Much has been written about the estimated $245 billion in lost sales each year in North America alone that is a consequence of items being out-of-stock. Worse than the short-term effects of lost sales to brands is that 65% of consumers say that they would try a new brand if their “go-to brands” were out-of-stock. In addition, Retail Shrink (unaccounted for inventory) caused by retail theft and shortages cause on hand accuracy issues which exacerbate the issue of on-shelf availability.

Join Mike Graen as he welcomes Brand Elverston for a conversation that will explore the impact that retail shrink has on on-shelf availability and specifically inaccurate / phantom on hands.

All right. Well good morning everyone. My name

is Matt Pfeiffer. Welcome to Conversations on retail. We are

so excited for Mike Graen to continue his on shelf

availability series. Today talking about connecting the

dots between on shelf availability and shrinkage. And

for those of you old enough to remember I was thinking this

morning about the iconic Reese's Peanut Butter campaign, Reese's

Peanut Butter Cup campaign back in the 70s and 80s where two

people walking down the street and collide and one says you got

chopped peanut butter, my chocolate, the other says you

got chocolate on my peanut butter. I think that's kind of

where we are today. We so many conversations we've had about on

shelf availability, which is an incredibly, incredibly hot

topic, as well as you know, organized retail crime and

shrinkage, you know, broadly. And to bring these two folks

together today to have this conversation is is super

exciting. We're glad you're all here. Just a couple of

housekeeping issues before we get started. This on shelf

availability group. That series is presented by the Walton

supply chain Center at the University of Arkansas, the

number one undergraduate supply chain program in North America

for the second year in a row. It is sponsored by our friends at

brain Corp at barcoding, and at SCS Maga tag, in case you missed

it and Mike I'm running out of running out of space here. Mike

has put together quite a body of work with us focus on on shelf

availability really starting a year ago this past May. And you

can check out all of his conversations on our YouTube

channel youtube.com forward slash @ conversations on retail.

We also with Mike launched a gathering place a resource

center on shelf availability.com where you can find you can

access experts best in class service providers and thought

leadership, encourage you to take a look at that website as

you have an opportunity. Lastly, this just a reminder that if

you're joining us live, we hope that you will actively

participate. This is not intended to be a presentation

but a conversation. And we'd love for you to be a part of

that conversation. You can do so by clicking on the q&a button in

zoom and submitting your questions and comments. In

writing as Michael was like me to share that's really important

that we comply with all federal antitrust laws. So we're going

to refrain talking about anything related to price

margins, discounts, timing of price changes, marketing,

product plans, anything else that's competitive in nature.

Last thing just just to share the opinions recommendations

expressed by Mike and his guests are their own and not

necessarily those are conversations on retail. So

before acting on the opinions and recommendations offered,

always consider the suitability for your circumstances. So Mike,

with all of that said, welcome to you and our great friend,

Brand Elverston.

Well, good morning, everybody. Thank you for that

Brand. They just want to know, Are you peanut butter and

chocolate? Or is it the other way around? I've never heard

that analogy before us pretty good one that

caught me off guard. But you know, I am old

enough to remember that advertising campaign. And I

guess it was effective because I still eat Reese's Peanut Butter

Cups.

Well, Matt, you did a great job setting this up. I

think the other thing that is just to mention is that Brand is

a huge contributor of conversations on retail. He has

his own channel, if you will, with a bunch of other guests out

there who've done some really, really good work on the whole

strategic asset protection, safety, security and all the

other kinds of stuff. So definitely check that check,

check that as well. So Brand, I got you on the other side. This

time. Usually you're asking the questions and facilitating the

dialogue. Now you get to answer some of the questions. And you

and I've been working together for a long time. But tell us a

little bit about yourself. Army background, years at Walmart in

the asset protection space, and just kind of give us a little

bit of hint to who Brand Elverston is.

Yeah thanks, Mike. So hello, everybody, my

brand overstand obviously so my customer in about 12 years on

active duty, went on active duty through ROTC at the University

of Alabama, spent 12 Well, 11 years there and got a master's

degree got out, came to Walmart just wanted to change. And as my

luck would have it 2003 I got recalled active duty, totally

unexpected, spent most of '03 in Afghanistan, and then came back

and culminated my career at Walmart with about just under 22

years. And I was in the asset protection staff space all but

about 11 months of that it was up in upstate New York in the

then new supercenter division in the asset protection space, and

then got the opportunity to come to the home office. So I really

spent all my years there at the home office developing the

staff, the strategy and support structure through a pretty

hopefully we'll talk about through a pretty tumultuous time

from the late 90s. Things were vastly different than they are

today in the risk mitigation space. So and now retired March

17 And been I'm happy as a lark in consulting for the last what

is that now? Little over six years, I guess, coming on seven.

While

tremendous Well, first and foremost, I know I've

told you this before, thank you so much for for your service to

our country, and we get a chance to be on a podcast and have a

conversation in a safe environment. And it's only

because there's a lot of people have dedicated their lives to

that. So we certainly do appreciate that. Let's talk a

little bit about asset protection. This is a extremely

timely discussion and and there is a strong link directly to on

shelf availability. And people were like, I'm not sure that I

understand the whole connecting the dots between shrink in on

shelf availability, we're gonna spend some time talking about

because they are absolutely related. But even in the asset

protection most of your life, you've, you've obviously seen

through 22 years of change at Walmart. And now what you're

doing now is an enormous amount of change. Tell us a little bit

about the changes you've seen over the over the over the years

in the space.

You know, the elevator pitch would be that

we've really kind of the industry has really kind of

transition from the catch a crook in the late 90s, largely

to now where it's more operationally based and

understanding there's more to it than just a guy running out the

door with a TV. And, you know, our toolkit and our responses

back in the late 90s were severely limited. I mean,

they're limited today. And hopefully we'll talk about that.

But they were even worse back then. And just to kind of give

you a picture of that EAS electronic article surveillance,

you know, the little time that goes down at the door, but it

doesn't tell you anything. That was big deal back in the late

90s, when, when at Walmart, we decided to go chain wide with

that. And that was really our response beyond blocking up and

acrylic cases. So it has changed in the last 20 years and a lot

of good ways largely attributed to leadership, quality and

backgrounds and other words, not just career asset protection,

retired law enforcement channels, but also former

operators, logisticians, finance people, internal audit, so the

talent pool is changed. But unfortunately, the technology in

the mitigation space is really kind of limited. So yeah, it has

changed in a positive way.

And it we're hitting this at a time and I know this

is not a big surprise for anybody. I actually took the

liberty this morning and did a quick search and I'm gonna I'm

going to share something real quick and Brand I told you I was

gonna do this. I'm not putting you on the spot. But this was an

article about how Tractor Supply managed to shrink theft rates

when they're surging almost everywhere else. While that's

interesting, as you scroll down through it here, you quickly see

target additional $500 million in shrink Dick's Sporting Goods

1/3 of its decline in the company's merchandise profit

category last year, inventory shrink, according to NRF $100

billion. And you'll see a lot of people doing exactly what you

just said was just lock it up. May have we lock it up and we

won't have people steal it. Yeah, and if you also lock it

up, you're gonna lose sales, right? So I'm not gonna go

through the whole article, part of tractor supplies strategy is,

Well, number one, we got larger items. Number two, we got our

registers right by the front door, that should certainly

deter some of that. But you've been around this for a while

you've seen the ebbs and flows of this whole thing that

everything from lock it all out to put an ES tag on it to, you

know, potentially governed organizations reducing the the

implications if you get caught. Walk us through kind of what are

you how you seen the industry approaches? Because this is a

really big topic in the retail industry rather than that

picture

you're showing me I would, the rhetorical

question maybe is how do you have an out of stock if a

product's locked up? And, you know, so, going back to TSC and

you know, store layouts do matter, so TSC I mean they, they

didn't all of a sudden decide on that store layout during COVID.

That's been them forever. Just like an Apple Store has one door

in and out very unlike a Walmart store that has probably five

entry exits lawn and garden GM grocery automotive. What is that

and then maybe a pharmacy or an optical on the front of the

building. Target same thing, they'll have multiple entry and

exit. So it's very different when you're trying to provide

easy access for a 30,000 square foot building than a 200,000

square foot building. So you can imagine trying to do one entry

exit and a Walmart or a Target. While it may be optimal for

control And, you know, I'm not sharing anything that's

confidential. But we went through those machinations back

in the mid 2000s. Of what if, what if we change the design of

our stores to have one central entry exit. So you had one set

of controllers, ie greeters. And you had, you could concentrate

your risk mitigation technologies in one place. And

it's always a dance. It's a dance between what's right for

the honest customer, which is 95% of who's coming in and out

of that building. And what's going to be a deterrent to the

5%, nefarious intent. So it's not hard to figure out the math

on the balance, who's going to win, it's going to be the honest

customer and what's right for them. And that's largely where

the industry falls off is being able to isolate to the Five

Percenters, instead of impacting 100% of the people that walk in

that store, which is locked in showcases, etcetera. So really,

the, you know, with the solution set, having not evolved, with

few exceptions, I'll mention everseen. These are AI guys

everseen, zeroeyes, Archie Khan, in view, has some smart locking

capabilities with intelligence RFID technology that provides

what we don't have today, which is item level visibility. You

know, and I did a graphic Mike you guys may have seen it on

LinkedIn, I don't know, four or five months ago, of a 3D mock up

of a store with icons of technologies that provide a

layered risk mitigation space. And that, of course, as I had

intended and blew up in a good way. But the message has been

the same since the mid 2000s. When I caught the caught the bug

of we have got to do something different. And here we are in

2023. Reportedly $100 billion in shrink of which part is theft.

So that can be misleading to think, oh my god, you know,

retailers and us lost $100 billion to theft. No, they

didn't. So hopefully, we'll have a chance to go through some of

that. But the store layout matters. Marvin Ellison CEO,

Lowe's, what was it last week? highlighted? I know what the

answer to store theft is, and it's trained people on the

floor. And I can't tell you my reaction, because we're on a

public forum, but I was elated. I was like, Holy crap, this is

awesome for a head operator to recognize that my solution may

cost me some money, ie payroll, which most retailers are trying

to chip away at. And understanding if I'm going to

affect something like this. It's a combination of people and

technology. So you know, in the landscape, you mentioned

Walmart, you know, you're Doug McMillon. And he, they tried to

put him in a corner on a couple of broadcasts about theft. And

Doug was, you know, you know, Doug, as well as I do, maybe

better. Yeah, it's a problem. But, okay, it's part of what we

do. So, you know, if you're looking for a headline of the

world's falling apart, you're not going to get it from Doug

McMillon, you had Dollar General, you had Dick's Sporting

Goods, Target, and then Lowe's, and Lowe's, his actual

improvements in shrink of light. So I hope that that's all taken

within context to say, wait a minute now, how are the super

big guys actually seeing improvement or effectively

managing it, and then you've got a small handful that is like,

we're gonna go out of business because of theft. There's more

to it than theft.

So unpack that for people, you you sort of led that

way, and then you backed off a little bit, but that's a really

important question for those people shrink is not all theft.

No. So what is shrink? How do you measure it? Where does it

come from? And I think that's really important, because I also

lose elite leads into our discussion around the

implications for on shelf availability.

Yep. So shrink is an industry term for

unaccounted for loss. So and when you do an annual inventory,

you're a publicly held retailer, private sector. The auditors

come in once a year, and they count the store and they

physically count what you have. And then they have people on the

back office to go through the accounting and look at your

Ledger's and all this. And you know, at the end of the day,

it's a checkbook reconciliation, no different than what we all

and I'm dating myself, some people don't even have a

checkbook, but you reconcile your finances at the end of

every month. Here's what my ledger says I should have when I

include sales, claims deliveries, out of stocks, you

know, etcetera, etcetera. And then here's what I counted and

the delta is shrink. And at that point in time, on inventory

night. The auditors go back to the store manager. Hey, here's

your shrank result, you blow out a 2% for 3 million bucks. We

don't know anything at that point. So that includes what we

may have ordered and never received. So I'm gonna use a

CPG. But Kimberly Clark, for example, if I send them a PO

$400 million, and, um, target for whatever, tons of stuff, and

there are errors in that supply chain process, had never made it

on the dock load at Kimberly Clark, and went through their

cross docking process, all of that stuff coming from Asia. So

containers, we remember during COVID, all the problems we have

in supply chain, it was catastrophic. The ports closing

down couldn't handle the volume. And we forget about that when we

look at a shrink results at a store. Because the

mischaracterization is hey, you blew out a 2% for 3 million

bucks. They stoled it all or it happened in this building. And

that is not true. And again, I'll use the the the old

proverb, I mean, it all rolls downhill. So the discrepancies

that happen from PO creation, all the way through supply chain

to receipt, are reported at store level and shrink. Very

rarely anywhere between PO and come into the back door of the

store is any reconciliation counted at item level? Certainly

not. Case level, maybe pallet level, maybe. And if they are

it's ran. So shrink includes everything. Store execution

errors. price changes are a big deal if you inventory at retail.

out of date product is a big deal. If you're say for example,

Kroger and you do a lot of perishables and when it's out of

date, you don't mark it down. Well, you can but let's stay

supple, you probably take it off the shelf, and it gets tossed

depending on what it is. But you have to account for the retail

or the cost inventory reduction, I'm no longer going to sell

that. So I'm going to remove it out of my inventory. If I screw

that up, it's shrink. Part of shrink. So the National Retail

Federation study. And I know this because I filled it out for

Walmart for 20 of 22 years is a survey that goes to all the

major retailers and it's Hey, what do you think? And it's a

ton of questions. But at the end of the day, they want to get a

picture of where we shrink. What are you spending money on to fix

it? And what do you think? Key word? What do you think? Are the

sources of shrink and you get the pie chart? Kind of like?

It's not this study, but you get a puppet? You can't see it

there. Yeah. So you get a pie chart carves it up. And last

year 2022 reported 66% of that 100 billion, let's go with that.

It so $66 billion got stolen. And the trouble with shrink,

Mike, as you well know. But for the audience, I don't know. Nor

does any major retailer what my item. Financial inventory shrink

is at the end of the year. I know sales, I can tell you how

many DeWalt drills I sold within three seconds anywhere in my

chain. If I'm Walmart, I can tell you every tube of

toothpaste I sold around the world within five seconds of it

hitting the register. I know my item performance I know my

margin. I know my markdowns, I know how many I got. That's how

we manage retail. But on shrink, you have no idea. So typically,

when somebody steal something they don't stop at the door to

say Hey, brother, I'm walking out with these 10 TVs, adjust

your inventory. It's just gone. Now, retailers know what they

caught. Because you know if you catch a shoplifter you caught

them and if you work internal cases where which are typically

per incident far more financially damaging than an

apprehension of a shoplifter. You know what you caught. But we

know that's not all of it. So when I feel that study out,

literally you sit down with the senior ad guys know like, Hey

guys, what do you think? And from an early age I never

subscribed to it's all theft in aggregate. Now, you go to some

really tough stores and really bad areas. It may be 65% theft,

but then you go to you know, Walmart Target's flagship store

across from their Minneapolis headquarters. Come on. It's

probably not all theft. But when you aggregate that and you get

that 2% corporate run shrink rate. It is a gross

mischaracterization to and I'll go against some of the media

that it's all theft. There's too much else involved in the

process that if you don't have item level visibility, how do

you know it was all theft? You don't. We are going off gut

instinct. Even though and my team did those estimations, when

I was at Walmart, I had a really sharp bunch of analysts. And we

could do trend lines and projections and what ifs and

this and that, but at the end of the day, you don't know. So

there you go. So shrink is anything that's lost. I don't

know why

the JD JW. I think you've just answered this. But

JJ, W just JW friends who who's a frequent participant on this

podcast just said, what percentage of the supply chain

shrink do you estimate occurs in the DC versus the store?

proportionately much less than DC. It's a

tighter environment. You know, if you're Walmart or major

distribution centers, there's one entry exit point, and

including the all the dock doors, you don't have the same

vulnerability, you don't have the general public walking in.

And you have typically one entry and exit point, so much less

risk in the DC once we receive it now supply chain, we see

cargo thefts, all the time and all that stuff. I'm not

accounting for that. But in the DC, it's much less. But it's not

infallible. Things happen. People do get out with stuff.

Well theft may be lower, the claims is probably

higher, because, hey, I paid for 57 of these, but I only got 12.

And there's a lot of claims discussion that happens between

the supplier and the retailer from at the DC, which is

typically the first point right? And that's part of it, if you

don't catch it as a claim, it turns into Shrink, right? Well,

I mean, let's let's take a look at a Walmart

DC or a target DC nobody's item level counting anything that

comes in that building with the exception of maybe 65 inch TVs,

they're not counted on 68 million eyeliner pencils, or 400

million tubes of toothpaste, they take the invoice Yep, the

truck backed up, they reconcile it, boom, in the DC it goes and

it starts going down. But you know all of the distribution

points to the store. So with few exceptions, and you know, my

gear in my background, that was always a bit of a rub between us

and logistics. Because at the time, logistics was like it

ain't happened here. So y'all got a problem in the stores. And

it was always a bit of a cat fight back and forth, when

shrink would get high, nothing compared to what it is today.

But back then, you know, a certain number would get you in

serious trouble. We go into war ribs. And the assumption was

always man, you guys in the stores got it tough. It's not

happening in DCs. You get standard credit percents most of

the time, but it also depends on the vendor agreement. If I can

file a claim to store to DC, or Walmart or Target corporate to

p&g or Kimberly Clark, or whoever they may say, Look,

that's within terms. We gave you a 1% credit. So no, we're

denying your claim. Claims, as you well know, is a billion

dollar business. Yeah, for

sure, for sure. So I think by law, at least in the

US, most retailers are required to do an annual inventory for

financial purposes. Mike price is asking, Do you think that

retailers who reduce gap scanning and I'm assuming that's

scanning out of stocks at the shelf? Have done they used to do

that daily? And sometimes they're doing it several times a

week? Do you? Are they adding to their own problems? Because they

don't have a good will will keep RFID out of this for a second

but not RFID products? Those those those retailers that

consistently capture on hands and store? Do you think they're

gonna have a better job of being able to be on top of their

shrink numbers? They're

probably better than not doing it. But we all

know and we proved it many times at Walmart, you know, human

counting, I could take 10 people to say count this pallet of

merchandise and I'd probably get 10 different answers. Your

problem with that becomes now and we've seen it in the pharma.

You know, I was in Walgreens couple of weeks ago at Yeah,

Walgreens in Chicago. And, you know, pre COVID and post COVID

staffing levels are not even close together. We just hope if

I'm a successful retailer and I killed it during COVID

headcounts went down during COVID Because we trim the store

hours we repurposed people to you know, you got to count

people instead of catching shoplifters. You got to wipe

down product, you need to, you know, maintain in stock position

on consumables instead of running down shoplifters. And if

they survive COVID The finance guys and I love them to death

but holy crap, the analogy would be kind of an airline analogy.

Wait a minute, I crushed it during COVID with 30%. Less

staffing. We sure as hell aren't going back to pre COVID staffing

because we proved we can do it. Well, that's a that's a siloed

conversation because we're not considering the position we're

in with shrink. So I doubt the people are on the floor. Do

those routine, you know, category audits, I think they

call them at Sam's Club back in the day they returned routinely

did that and trued up their inventory. With the purpose of

just making sure your inventory was accurate, it wasn't really a

diagnostic red flag that we'll talk about that out of stocks

are telling you.

Got it. So we're gonna, we're gonna transition a

little bag and a couple of questions that people are

asking, but both some of them are already planning questions

that I had planned on asking. So while I want to kind of switch

gears, because part of this is connecting the dots between

shrink, and on shelf availability, and for the

purpose of that, I thought I would share a screen that for

those of you who followed the podcast before our conversation

before, I've seen many, many, many times, but I've got some

examples here, Brad, you've seen these before, as well. I've got

several items here. And this happens to be, you know, a jeans

category. So I got four individual SKU's or different

sizes, I have the store on hand or the system of record, I have

actually physically what's in the store, which by the way,

based on what you just said Brand, that number is not really

very visible to folks. But we do know how many we're supposed to

have. How many we actually have is kind of a secret number

unless you're using some technology like RFID. And then

we have a reorder point. Well, the first couple items were in

good shape, it says we have four we have four, we're good shape,

we have a reorder point. But then we have this thing, these

things down here, where we literally have we think we have

three but we have zero. Now that could have been in Brand because

of a shrink event, somebody could have grabbed three pairs

of these jeans, ran out the store, when you run out the

store doesn't go through the register. So we don't a we don't

get the money for that. That's one thing number two, we never

know I left the store. So we assume still on the shelf. So we

don't order any of these because we think we have three. And

we'll never hit a reorder point of two. And we don't have we

have zero on hand. Therefore, we're not going to sell any All

right. So when people go well, shrinkin on shelf availability

don't matter. Yeah, they do. Because you're driving your

replenishment system off the store hand. Are there other

examples Brand or anything you want to build on that? Because

this is a real live examples of how shrink whether it's receding

shrink, or it happened to happens to be theft shrink

causes on shelf availability issues.

Yeah, the, you know, an out of stock. So when I

was in that Walgreens store, and we walked through, and of course

a ton of stuff has locked up. And, you know, my pedigree

kicked in, and I was like, Hey, I was with a client of mine. And

they knew who we were. So I'm like, Hey, can you grab your I'm

gonna call it the MC 55, whatever their handheld device

was, let's start scanning out. And we were scanning out some

product, it was locked up. And there were of course

discrepancies much like the scenario you're talking about.

And so obviously, I don't work for Walgreens. So I couldn't

say, Well, then why do you have on hands in the system, but it's

out of stock? It's locked up? How does that happen? I couldn't

go there. So to me and out of stock is a symptom of something.

It's whether it's locked up or not. It is not in isolation,

indicative of malicious intent, and thought it's telling me I

definitely have something. But when I go back out stream is to

be able to challenge whether this was malicious intent, or go

to the back room. And you know, in a Walgreens store in the one

I was in the store is about as big as a Walmart bathroom in the

back. It's tight. And so to be able to say, well, it could be

anywhere back here, maybe. But if you go into a major retailers

back room, it very well could be somewhere back there, but we

don't know it. So I guess the difference is, let's go back to

the opening question where you said you know what's changed in

the industry in the old days, we would have immediately assume

theft. We would've locked it up, we'd have put a gadget on top of

it, we would have done something to address malicious intent.

Today's leaders that are cognizant of operational

inefficiencies and processes and I mean to a degree of fluency

not Yeah, I get it, you know, the truck backs up to the back

door we get crap and you know, on a pallet, whatever. No, I

mean, you've thoroughly understand all the opportunities

in that value chain to the shelf. I think we're there where

you'll look at that and say Okay, you go back to that chart

you just showed we need to dig into that. Is it an ordering

problem? Did I never receive it in the first place or is it

actually theft? So it it does matter. But, you know one thing

I used to way that used to ruffle a lot of feathers when I

was with Walmart is one of two things is true that if you're in

a high shrink store, year after year after year after year, and

you're, again, a high shrink store, one of two things is true

out there. Number one, you're not very good at your job and

asset protection, if you're still shrinking out, or the

reason you're shrinking out is not a majority theft. One of the

two things is true. And if if you're allocating all your

resources, which unfortunately happens a lot today, into the

theft channel, and trusting the store operator like hey, that

ain't my job. They do what they do you know, we're good on that

end. You're going to shrink out again and again and again. And

then you get to the point well, crap, is it more than just

theft? Because I've got everything locked up? So how can

I still be shrinking out? If I've got my quote unquote high

theft product secured back to my point on the out of stock? How

do you have an out of stock on a locked up product? It's telling

me operationally there are gaps? Because I doubt it was theft,

because you got it locked up?

Well, Brand, we can measure everything in retail,

it's 2023. I can tell you by and second, what just sold, I tell

you just about anything in the store, I can tell you how many

profit dollars I make, I can tell you what my store labor is.

The fundamental thing that we can't tell, which is really

crazy. And 2023 is two questions that are very simple questions

at the item level. What do I have? And where is it? So so to

me, this is the big thing, because shrink happens. But if

I'm only doing inventory once a year, I could have had that

shrink of that and happen 364 days ago, whether it was a

receiving, whether it was a staff etcetera, I can't measure

it until I do a physical receiving what what are we going

to change the industry? If we made you king tomorrow and said,

Brand, how do we fix this? What would what would be the approach

that you would take?

Go to answer is true item level visibility. And

you know, forget the technology. You and I are deep rooted in

RFID. And I'm a huge fan of that. Joe Cole is doing he is

leading the asset protection industry in that space. So hats

off to him. But item level visibility and to something you

just said Mike, so for those that are may not be fluent in

annual inventory processes. It it has a lot shrink has a long

tail. So what we're seeing blow up this year really happened

last year. So you know, to say that oh my god 2023. Yep, well,

okay. But the inventory result is only reporting the news for

what happened the 12 about 12 previous months. So now you have

that. And any risk mitigation measure you put in place, he

talked about locking showcases negatively impacting sales,

which is 100%, true. And proven multiple times, you won't really

understand the impact for two years. Because you put it in

your inventory on one August and you put in all these

countermeasures. In October, November, December, you really

got a muddy result. And the end of the inventory the next year,

you need a year over year clean look. So in the end, the world

has shrunk. You're almost looking at three years of

inventory before you truly know if what you did made a

difference and a sustainable difference. In other words, not

a halo effect. We put in EAS pedestals and it shocked them

for I don't know six weeks, and then they're like, Well,

nobody's stopping anybody with the alarm at the door. Nobody's

reacting to that silly public view monitor that has says

recording me. Nothing happened to me. So it's good until your

coffee cools off, and then you know it's back to business. I'm

gonna dude, if you don't have item true item level

accountability. We are where we are. Yeah,

I'm going to show you a sample. And this is

hilarious. Because you and I worked on this together in 2015.

We went to the retailer, but we we showed this thing. This was a

hey, what would the world look like? So the top of this is

literally what I expected to receive. This is receiving

versus expected. And you got a couple items here. So I got

forward and 28 items, I expected a soft water and 26 of them. So

I shrank point for his five seven here are the two items I'd

expected to see. And I never saw. And on the flip side, on

the bottom of it, it's literally here are the items that left the

store and exactly when they left the store. Pretty amazing. So as

we talk about item level visibility, is this the kind of

thing you're talking about brand? Yeah.

Yeah. Because you know if we unless we're

doing item level receiving, which no major retailer is

doing, you're making a lot of assumptions on what you're

receiving. You don't know whether you actually received it

or not. Now, they're random audit. Sure, you know, in store

tours, you know, particularly building up for Black Friday,

you'll say, Okay, I'm supposed to get 100, you know, 90 inch

flat screen TVs, well, you can count that pretty quick.

Nobody's gonna count six pallets of eyeliner pencils, or

deodorant, or tubes of toothpaste, it comes off the

truck goes on the slot in the back room, or whatever the

process is, and goes to it. So you know, it's really important

that, you know, our listeners. Two things, one is value, the,

all the contributors to that shrink dollar. Understanding the

operational impact, and I've always been a fan, it's north of

50% of the problem, the operational gaps that contribute

to shrink. And number two, we don't have item level

visibility. So we're making a ton of educated guesses. And I

took a lot of pride in my team. Look, you know, as Donald

Rumsfeld used to say, you go to war with the Army you got. And

so we did the best we could, but still, at the end of the day, it

was an approximation. And a cost to the business every time you

know, we would spend a can't give you the total, I do know

the dollar figure. But it was a staggering amount of money on

mechanical gadgets, I call them so they acrylic boxes that went

on a thing of perfume, or a tether on a camera display or a

phone display, or those locking brackets lock in showcases. It

was can I say this? Yeah, 10s of millions of dollars a year, just

in mechanical gadgets, which do nothing other than address the

malicious intent. So if price changes is your problem, and

eyeliner pencils, I keep picking on that because there is a high

skew count and you get a gazillion of them. Nobody's item

level counting eyeliner pencils when they do a price change. So

you say the system says I got 100. I actually had 200. And I

accept the system on hand. Guess what? I understated my markdown

by you know, whatever the markdown was times 100. And that

shrink? Yep. Oh, item level visibility is. That's nirvana.

we got bad news for you. If you counted every day,

you probably wrong anyway, this people just don't count very

well, they didn't find it, they missed a rap the same rock

twice, you get it all like what you need. This is a really weird

example. You need an air tag on every selling unit that goes

through the supply chain. I mean, that's the vision of I

know where everything is all the time. Now, we can't afford that.

But that's really what we need do to because I would argue if

you really knew where everything was and where it was located,

you'd make different decisions about how you staff and

reprocessed and stuff. So all right, quick, quick question. We

got a couple of people who are really asking about different

roles. So let's just make the assumption that we have the

visibility we need, whether it's RFID or other technology know

exactly what we have and where's it located. That item level

selling unit visibility? A couple of questions on the role

clarity what exactly Scott Benedict and said hey, what are

the roles of the merchants and the buyers to help reduce

shrink? Assuming we have that level of visibility?

I gotta be careful with my answer. Probably

zero. Ooh. Yeah. So let's rewind all the way all the way back to

the late 90s When Walmart corporate said hey, we're going

to do EAS chain wide and yours truly was the project manager on

net with a couple of people in ops and you know in charge of

the rollout, big project, blah blah blah. Well the value prop

and EAS is source tag. If you don't have the tags on the

product, what difference does it make? So we had to go to the

vendors you know, the big guys the P&Gs and you know, Magnavox

Sony, you name it and convinced them that there was value in

putting a three to five cent EAS tag on a product and it would

benefit them as well as us. So the merchants were the first bus

stop on selling the value prop and the lead guy and I will

mention his name Joe Grady you know, Joe awesome guy. He really

helped us and it Walmart you're dealing with 300-400 buyers Mike

Are you know at least so it's a it's not like you know have a

meeting with five people over lunch and solvent. It's a big

deal. And Joe Grady really helped us get over that hump in

wet shade back in the day, which still is in was very much then a

leading high theft item. I think it was fusion razors or Mach

three, whichever came First, to put as tags on it, but the

accountability to the buyer is muddy. I can't speak for every

retailer, but it's muddy. So in other words, if Mike's the buyer

for wet shave, and he knows his profitability, his margin is a,

you know, you know everything about your business. But when it

comes to shrink, and I say, Mike, what is your item level

shrink on wet shave, you know, the 12 pack of Gillette,

whatever the new Wet razor cartridges, right your answer is

going to be? I don't know. All you know, is when we do that

financial inventory. I know my financial reconciliation at

store level, I know my financial reconciliation at department

level. So I can tell you health and beauty aids blowout 5% for

10 million bucks. But I don't know what happened underneath

it, I don't know category. And I certainly don't know item. So

that's where the needle in the haystack strategy starts of,

okay, we got to start peeling this onion back and start

creating and making educated guesses on the components of

that formula to say, we're probably at x. And that's where

it comes off the rails with a buyer because rightfully so the

buyer is gonna be like, Hey, dude, ain't spending, you know,

three points on my margin to put an EAS tag on it, if you can't

even tell me how much I'm losing. It doesn't make sense,

it's a real cost to my business to put a tag on and you can't

give me a real cost benefit. If so, I gotta imagine across all

major retailers, if you're using EAS systems, because that's an

upstream expense, that's going to be a catfight. But the item,

the item performance, shrink line, on an item level, p&l, if

you will, and retail will not include financial item level

shrink. So I don't know that there's much accountability

there other than your ability to influence and be a partner and

all the qualitative aspects versus quantitative.

let me give you two examples that are interesting. I

don't think they're the solve. But let's just talk about gift

cards. I can grab a whole stack of gift cards or went out the

store. And they're absolutely useless unless they get engaged

and energized at point of sale, right? You've probably saw

project unlock from Lowe's, I don't think anybody from loads

is on the call, that that's an environment where you literally

will have to take a power drill, if you grab a set of power

drills, we're not the store. That's great, you stolen them,

but they do not operate unless they go through a register.

First, we will go through how that works. How do you figure

out how to do that kind of thing on a broader scale? Because if I

know I lock it up, because I don't want it stolen? Well,

nobody's gonna steal it. If I can't use it once I leave the

store with it. Why Why would you take the risk? Does that does

that technology makes any other sense in the in the world of

retail, which is you only get to use the product if it actually

goes through a register?

It absolutely does. And Lowe's I applaud

Lowe's for for actually sliding into home plate on that. That

was an industry initiative about 2010 called home sale activation

or posa. And it was a key item that had firmware was the low

hanging fruit. So obviously, you know, how do you not let an

eyeliner pencil work with technology. So that clearly is

off the table or a bottle of perfume, the plunger won't work

unless you go through the register. So anything that had

firmware, where we could introduce a software that said

hey, when you buy that iPhone, whatever they're up to now 17

Great, steal it if you want, but it's a paperweight until you go

through point of sale and on the receipt you get an on one time

use unlock code. When you fire it up, you got to type in the

code from the receipt because it's been authenticated as

actually being sold, you're off to the races. Two things without

one is it's limited to firmware. So only certain products can

have that. And secondarily, the biggest thing we struggled with

in the early days and we collaborated with a lot of major

retailers here in the US asset protections a very collaborative

industry versus ops and merchandising. So we worked with

other retailers. The hard part was messaging. How do we clearly

tell the crackhead coming in to wipe out the whole side counter

that a brother Have at it, but it isn't going to work when you

walk out the door with it. And again back to the buyers. They

don't want it and particularly the vendor, I'll let you know

I'll pick on Apple. You ain't messing with that packaging, the

S shades What's that look like? Where you all the pretty stuff

to be able to put a logo or something on there that says

hey, good luck. Because if you don't buy it not going to work.

So Lowe's you saw on their online posting they had a big

placard over the display of those drills that was pretty

blunt something to the effect is steal it in one word. You have

something that blunt, which is awesome. So we really struggled

with the messaging and the deterrent value of getting that

message out, because, you know, if you're a big CPG, and you

allow them, and you're a former CPG guy, so, you know, three

millimeter logo on a package of Crest White Strips, nobody's

gonna pay any attention to that. It's laughable. But that's what

we were given. And that's what we put it on. And we had this

false sense of security on Well, hey, that's all we can do. So

the communications was huge. And then it was limited to product

that had firmware, or some sort of electronics that you had to

register and get the code, etc. But that's an awesome technology

dude. 5 percent. So,

so interesting. So I mean, you did say something

pretty interesting. And I agree with this, which is merchants

operations. For the most part, we'll see another retailer as a

direct competitor. In this space. I think two asset

correction and loss Prevention's credit, they're much more

collaborative, because they all say they all have the same

problem. It seems to me that we ought to be able to put smart

people in a room because we've already said, this is a big

problem. We can't measure it today. Everybody has the same

problem. We see people shutting down stores and getting out of

areas, we saw the Nordstrom shutting down the San Francisco

store, just because they had all the smashing grounds, by the

way, as one quick one. The other thing is you're actually putting

your store associates at risk, right? They are at risk. If they

try to intervene, they are potentially putting themselves

at risk. I believe there was a gentleman that Home Depot that

was died at work, because he tried to stop somebody. So this

is bigger than just product, I take the product, we start

taking people's lives. That's pretty that's pretty important.

The violence, so couple of things. I hope I

remember my second point is a couple of things, dude over the

years and, you know, I was the right hand man to the VP of

Walmart for majority of those 22 years. So I was in the trenches

on strategy in the officers meetings and helping whoever

that VP was developed strategy. Nowhere in that three years was

safety ever number one, on the radar of priority for that VP,

until probably I'm going to peg it. 14, no, sorry. 16-17.

Somewhere in there combination of active shooters, these

violent gangs that are coming in and have no problem shooting or

Mason, somebody, it's, that's always been a problem. As you

well know. Mike, with our stores, we used to call them

occasionally we'd have one killed, um, but not to the

degree. So if you ask any major retailer today, hey, what's

tops, customer and associate or employee safety, then shrink,

room and whatever else, clean floors, or whatever. It's that

bad. Now, back to your point on the product proclamations very

uncharacteristically public proclamations of shrinks impact

on the bottom line of all those retailers we've talked about.

Amen. But you know, it's like standing there with your house

on fire, you got to call the fire department, or have another

beer. And I'm waiting for somebody to call the fire

department. In other words, meaningful investment from the

retailer's to see from the C suite, not the VP of asset

protection or project manager, but at this point in time, and

you may have seen some of my posts, Is this our Sputnik

moment where we're like enough. So if I'm target, and you know,

my annual spend on asset protection, and all that stuff's

100 million dollars a year, I'm gonna take it to 200,000,000 and

70% of assets and r&d and future tech, because dude, there are

scalable, ready third party solutions that can impact this

in meaningful ways. But my fear is, we're still in the man

really sucks. But hey, next year is another year. So you know, if

we had better solutions, you wouldn't see all the locks and

showcases and the law enforcement at the door and all

that stuff. So I'm waiting for the guy to opt out on the beer

and actually call the fire department at sea level. And

that means, you know, the participating CEOs on the

business roundtable at federal level on the legislative piece

of it because that is a component. So stricter laws and

the laws we do have put teeth in them and they go to prison for

whatever they're doing. But I'm still cautiously optimistic, but

I have not sensed this overwhelming. We got to do

something now and it means real money. We're still still kind of

in that. That free space between swings on the swing sets kind of

like well, what are we gonna do? You know, I'm gonna report

another year a bad shrink and hope it settles down or we're

going to do something. Yep, yep.

It is. there. Is there any other thing Mike Price

asked, I think that's a fair question, Hey, we got all these

CPG companies asking third party merchandisers to come into the

store. Do they have a role that could play? Or is it really, we

need to staff up store associates and get law

enforcement engagement? Probably the bigger question to ask. The

ladder is number one minus the law

enforcement now I get it. You know, certain areas. Yes, you

need police. You know, the substation thing that came out

that apparently Walmart's doing of Atlanta that ain't new we

were doing that in the late 90s, even before that, so you do what

you got to do. But my, my, my hope is that bubble up to say we

have a truly impactful hate that word, problem that sort of

eroding a significant part of the p&l. But my point is great,

when do you do something about it, that's going to matter. And

that's different than what you've been doing for 50 years,

that clearly isn't making a difference, or you wouldn't have

unprecedented treat now. So staffing, you and I are, you

know, you and I both come from Walmart and staffing on any

company's p&l is probably the biggest line, and the easiest to

immediately get savings through layoffs, or reorders or whatever

you want to call it. And not really have to pay attention to

the downstream consequence, which is a year later and in

shrink results. Well, if nobody's on the floor to Marvin

Ellisons point at Lowe's, how the hell are you surprised that

they're walking out with half the store and nobody knows it?

So I hate to say it. Because, you know, I understand there are

technologies out there, there's AI out there, there are other

things that can be part of the solution. But I have no

expectation of going back to pre COVID staffing levels, to get

our arms around it. It's a nice thought, but and it does matter.

For those that may say, Well, does staffing really matter? It

absolutely matters.

I firmly believe as long as as long as I'm still on

this earth, we will still have a brick and mortar store

environment that allows you to go shop, I don't think Amazon

was going to become the only place. But this kind of thing

certainly encourages Amazon one of the questions in here was, is

anybody actually measured when you lock up stuff? The customer

impact the honest customer who wants to buy their stuff? What's

the impact to them other than frustration, to try and get

their stuff? They could see it but they just can't get to it?

What what's the answer for that? Because to me, all we're doing

is we're penalizing very, very honest customers, because we got

a couple of bad apples that want to steal stuff. Yep.

So back to that 5% that's trying to do that.

Yes, it's it's we did countless studies. And there was another

study that came out recently on social media, it's low double

digit impact, negative impact to sales on a product. Now, it

depends on the product. If you lock up 90 inch TVs, you're

probably not going to miss the sale because that's something

that Mike Graen comes in wants to see it look at it on the

display, you're going to take time it's not an impulse item,

nobody buys 1000 Most people don't buy $1,000 TV on a whim.

But if you're talking about consumables all have health and

beauty aids and all the cosmetics that are high theft

items, video games have been locked up since Christ was a

corporal. It does negatively impact sales. Now, one

additional wrinkle to that. And this is, you know, kind of

pushback I get sometimes from the industry is like, alright,

pretend you're a customer Mike Graen comes and you've got 20

items on your shopping list, whatever the average market

basket is, let's pick on target I'm gonna come in and pick up 20

things. If 18 of those or 15 or even 10 are locked up, and you

have to do the call button or you have to wait. That's why

ecommerce I think ecommerce is seeing an increase on those

items. Because people are like, You know what, screw it. I'm not

going to take what should have taken me 15 minutes to an hour

when I walk into a Walgreens or CVS or Walmart, reduce staffing.

Good luck getting the guy to show up and then you got to do

it again on the next item around the corner and then across the

store. It's the next item and the next item. That's why ecomm

I think has is so appealing is the exhaustion of the friction

being added at store level.

Well, and I'm dating myself, but you'll remember this

I don't see a whole lot of retailers moving back to the

Service Merchandise model where you pull a card off the shelf

and you take it to a counter and they pick it up for you I just I

don't see anybody go by it's not the pack a new idea. You

got to have accurate inventory to make that

work. So you've got 10 Cold tabs on the shelf and you got one in

the back room. You're telling the customer I got nine of them

and they go back and they're like and Walgreens was used on

this in Chicago. You're not asked the associate is this

driven by how many on hands you have no we just put a stack up

in there and like and again, I don't work there so I couldn't

challenge and I'm like We got outside and I was talking to the

team. I'm like, What a bad customer experience, you have a

tag, which in my mind is as good as product. And I do my shopping

trip and I get up to the register. And here's my two. Oh,

yes. So about that. No, seriously, that's really the

main reason I came in.

I have a I have a brief story. And then we're

gonna get one more question here. I was in a location that I

won'tt go name because I'll put somebody on the spot. But it was

in a Walmart store. And I had like 10 items I was trying to

pick up, picked up all nine and one of them was I needed a new

set of razor blades. we'll laugh about that, because we just

talked about razorblades. They were locked up. I tried to find

the associate couldn't find the associate. And even if I could

find this associate, I'd have to go to another counter to

actually stand in line to check out. I went, nope, I'm using

Walmart's Wi Fi. I'm using their Wi Fi to order for Amazon. I'll

have it I'll have it delivered to my house when they need

because I didn't need it right away. Right. I wonder how much

that happens?

All the time? Sure. Does. When it's not a you

know, it depends on I'm not a marketing guy with all the

studies in my head and preferences but you know, what?

If it's something is utilitarian, is that why not go

to Amazon? Yeah, over the frustration at store level. So

with reduced staffing, nobody's there to unlock what was locked

up before, which was already a pain in the butt before. Now

you've made it worse with reduced staffing. And oh, by the

way, you got out of stocks on unlock product. Yep. So they're,

it's unsustainable. The environment we're in is just

not?

Well, here. Here's the takeaway for me, you cannot

improve what you cannot measure. And if you're trying to improve

something, you can't measure it. Good luck, right. And the bottom

line is, we cannot measure real time items. And I'm not talking

about UPC. I'm talking about this particular selling unit,

this one right here is available or not available. I don't know

that today. And until we unlock that we don't have the data Joe

Cole does from Macy's, but nobody else has the data today

that tells us I can tell you exactly where it's coming from.

Brand, we've got about a couple minutes left, I'm going to ask

you one question, which is sort of open open question that I

asked a lot of my guests, which is we've asked we've covered a

lot of stuff from shrink to bad actors to technology to what can

merchants etc. and suppliers do about it. Anything that I didn't

ask you what's on your mind that I didn't ask you, that was a

really important point that you want to make sure it gets made.

I think investment in broader impact

technologies. So and you know, that's been a passion for 15

years now, when we used to go to DARPA, and you know,

collaborating with other returns, went to DARPA went to

MIT went to Caltech, Boeing, Lockheed, you name it all the

non traditionals. I did it last week with a group of startups in

Israel. Over 100 people were on that call about here are the

pain points of retail, please solve this. The main pain points

not you know, everything. So, to me, it's real investment, you

know, in the absence of real investment Mike, and the

recognition that if I'm target, and I lost $5 billion this year,

I'm sure that you know, rather than just lose the 5 billion, or

they're a few 100 million I can give to the Gary Smith at Target

and say hey dude you do what you need to do. And hey, if it's a

third party solution, then let's do it. In Stop, stop the mindset

of, it's really not a big problem, it'll go away. And oh,

by the way, if you do bring me a third party solution, I'm

probably more inclined, certain retailers are more inclined to

try and copy that than they are of legitimately bringing them on

and immediately impacting the issue. So investment to me,

Dude, in the absence of investment, you and I can have

this same conversation five years from now. I don't see a

lot. I don't want to be pessimistic. I'm always glass

half full, but it's got to be a money thing. We got to get over

ourselves and start opening the checkbook.

Yep. Brand, thank you very much. We covered a lot

of stuff, there is definitely a link between shrink and on shelf

availability. We've seen it time and time and time again. And I

would argue, honestly, if it's on the shelf, but a locked up in

a cabinet isn't really on the shelf for a customer to buy. You

know, maybe now we haven't remembered just because it's

there doesn't mean I get to it, just like we may have a lot of

items in the back room of a store, but the customer doesn't

know well. They're not going to go back there and look right. So

it's the same kind of kind of operational thing, but

incredible topic. Please reach out to brand if you have any

questions around this topic, whether it's a retailer or a

technology provider, or a CPG company that's interesting to

know about what the CPGs role is is in the asset protection space

Brad thank you so much for your time appreciate it as always and

we'll catch you on the next podcast

Sure thing brother appreciate it man,

Thanks