Magazine Article | September 17, 2008

Outsource LP Labor To Protect Profits

Source: Innovative Retail Technologies

Forty billion dollar Best Buy reorganized the loss prevention (LP)
departments in 65 stores without increasing its shrink record of less than .5% of sales.

Integrated Solutions For Retailers, October 2008

FeatureAs anyone in retail loss prevention knows, shrink is pervasive. According to a joint study conducted by the NRF (National Retail Foundation) and the University of Florida, retail losses hit $41.6 billion in 2006. From the LP professionals' perspective, this number is an unnerving concern for them and the retail establishments they protect. LP departments aim to keep shrink low by implementing best practices in employee investigations, audits, cash protection, and more. When retailers reorganize, such as staff reductions or department structure changes, they must do so without negatively impacting their current shrink metrics. 

Paul Stone, VP of LP and risk management at Best Buy, recently dealt with a departmental reorganization that resulted in a crucial decision and a potential problem. "Over the years at Best Buy, we have consistently reevaluated our LP organizational model in order to continually achieve the best results," explains Stone. "When we undergo reorganizations, we have to do everything we can to make sure we don't increase our shrink record." For the past nine years, Best Buy has achieved an impressive shrink record of less than  .5% of sales. To maintain that percentage during the reorganization would require Stone to do something the company had never done before — blend internal and outsourced LP resources.

Remedy Internal Challenges Before Seeking Outside Solutions
In the midst of the reorganization, Stone was also making changes within each store's LP department. Like most retailers' LP departments, Best Buy's LP teams have a multitude of responsibilities, and it was becoming problematic to allot proper time and resources to each issue. The LP departments were asked to increase their focus on investigations and assessments. "We were trying to get away from implementing blanket changes throughout the stores because each location has its own unique needs related to LP [e.g. audit improvements, theft reductions, etc.]," explains Stone.

To remedy this situation, Stone restructured the retailer's LP teams from a market manager model to an area asset protection managers (AAPM) model to aid the stores' LP needs by territory. "The market manager model was not providing the right level of support in many areas of our business, not just LP," says Stone. "Since we were asked to look at a different way to approach LP, we developed the AAPM program." The difference between the market manager program and the AAPM program is this: The market manager program assigned two districts to the LP team to support regardless of their level of need. Assigning team members to one or both districts that did not need their services ran the risk of wasting resources. With the AAPM program, the LP teams at each store meet with Best Buy territory managers to determine the proper level of support (e.g. assistance with shrink plans and employee investigations) for their particular locations. For example, based on need, some AAPMs have two districts to support while others have three to four. 

Seek Alternative Options To Supplement Your Internal Team
With Best Buy's AAPMs in place, Stone wanted to supplement their workload with an outside resource — one that would work with their internal teams to help with day-to-day procedures such as conducting investigations and coaching and teaching the retailer's LP process to other staff members. Stone found the answer he was looking for in an article in Integrated Solutions For Retailers magazine, which featured LP Innovations (LPI), a provider of loss prevention services for the retail industry. The article prompted Stone to visit the vendor's Web site to learn more about its outsourced loss prevention services, which are designed to reduce shrinkage. This research led Stone to meet with Rubin Press, executive VP of sales and marketing, and Steven May, president and CEO of LP Innovations, at NRF in 2007. Together they discussed how the vendor could potentially help support Best Buy's AAPM team. In September 2007, Best Buy began using the services of LP Innovations.

Test Outsourced Services In One Market
Stone already had a pilot location in mind when he decided to use an outsourced service provider. "We assigned LPI to 65 stores in the Atlanta area since those locations could benefit most from a program of this magnitude," he explains. The territory represented stores located in Georgia and Tennessee. LPI's primary goal was to supplement Best Buy's existing LP team and provide services to effectively work for Best Buy. In the pilot program, LPI representatives provided every LP service that Stone expected his own internal team to provide (e.g. audits, compliance visits, in-store education and training programs, and employee theft investigations).

LPI sent five representatives to Atlanta. The representatives identified members of the retailer's LP team who would be working with them. For example, the vendor appointed a Best Buy customer service manager who was responsible for the entire Atlanta area. Because Atlanta is an ongoing pilot program, LPI implements and maintains all daily services (e.g. investigations and audits) for the LP program in that market.

LPI provides three core services to Best Buy's Atlanta team: control and compliance visits, investigations, and audits. The retailer and vendor worked together to implement and conduct best practice auditing, POS procedures (e.g. how returns are processed or how over/short cash is tracked), cash protection, compliance visits, in-store awareness and education programs, and employee theft investigations (see sidebar on page 16). Within those broad categories, LPI customized Best Buy's program (specific information regarding these customizations is private).

Overcome Labor Issues To Create A Unified Team
Best Buy's AAPM team has developed a level of support that goes beyond investigations and audits. In the past, they provided support for things like inventory processes, merchandising processes, and some operations processes. Also, support always included answers to questions from store personnel or suggestions of who else (e.g. LP department managers) could answer a particular question. Obviously, Best Buy employees had an advantage over an outside partner when it came to understanding the nuances of the retailer's LP program.

To alleviate the challenge, LPI provided several remedies to Stone. For example, a checklist was created for use after an investigation. The checklist identifies if there are any other issues the Best Buy team would like investigated or if there are questions that need to be answered. A customer service survey can also be distributed so the stores may provide immediate feedback. "We haven't had to request surveys, but it's great to know they offer this service," says Stone.

Enhance Services For A Better Total Solution
Best Buy conducts audits to ensure its stores are complying with legal and regulatory standards (e.g. physical security requirements for server rooms). There is a list of things the retailer has to do to remain or reach compliance (e.g. ensure data privacy controls are in place, manage their inventory). LPI uses its own audits as well as those designed by Best Buy to ensure the retailer's compliance. The audits score each store's percentage of compliance. "Our goal is to have all stores at 85% or 90% compliance," explains Stone. During an audit, an AAPM or LPI representative must sample and review the LP processes Best Buy is interested in evaluating. For instance, when a manufacturer delivers products, the two teams (i.e. AAPM and LPI representatives) work together to review daily exception reports. The teams examine the shipment receipt within the first 24 hours of arrival. Also, according to company policy, the product must be placed into inventory within 24 hours. The AAPM must verify this is occurring, and a score is given regarding the level of compliance. An AAPM rep reviews and executes the audit report and supplies the local store manager and the corporate customer with the results and action plans to improve future compliance.

 More Info

 On The Web: Read the article that led Best Buy to LPI at

The retailer and LPI also work in tandem to conduct employee investigations. Depending on the severity of the infraction, employee investigation interviews can take anywhere from one hour to several hours. During an investigation, employees are asked questions based on the facts procured about the case. "Oftentimes, these investigations lead to an admission of theft or some other misdoing," explains Stone. "Then we ask the employee to write a statement, and we turn that information over to the employee's human resources department. At that point, human resources makes a decision about employment status."

Because Stone integrated the LPI team with his own, he has been able to achieve his goal — despite reorganization, not only has the shrink rate at the retailer's Atlanta market not increased, it has retained its record of less than .5% of sales. "You have to consider where we are starting from in terms of shrink numbers," says Stone. "Our numbers are very low. They have not increased, which we view as a success." Stone also states that because his team and the LPI team work so well together, he will continue to look to the vendor to fill gaps when he faces hiring needs.

Since a certain amount of shrink is unavoidable, it is important to take the necessary steps to ensure that your shrink percentage does not increase. No loss prevention department has unlimited resources, which is why, in cases similar to Best Buy's, it makes sense to supplement your internal team with outsourced LP services.