From The Editor | June 22, 2009

On The Road: Turn LP Into A Profit Center


By John Roach, Editor, Retail Solutions Online

Loss prevention (LP) is evolving into a revenue generator, with technology among the largest drivers of the change, according to retailers and vendors at the 2009 NRF Loss Prevention Conference & EXPO. In light of the sagging economy, LP executives need to show ROI on their initiatives and demonstrate how their efforts can impact the company's bottom line.

I attended several sessions that touched on LP's new revenue-driving role and technology's part in it, and also spoke with several industry veterans about the shift. "It boils down to this: How does LP equate to earnings per share?" said Kohl's Corporation loss prevention SVP Randy Meadows in a breakout session titled, "The Evolving Role of Loss Prevention."

LP executives need to find revenue by tightening their existing programs and embracing new technologies. For example, POS system enhancements and upgrades automate promotions for greater efficiency, and along with video analytics, can help limit discount abuse, cashier fraud, and operational inefficiencies.

In one instance, a 132-store retail chain lost $80,000 because the scanner was pricing each case of bottled water as a single bottle. Video monitoring quickly discovered the problem and limited the retailer's exposure. "Sometimes it's not as much fraud as sloppy cashier behavior or poor promotion execution," Agilence VP of marketing Derek Rodner told me. (Agilence develops video-based business intelligence offerings for retailers.)

In another example, a retailer's POS system hadn't been properly programmed for a buy-one/get-one-free promotion. Cashiers didn't report the problem and instead simply bypassed scanning the second item. As a result, the retailer lost manufacturer reimbursement money because the unscanned second item didn't show up in the POS data as part of the promotion. Video analytics helped rectify the situation before extensive losses occurred.

You can also find revenue and drive sales by upselling customers making returns. "Come up with a program to treat returners to a same-day discount or coupon — because 99% of them are your good customers," said Mark Hilinski, EVP, business development and strategic accounts for The Retail Equation. "Try to get customers to spend their return money before they leave the store."

LP's main responsibility long has been to reduce a company's losses. Shrink cost retailers $36.53 billion in 2008, according to preliminary National Retail Security Survey results announced at the conference. Employee theft (43.7%) and shoplifting (35%) account for the vast majority of shrink.

Protecting margins and reducing shrink aren't enough now, though, as LP departments deal with reductions in staff, capital, and expenses. When cuts happen, "We haven't done our job making C-suite executives understand LP's value," said Walter Palmer, president and CEO of PCG Solutions, an LP consulting firm, during "The Evolving Role of Loss Prevention" session. "We have to maintain our core loss prevention strengths but also become more intertwined within the organization."

By implementing the latest technologies and integrating LP more into a company's revenue-generating operations, "LP can go from a cost center to a profit center," Diebold retail VP Chad Buckland told me. And that evolution is good for business — both for individual companies and the LP industry itself.

I talk with Walter Palmer, president and CEO of PCG Solutions, after a breakout session.

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