Thursday, December 31, 2009

From The New York Times: "Shoplifters? Studies Say Keep an Eye on Workers"

Ask any LP professional in the retail setting about asset protection and he or she will tell you that watching shrinkage via associate theft is of paramount importance. A December 30 article from The New York Times reports on recent studies demonstrating that employee fraud is on the rise, particularily with regard to gift card fraud.

As reported in the Times:

Employee fraud involving gift cards appears to be growing sharply as retailers struggle to contain overall theft, now estimated at $36 billion a year in the industry, or 1.51 percent of retail sales, according to a leading national study. Even as total sales have been falling, employee theft and shoplifting have been rising across the United States, industry experts say,with occasional arrests making headlines.

Many of the gift card crimes are straightforward, frequently involving young sales clerks and smaller amounts than the Saks theft. Among the variations of such crimes, cashiers often do fake refunds of merchandise and then, with the amount refunded, use their registers to electronically fill gift cards, which they take. Or sometimes when shoppers buy gift cards, cashiers give them blank cards and then divert the shoppers’ money onto cards for themselves.

A 20-year-old cashier at a Best Buy on Staten Island was arrested two weeks ago and accused of fraudulently ringing up gifts cards for $600. A Kmart employee, 22, was arrested the same week in Hazlet, N.J., and accused of stealing more than $1,500, partly by diverting false refunds and layaway plans onto gift cards.

Other schemes are slightly more complex: early this year, a 20-year-old worker at a Sears in Milford, Conn., was charged with manipulating the store’s computers to divert more than $35,000 onto gift cards that were fraudulently activated.

Retail experts say they can only estimate what portion of their theft losses can be traced to employees, to shoplifting and to vendors, but they view their own store workers as the leading culprits. The national study, based on information obtained from 106 retail chains that responded to a questionnaire, said employees were responsible for 43 percent of the stores’ unexplained losses, versus 36 percent for shoplifting.

The study, known as the 2008 National Retail Security Survey, showed that employee theft rose slightly that year to $15.5 billion.

“The retail industry has come to the realization that, as the Pogo comic strip said, ‘We have met the enemy, and he is us,’ ” said Richard C. Hollinger, the survey’s principal author and a professor of criminology at the University of Florida.

The most common type of employee theft is “sweethearting,” in which cashiers fail to ring up or scan goods that friends or relatives present at the register, Professor Hollinger said. Stealing from the till remains a problem, too. But with gift cards continuing to grow in popularity, they are an increasingly easy target.

Whatever method employees use to steal, their take is more substantial than that of the average shoplifter. Mr. Bamfield’s global study of retail theft found that larcenous employees averaged $1,890 in theft, compared with $438 for shoplifters.

“I’m sure there are employees who steal because they feel aggrieved over a wage freeze or the way they’re treated,” said Mr. Bamfield, director of the Center for Retail Research, based in Nottingham, England. But “it’s very easy to be tempted in a retail environment. You have merchandise, you have cash, you have friends who want cellphones and iPods.”

Retail professionals emphasized that only a small percentage of employees steal. Officials at Wal-Mart, Target, Macy's, and Best Buy declined to discuss employee theft, a subject many companies find embarrassing, saying that industry associations were better positioned to discuss it.

The article details that employee theft is part of a bigger problem: organized crime. The Times further reports:

Casey Chroust, executive vice president for retail operations at the Retail Industry Leaders Association, said that organized criminals often pressure or pay retail employees to slip them gift cards or tell them when and where security guards are patrolling.

Detective David Hill, a retail theft specialist with the Montgomery County Police Department in Maryland, said two areas he aimed to focus on were organized retail crime and gift card fraud. He said he was investigating a 20-year-old cashier who wrote down shoppers’ credit card numbers and then used them to fill more than $13,000in gift cards — at $200 a pop. “For us, gift cards are harder to track than a stolen credit card,” Detective Hill said. “If you go to make a purchase with a gift card, you don’t have to show ID.”

Also problematic for retailers is theives' use of the internet to fence gift cards:

Several years ago, retailers complained to eBay that people were auctioning a dozen or two $200 or $500 gift cards from Best Buy or Home Depot. It is one thing for a shopper to return a $300 power drill, refund it for a $300 gift card and auction that on eBay, retailers say, but it is far more suspicious when someone auctions 20 gift cards.

“The online marketplace provides an outlet for people with fraudulently obtained merchandise or gift cards,” said Joseph J. LaRocca, senior asset protection adviser with the National Retail Federation. “They used to sell these things on a street corner or a local pawnshop. But in today’s world, they put them online for a national or international distribution, and that brings a much bigger customer base and commands a higher price. We know goods sold on the street, they get 30 cents on the dollar. Goods sold on the Internet get 70 to 80 cents, with gift cards getting about 80 cents.”

Many retailers have loss-prevention specialists who monitor online auctions of gift cards to ferret out thieves. Bowing to retailers’ concerns, eBay now bars sellers from auctioning cards over $500 in value or more than one gift card a week. Paul Jones, eBay’s director of global asset protection, said his company was committed to working with retailers and law enforcement to combat gift card fraud.

Many retailers have embraced technology to fight employee theft:

Data mining programs can now detect whether a particular cashier is refunding far more items than other cashiers, a strategy often used to fill fraudulent gift cards. When such trends are detected, store officials often review video, taken by overhead cameras, to see whether a cashier repeatedly did refunds with the same friend or relative.

One company, StopLift, based in Cambridge, Mass., has even developed software that, when used with overhead cameras, can detect when cashiers engage in sweethearting, by not running merchandise over the scanner or by letting acquaintances take merchandise without paying. The software then alerts managers.

As a final note, the article observes the rate of theft is greatest among retailers with high turnover rates and many part-time workers, who may be less loyal and under more financial pressure than full-time workers. Also seen is proof there is higher theft among younger workers: Older workers know they have a lot more to lose —promotional opportunities, health insurance, 401(k)’s, and pensions.

McDonald's and Its "Plan to Win": A Blueprint for Success

I am a student of management, especially when it comes to systems. I'm especially interested when hospitality is involved. The other day, I was reading about some management changes at the upper tier of McDonalds. In conjunction with this article, I read about McDonald's "Plan to Win." It was captivating reading.

According to Larry Light and Joan Kiddon, authors of Six Rules for Brand Revitalization: Learn How Companies Like McDonald's Can Re-Energize Their Brands, brand management is not a marketing concept; it is a business management concept. The McDonald’s Plan to Win was built on this mindset. It could not be a regional initiative. It had to be global: consistent across geography, across time.

Stated simply, the Plan to Win is a business construct that is built on three pillars:

Brand direction—Where do we want to be?

Freedom within a framework—How do we plan to get there and what actions will we take?

Measurable milestones—How will we measure performance?

The Plan to Win is designed to guide brand thinking, the setting of priorities, and the development of a viable and feasible action plan. It is a business concept, crossing functions and geographies and organizational boundaries. It is the most powerful tool in a manager’s toolbox. It affects every aspect of the business. The Plan to Win at McDonald's has four goals at its base:

Attract more customers.
Convince customers to purchase more often.
Increase brand loyalty.
Become more profitable.

In other words, more customers, more often, more brand loyalty, more profitable; these are the bottom-line goals for brand revitalization.

The Plan to Win is based on a disciplined thought process McDonald's calls the Eight Ps. The Eight Ps of the Plan to Win represent eight critical areas for brand and business success: Purpose, Promise, People, Product, Place, Price, Promotion, and Performance.

Eight Ps of the Plan to Win


Purpose and Promise define the brand direction. The brand purpose defines the overarching mission of the brand, and the brand promise is the contract with our customers. It is a promise that if you buy this brand, you will get this experience. A brand promise answers the question “what kind of brand experience do we wish to promise and deliver to every customer every time?”

The final P in the Plan to Win is Performance. Performance is the definition of the measurable milestones to assess our progress in brand revitalization.

What are the actions McDonald's takes to achieve the measurable milestones? The five action Ps: People, Product, Place, Price, and Promotion.

According to the authors, delivering the brand promise is not determined by good intentions. It is accomplished by the actions the food service takes. The five action Ps define how McDonald's plan to achieve the bottom-line goals of more customers, more often, more brand loyalty, and more profit. How McDonald's expects to deliver its promise across each of the five action Ps (people, product, place, price, and promotion) is articulated in the Plan to Win.

McDonald's Plan to Win continues to drive growth. As reported by Yahoo Finance on November 12, annual sales growth has increased, as has the numbers of customers served, same store sales, annual operating growth and return on incremental invested capital. Additionally, McDonald's has plans to open 1,000 new restaurants and re-image 2,300 existing locations worldwide in 2010.

In thinking about and analyzing the "Plan to Win," it is apparent (at least to me), that its tenets and philosophies are applicable to just about any industry, especially those involving the delivery of goods and services. The Plan to Win has obviously scored many touchdowns for McDonald's within the last several years. As its successes become more widely known, it is perhaps safe to assume that many other companies will be looking to the Plan to Win as a blue print for rebranding and retooling their respective operations.

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