Getting shrinkage down to one percentage point below the average rate would be worth $30 million a year.
he
family-friendly grocery clerks that Trader Joe’s tries to cultivate may be more
than company ambassadors of goodwill. They may also be antidotes to employee
theft. Shoplifting, employee theft and other losses, what is called "shrinkage"
in retailspeak, are a constant problem for shopkeepers. But it’s a particularly
vexing issue in the low-margin grocery industry. Analysts, consultants and some
corporations say that spending extra money on hiring the right employees and
then treating and rewarding them well pays off because loyal and satisfied
employees tend to rip off the company less and stick around longer.
The National Supermarket Research Group reports that theft
and loss is 2.32 percent of supermarket sales, and 57 percent of that is
estimated to come from employee theft. What’s more, a 2000 study on supermarket
retention rates conducted for the Retailing Research Council found that job
turnover costs the average supermarket nearly $190,000 a year in expenses
related to lost business and the hiring and training of new workers.
At Trader Joe’s, getting shrinkage down to one percentage
point below the average rate would be worth $30 million a year, based on the
company’s annual revenue of $3 billion. Improving retention 50 percent over
average rates would be worth $19 million a year spread over Trader Joe’s
approximately 200 stores.
While Trader Joe’s won’t talk about its shrinkage or
retention rates, another company that prides itself on similar workplace
practices, The Container Store, reports that it consistently beats average
shrinkage and retention rates. The Container Store cultivates loyal employees
with higher-than-average salaries and benefits, extensive training and feedback,
and room for advancement.
"We spend more on our employees, but we get the reward and
the return," says Joan Manson, the Dallas-based company’s director of loss
prevention. Manson says that average shrinkage in the retail sector runs about
1.7 percent of sales. The Container Store’s rate: 0.7 percent.
Adam Mertz, grocery market manager for Unicru Inc. in
Beaverton, Oregon, agrees that rewarding employees to build loyalty can help
reduce shrinkage and increase retention, but says that poor hiring practices can
undermine the system. Unicru promotes a hiring system that weeds out slackers
and potential thieves with a combination of background checks and subtle
interview techniques that can shed light on a prospective employee’s character.
Unicru recently applied those techniques for a division of a national grocery
chain. The result: a 21 percent drop in shrinkage rates over the first seven
months. "Get the right people, first and foremost," Mertz says.
While hiring the right workers is key, keeping them happy
is where retailers receive long-term benefits, says Richard Hollinger, a
professor of criminology and sociology at the University of Florida. Hollinger
conducts research on retail theft. "Retailers work in a world where
pre-employment screening is the most important thing to do," he says. "What you
have is a pool of people who are generally pretty honest when they start, but
slowly they become disenchanted, disenfranchised, and they begin to seek equity
in the only way they know: work less or steal."
How companies deal with employees after they’re hired is
much debated in the retail industry. John Case of John Case & Associates, a
security consultant in Del Mar, California, and author of the book Employee
Theft: The Profit Killer, says that spending extra money in the hope of
building employee loyalty isn’t a very effective theft deterrent. Loyal
employees also steal, and sometimes get away with more precisely because they’re
trusted, he says.
To stop employee theft, a company should carefully and
constantly monitor its workers and mete out swift punishment to those caught
pilfering. "The whole thing is accountability, and the perception of getting
caught and the knowledge of what would happen," Case says.
Too many companies subscribe to the big-stick method of
keeping employees in line rather than the carrot method of rewarding performance
and cultivating loyalty, Hollinger says. "If you talk to retailers, they will
say that you can’t pay people decent wages, you can’t give them health
insurance, certainly you can’t give them child care and still make a profit.
Most retailers treat employees like migrant workers."
Hollinger says companies that spend more on employees tend
to be highly profitable and have fewer labor problems. If you want to see the
relationship between good employment practices and profits, just glance at
Fortune magazine’s annual list of Best Companies to Work For, he says. The
companies on the list, including the perennially high-ranking Container Store,
tend to offer high wages, good benefits and extensive development programs, and
they also generally have low turnover rates and strong profits.
"It is not an accident," Hollinger says.
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