SHRINK RETAIL SHRINK
VIPER Thought Leadership Series #7
By Johnny Custer Ernie Deyle and Monica Woo
Five minute read
Most retailers are fighting for survival during the COVID-19 crisis. Now, more than ever, retailers must bolster cashflow by eliminating operational and systemic efficiencies, including shrink. Per the 2020 National Retail Security Survey, commissioned by the National Retail Federation, retail shrink was at an all-time high of $61.7 billion. Seasoned retail and eCommerce executive Monica Woo seeks the advice of two VIPER EA leaders: Ernie Deyle, Chief Strategy & Client Service Officer, and Johnny Custer, Chief Operating Officer. Both are notable retail veterans with deep expertise in shrink and loss prevention, and retail analytics.
MONICA WOO: Job #1 for all retailers is to preserve capital. The 2020 National Retail Security Survey estimates that shrink has depleted an average of 1.62% of retailers’ bottom line. In fact, 70% of retailers reported a shrink rate of 1% or higher. As experts in loss prevention, what causes shrink and what are the solutions?
ERNIE DEYLE: Ecommerce crimes, organized retail crimes, data breach and other cyber-related issues, internal theft, shoplifting, gift card scam and return fraud are key drivers of shrink. Operational inefficiencies, suboptimal pricing and promotions, and the associates’ failure in following policies and procedures also cause shrink.
JOHNNY CUSTER: Another key factor is poor inventory management, causing either excess inventory that ties up working capital, or out-of-stocks resulting in lost sales and customer attrition.
Due to lagging sales, slow inventory turns and limited SKU rationalization, many retailers adopt defensive merchandising and put high-risk merchandises on “lock up” that contribute to out-of-stocks. The limited availability of desired items drive customer dissatisfaction.
ED: Building on Johnny’s point, to improve inventory management and SKU rationalization, retailers need to analyze data across the enterprise, accurately predict customers’ purchase and promotional behavior, and make the right operational decisions in real-time.
MW: Yes, data and insightful analytics are essential to shrink reduction. In fact, in the same 2020 National Security Survey, 75.4% of retailers believed that their loss prevention department would need more analytical skills, in order to be successful. This presents a dilemma, since many retailers are decreasing internal headcounts and SG&A to survive the current economic crisis.
JC: This is why retailers outsource to VIPER EA the collection and analysis of data across their enterprises, and the development of strategies to reduce shrink and improve the bottom-line. We pinpoint and eliminate profit-draining inefficiencies with proprietary advanced data analytics and Machine Learning predictive models.
Furthermore, we provide hands-on support to deliver incremental profit. Let me illustrate with the use case of a client burdened with under-performing SKUs. VIPER not only identified the low-demand products, but also, redesigned the point-of-sale fixtures and visual merchandising to stimulate purchases. In addition, we also monitored activity at checkout, to detect anomalies that negatively impacted the stock ledger and automated ordering system.
ED: I’d like to share another success story on how VIPER increased a retailer’s profitability by 38% in the Direct Store Delivery (“DSD”) category. For this client, we targeted non-warehouse DSD products which represented 46% of enterprise sales. Unfortunately, limited in-stock position visibility, inconsistent merchandising sets and sub-optimal merchandising mix depleted our client’s already razor-thin margin.
With strong data science capability, VIPER quickly attained total visibility to in-stock position, and detected profit-draining operational inefficiencies. We also enhanced the check in process of vendors to drive compliance and performance accuracy. VIPER not only reduced shrink, but also improved inventory turns and margin.
JC: I want to build on Ernie’s point on VIPER’s successes in shrink reduction. For a $40+ billion national retailer, we reduced shrink by over 90%. And for a $3 billion regional company, we decreased shrink by over 40%.
MW: “Show me the money!” VIPER reminds me of my favorite scene from Jerry Maguire.
ED: To help retailers during challenging times, we are offering a $1 million Profit Improvement Guarantee™. VIPER will achieve a minimum of $1 million in quantifiable profit increase or pay the difference. We put skin in the game and show you the money!
Johnny Custer has extensive leadership experience in retail loss prevention, predictive analytics, operations and merchandising management. An expert in profit optimization, he is a sought-after retail thought leader who was featured by CNN, Fox News, NBC and other media outlets.
Ernie Deyle is a recognized leader in enterprise acceleration and performance improvement. He led strategies that significantly increased revenue, margin and profit for many of the global top tier retailers, including CVS Health. Additionally, Ernie served as the global leader of Cap Gemini Ernst & Young’s retail performance improvement practice.
Monica Woo is the CEO of WooWorks, which invests in and advises digital commerce, AI and omni-channel retail. Previously, she was President of 1-800-Flowers.com and Bacardi Global Brands, and FreshDirect’s Chief Revenue Officer. Monica is an advisor to the Board of VIPER EA LLC.
