

As supermarket executives grapple with squeezing all possible excess out of their operations, attention is turned to trapping inefficiencies at the unit level. The leading cause for losses at individual stores comes in the form of shrink -- theft, receiving and pricing errors and shoplifting -- say operators.

With the aid of technology, retailers have been better able to pinpoint specific targets to tackle loss prevention issues in a strategic fashion. Shoplifting, once thought of as a plague on the industry, has been overshadowed by employee theft, according to industry observers. Employee theft accounts for more than half, or 55%, of all store shrink, and more than half of that, or 28%, is caused by cashiers, reported the Supermarket Shrink Survey done by the National Supermarket Research Group, Scottsdale, Ariz.

Cashier shrink has grown dramatically from 12% in 1990 to the 28% reported in 1999, noted the survey. Of the 28%, 13% was attributed to cashier dishonesty, 10% to "sweethearting" -- discounting or sliding through merchandise for family or friends -- and 5% to cashier errors. There was an average of 4.86 incidents of cashier dishonesty per store, with an average loss per incident of $450, said the survey.

Additionally the dollar losses between shoplifting and employee theft are also worlds apart. According to the University of Florida's retail-shrink research project, an average shoplifting incident costs retailers $212.68 while an employee theft averages $1,058 per incident. Add in the costs associated with apprehension, hiring and training a replacement and that figure can rise to $5,000.

Corrective measures have proven to be a moving target for operators. There are a tremendous number of cashiers, an estimated 3.2 million of them in the United States, according to the U.S. Bureau of Labor Statistics. Cashiers are also relatively young in age, with most under 24 years old. Combined with the fact that most cashiers are part-timers, with turnover rates running at double-digit percentages, the task of decreasing fraud at the front-end is daunting, and time-consuming.

"Unfortunately none of this has anything to do with what I want to do, and that is to sell groceries," said Mike Martin, owner, Red Apple, Kennewick, Wash. "There is a lot of effort put into catching thieves, both employees and customers. My efforts would be better spent marketing and merchandising," he said.

"Retail shrink prevention is one of the last true profit frontiers," said Larry Miller, director, National Supermarket Research Group, Scottsdale, Ariz. "It poses as a stand-out, competitive and strategic advantage for any retailer. By cutting store shrink operators can be more price competitive, advertise more aggressively, provide better service to customers, improve variety and in-stock condition. All this leads to selling more groceries and making more customers more happy."

The front line of defense for most retailers is clear employment policies, complementing good hiring and training practices. However, more are layering in technology in their efforts to combat cashier shrink.

For example, Giant Eagle, Pittsburgh, uses point-of-sale software from Trax Software & Consulting, Scottsdale, Ariz., and recently rolled out an updated Windows NT version to its Cleveland area stores. "Because we implemented the Shrink Trax program, store personnel is generally more aware that we are watching shrink," said Dave McGeary, retail technology advisor, Giant Eagle. "Anytime you implement something that looks at a problem area, people start to consider what they do."

Brown & Cole, Ferndale, Wash. has established a set of questions every store manager is required to ask of new hires. This format helps bolster the confidence of inexperienced managers and keeps interviewing consistent within the chain, said Wendy St Claire, human resources specialist. "A good number of situational questions are also included to help managers get a feel for the person," she said.

"Training is difficult. We are a growing company and our units are all different sizes so each store's needs are different. But we need a high level of customer service across all units," she said.

To achieve consistency following the interview process, new cashier applicants are given a written test including math and reading skills. Then they are given a three-hour session with a human resources associate. The session details customer service, tobacco and alcohol sales, and food stamps, as well as the company's honesty policies. Once hired and on the sales floor, new employees are shadowed for three shifts.

At Dan's Super Market, Bismarck, N.D., front-end training is conducted on the job. Here honesty is taught by example, according to Ralph Doctor, vice president retail operations. "Our front end supervisors lead by example. They demonstrate that integrity has to be above question on a day-to-day basis. Communication with our customers and honesty is expected. Fortunately cashier fraud is not a widespread issue in our area. We are lucky that our employees know that short cuts to get quick dollars is not the only way."

Bashas' Markets, Chandler, Ariz. is tough on internal offenders. While the chain promotes its family feeling at each store, the chain has a single-strike zero-tolerance policy when it comes to employees who steal -- they are terminated and prosecuted. Bashas' credits its success in reducing incidents by stepping up training. Honesty is a component of a new hire's training within the classroom orientation. Additionally, a take-home message about the importance of honesty from Eddie Basha, chairman and chief executive officer, encourages associates to be part of the solution, not part of the problem, and report rather than ignore theft on the job.

Dorothy Lane Markets, Dayton, Ohio, conducts a weekly classroom session for new hires under the direction of Matt Heib, director of human resources. During the sessions associate theft is covered. It is explained that losing the job is not the only thing that will happen. If caught, the ex-employee will face the consequence of being turned over to the police.

"It is important for retailers to not excuse dishonesty," Miller said. "They have to involve law enforcement otherwise the retailer is exposed to an increase of theft in the store."

In stores where policy implementation is weak, the door is left open for theft, he said. There has to be a culture of control and that culture has to communicate personally, not in a memo, that customer service and shrink prevention has an impact on payroll as well as employment. "Loss prevention is truly an executive suite function today. The priority set has to be communicated up and down the chain," Miller said.

Miller suggests face-to-face interviews for all applicants and ongoing classroom training for store level managers as a part of the operator's total training program. One component of the discussion must be a full explanation of what the chain does to protect its profits and how those profits impact the individual. "Smart retailers know that it is not policy and procedures that controls shrink, it is people that make a difference reinforcing the message."

Opportunity makes a thief, according to industry experts. Drawers full of cash, the large amount of supermarket transactions and aisles of merchandise can be a lethal combination for fraud. Additionally, theft in the form of "sweethearting" takes its toll on operators' bottom line.

"I had employees going to the deli, ordering $6 worth of food and then coming to the front-end and tossing $2 down," said Martin of Red Apple. "That is theft in my book."

As the war wages on, there have been some battles won. Retailers' loss prevention initiatives, including cashier monitoring systems, audits and formal loss prevention training for unit level managers, have reportedly helped stem the tide. The Shrink Survey reports that shrink was down 8% in 1999 from 1998, however the problem still takes a sizable bite out of the bottom line.

Technical applications are relieving some store level losses. Data mining can pinpoint problems by analyzing stored data to determine patterns out of the ordinary. Additionally, automation takes the human element out of the discovery process providing a stronger case for personnel proceedings.

The National Supermarket Research Group's study reveals that most retailers use CCTV (closed circuit television cameras) and automated cashier monitoring systems to curb front-end fraud. The cashier monitoring systems alone are credited with a shrink reduction of 20%.

"Technology is a wonderful thing, but use technology with a strategic implementation plan," Miller said.

Brown & Cole puts technology to work with old-fashioned business practices to identify discrepancies. "Our bookkeepers are very thorough," St Claire said. "We follow up with any individual checker that may have some irregularities. Oftentimes, it's a case of a checker trying to fix some error they have made. We show them the correct steps to take in these instances. In other cases where there is suspect of fraud an internal investigation is launched."

This investigation includes the review of front-end videos and an examination of register tapes along with any interview notes taken. "We have a zero tolerance for internal theft," she said. "Once proven beyond the shadow of a doubt there are no second chances."

Video surveillance, access control and tagging are applications being used as deterrents to crime and proof in personnel proceedings in numerous operations. "These three things keep me in business," said one urban operator. "The deterrent factor alone keeps internal theft and shoplifting in check. People only steal if your present low-hanging fruit and they think they can get away with it. If I don't make it easy for them, they will just go somewhere else to steal."

Martin at Red Apple recently increased his video surveillance presence at the front-end primarily as a deterrent. It took over three months to identify a checker who was altering customer checks and pocketing the difference between the check and the register ring. "It's sad we have to do this. It's amazing. Even when presented with a videotape, they deny what they have done." He has also found that the video cameras positioned throughout the store have discouraged employees from stealing time. "Whether they are taking an extra long break, leaving the front-end for a cigarette or joy riding on the forklift around they are stealing a precious thing -- time."

Tying technology with operations when it comes to loss prevention can offer up a total profit recovery impact, said Miller.

Systems are now available to match scanning data with tag deactivation. "These reports are a very useful management reporting tool," said a source. "Technology can be used as a deterrent and when deactivation discrepancies are brought to the attention of one cashier, word gets around the store."

On the horizon are new systems that stream data superimposed on videotapes and scale captured date and time changes which pass cashier identification information into system. These applications have the ability to assist retailers in spotting abnormalities at the front end and identify the employee.