Open Season on Shrink

When Gander Mountain began pursuing exception reporting some eight years ago, vice president of loss control Alan Tague predicted the nation’s largest retailer of hunting, fishing, camping, boating and outdoor lifestyle products would experience a 20 percent improvement in shrink rate.

“I think that has proved out,” Tague says, but those results may only be the tip of the iceberg for the St. Paul, Minn.-based company. “We picked off a lot of the low-hanging fruit the first year. As we build processes, exception reporting is helping us manage our business and we are becoming more pro-active in using it.”

Tague, whose responsibilities include loss prevention, risk management and regulatory compliance with OSHA, EPA and ATF, says exception reporting has become increasingly valuable not only in uncovering fraudulent activities, but as a tool in everything from inventory control to merchandising.

As the store base grew to 116, exception reporting quickly became a day-to-day business imperative. “At first, we got back to basics with physical security measures and operational controls like physical security and implementing good operational practices,” Tague says. Once this was accomplished, the chain began investigating exception reporting systems and chose software from Bloomington, Minn.-based Aspect Loss Prevention.

Initially, Gander Mountain used the system “to look for fraudulent transactions and situations,” Tague says. “Right off the bat we had tremendous success in investigating [refund and credit card fraud and merchandise credit] cases and bringing them to a conclusion more quickly.”

As things progressed, Gander Mountain realized that it needed to “apply more business logic to the process. This meant thinking about ways we could build reports to look for specific things and identify people who committed fraud.”

This was accomplished through the development of AutoMIND reports, which search for high-risk transactions indicative of fraud, flag them and send the information directly to the stores.

Returns were the first target. Gander Mountain developed a daily report that provides store managers with the opportunity “to review the product, who the cashier was and how many of these transactions were done,” Tague says, noting that this information enabled the company to leverage the resources of a smaller loss prevention team at headquarters and in the field.

“There may not be a problem. But when the store manager questions the cashier about the transactions, it creates a perception of control and reinforces the fact that we are looking at these types of transactions.”

Markdowns a concern
While fraudulent refunds are often a big target in exception reporting, markdowns also are a key concern. “The problem was that the markdown process wasn’t well defined,” Tague says, so corporate “forced stores to enter reason codes for the markdowns into the POS.

“We followed up monthly and when we found a store that was far higher than the others, we talked to them about it. They didn’t like being the squeaky wheel and inevitably their markdown transactions declined. We also made significant changes in our markdown processes, documentation and controls.”

Exception reporting is also being used as tool for specific investigations. For instance, a report may show that a particular cashier has facilitated multiple high-risk transactions. In response, the store manager and LP officer “can run very specific reports to profile an individual,” Tague says.

POS exception reports are also run when there is an indication of an associate stealing merchandise “because we often find that if someone is stealing merchandise, they are likely to be stealing in other ways, as well.”

While it is difficult to benchmark how much fraud and theft has been reduced, Gander Mountain knows exactly how much has been caught. “If you use the tool properly you catch people more quickly, so the cash value actually drops,” Tague says. “We track how many months a person’s been stealing and it’s now more likely to be one month than 18 months. In fact, when we catch someone who’s been stealing for six months we look at it as our failure.”

Sales, promotions, spiffs
Other departments within Gander Mountain also have begun to take advantage of exception reporting. Merchandising uses it “to track special sales, promotions and spiffs,” Tague says. “If someone sells a certain type of firearm, the manufacturer may ‘spiff’ that employee several dollars. Merchants just enter a SKU number to find out which employee to pay. Merchandisers also use it during employee sales: They watch the margins and make sure discount policy is followed.”

And the more departments that use exception reporting systems, the better the return on investment, he says.