Yesterday, the new CEO of Best Buy made one of the silliest announcements I’ve seen in the last couple of months when he announced that they were reassigning about 2,000 loss prevention employees to focus on selling customers more merchandise.  The reason it sounded so silly was in the explanation for the move – “Customers told us they did not like having their receipts checked when they left the store.”

Seriously??

Retail analysts have already detailed the significant, fundamental issues that Best Buy faces in its market segment, but this move is going to help solve those issues?  Now, I would have had more appreciation for the move if they simply said, “Hey, we are grasping at straws here!  Amazon, Wal-Mart, and Costco are kicking our butts, we’ve thrown billions of dollars away in failed international expansion, our management team is in turmoil here, and our stock price is in the pits.  We are trying to cut as much expense as possible and willing to roll the dice that shrinkage won’t go up too much.”  That might have made at least a little bit of sense, but the idea that their sales issues are because customers are staying away from their stores because of rabid receipt checking?

How are Sam’s Club, Costco, and BJ’s doing so well then?  They check receipts.

As a Best Buy consumer, I can’t remember the last time my receipt was checked.  What I can remember is my experience in their Tinley Park, IL store a few weeks back when I popped in to buy the latest Zac Brown Band CD that was at the top of the charts.  First, there might have been four customers, counting myself, in the store at 3:00 in the afternoon.  Second, when I went to the music section, I had plenty of opportunities to buy those $6.99 specials but not a Zac Brown CD to be found.  Surely, if you are going to carry music, you need to have the best-selling CD’s available?

But, yesterday’s announcement would suggest that in the mind of a new CEO, the reassignment of loss prevention employees is more important than looking at their buying and distribution issues.  At least that’s what it looks like to me when I read the BusinessWeek article.

Now, here’s the rest of the story..

The changes Best Buy is making in regards to its loss prevention strategy are more thought-out than the article suggests, driven by different factors, and probably shouldn’t have even been publicized in the business press.

Best Buy has operated their front-end control model for a number of years.  Originally, it was as focused on improving accuracy and integrity of the POS area through receipt checking and presence in that area.  As a side benefit, it also put the loss prevention personnel in a place where they could monitor the flow of customers in and out of the front doors.  Personally, I think they managed the process pretty well.  I typically found their front-end loss prevention associate to be friendly and knowledgeable about where to direct customers for certain product categories.

However, a few years ago, the leadership team of the Loss Prevention group began to explore how they could focus their personnel more on process related issues that affect shrink and have a bigger impact throughout the entire four walls of the building.  One option given consideration was to change the front-end model.  In fact, not only was it given consideration, it was tested in several markets to see if it might help accomplish the shifting goals of the organization.

The test results showed them that by un-tethering their people from a fixed location in the front of the building, it did, in fact, allow them to have greater engagement and impact on shrinkage throughout the building.  In the process, they were also able to give a few hours back to the sales efforts and they feel good about supporting the efforts of the organization to increase top-line growth.

Back to the BusinessWeek article..

Without knowing the rest of the story, it is easy to read the article as an indictment of the loss prevention group.  It would be easy to think the loss prevention department was going away.  It would be easy to view the senior leadership as being short-sighted and grasping at straws to fix their sales problems.

This is the reason I received quite a few inquiries from people in our business asking for my take on the reports.  It was seen as a very negative view of loss prevention and a simplistic view of the role that loss prevention strategies play in relation to sales.  Unfortunately, this type of thing happens pretty regularly.  When a senior executive says, “Our customers don’t like it when our high-end product is spider-wrapped,” I want to ask them how they know that to be true.  Have they done customer intercepts?  Have they done behavioral observations where they saw this behavior manifested?  Have they surveyed non-customers to find out why they are not shopping in their stores and heard a consensus that it is because of the organization’s merchandise protection standards?

In my years of retail experience, I’ve seen this time and time again.  Companies who are struggling with fundamental issues start to focus on minor issues that only distract them from their larger challenges.  But, from what I understand of the situation, this is a deliberate strategy shift, led by the Loss Prevention team, that will show its results in time.

As we close out last year and move onto the future, it is natural to reflect on what we’ve learned and where we have been in 2011. This post will focus on the growing attention that international issues are garnering from Loss Prevention and security professionals.

The Global Retail Environment

Over the past year, we’ve seen the international retail market take center stage for many retailers, sometimes for the good and sometimes for the bad. Across the globe, retailers are announcing that international expansion is their growth market. Nowhere is this trend more pronounced than in the specialty apparel segment of our business. A&F, American Eagle, Gap, Uniqlo, and many others have announced their intentions for greater concentration and focus away from their home bases. In fact, there was speculation that Motherhood Maternity, a UK-based organization, might close their UK stores to focus on international opportunities, although this seems unlikely.

Yet, there have been plenty of retrenchments and pullbacks along the way. Leading brands such as Best Buy, Wal-Mart, A&F, and many others have reported less than expected earnings or even had to pull back from underperforming markets. Retailers have found operating expenses much higher than expected, infrastructure severely lacking, consumer acceptance not guaranteed, and, in some markets, political environments and corruption issues more challenging than initially estimated.

In recent months, many companies – retail or not – have curtailed or scaled back plans for Europe given uncertainty about the future of the Eurozone. For CFO’s of companies operating in the Eurozone, the fourth quarter found most of them grappling with contingency plans for what to do if the Euro starts to unravel over the next year.

Retail Loss Prevention Challenges – 2011 Recap

As retailers expand internationally, Loss Prevention executives are challenged to learn the different challenges, cultural influences, regulatory differences, training and learning orientations, and communication styles of vastly different markets and audiences. Privacy laws in the EU, works councils in Germany, corruption in Russia and former Soviet states, local politics in China, and violent crime in Central and South America all present challenges to our goals.

In the past year, we had the privilege of working with retailers around the globe and had many opportunities to meet, network, and travel around the globe.

• In January, we were in Bogota with a client doing market assessment and FCPA training.
• In May, we were back in Europe meeting with clients and gauging recent developments. I was able to avoid any volcanic disruptions this year and also got to spend some valuable time in Paris with Bernard Geiben, our Senior Consultant for international issues. With his in-depth experience in over 30 countries, he is a critical part of our global strategy and able to bring our clients real-world insights into operating in differing cultural and regulatory environments.
• In July, I was in Mexico City with a key client and also had the chance to participate in the CSO Roundtable meeting held there to discuss current status/trends in the security environment in Mexico and Central America – a key concern to any retailer operating there.
• In late August, I was able to spend some time in Shanghai and Beijing networking with both loss prevention and business contacts. One of the highlights was reconnecting with a good friend who grew up in China and is now relocating to Shanghai. Due to his extensive experience in China, he has an amazing network of expatriate friends who have been operating in China for years. Senior executives from companies such as Intel, Ogilvy PR, and other leading companies were able to share some of their insights with me. My favorite quote from the trip came from one of them, “Spend a week in China and you’ll want to write a book about it. Spend two months in China and you might want to write a column. Stay for a year or more in China and you’ll realize you know nothing about China.” Good advice.
• September brought me back to London and Paris. While most of the trip was pleasure, I did get to connect with some US executives who were over to do some assessment and we had a chance to break bread together and compare notes.
• In October, I was able to get back to Madrid for the ASIS Spain Chapter’s retail loss prevention seminar, “Encuentro profesional de la Seguridad en la Distribucion.” PCG’s Bernard Geiben was a featured presenter and we had an opportunity to network with several leading retailers including executives from Carrefour Spain and DIA. Plus, I got a side-trip to Barcelona to catch some world class football at Camp Nou.
• In November, I finished the year in Washington, D.C. at the Control Risk Seminar, “Risk and Reward: Successfully Navigating an Unstable World.”

Looking Forward to 2012

In the coming year, all of us will have to become more knowledgeable about the challenges of taking what we do across the globe. In the first four months of the new year, we already have plans to be in China, South Africa, and the United Kingdom. This, of course, is in addition to meeting with companies around the US to hear about their lessons learned, their challenges, and how they have found ways to be successful in new markets. We hope to see you on our travels and good luck with your global ambitions!