Rx for Shrink

Any retailer will tell you that an increase in theft — internal and external — is an unfortunate side effect of the recession. But shrink, including the sharp rise in organized retail crime, can be effectively managed and significantly reduced by a chain-wide approach to the problem that includes fostering closer relationships with law enforcement, vendors and solution providers.

This is the path being followed by CVS Caremark, whose 6,900 CVS/pharmacy and Longs Drug stores make it the largest pharmacy and retail health care provider in the country — and one of the most pro-active practitioners of loss prevention.

"Without a doubt, our shrink is lower than it has been," says product protection manager Jon Roberts. He declined to cite specific figures, but says that "the holistic approach we took five years ago has driven shrink down to a level that is best in class within the industry, and we intend to keep it there."

Roberts agrees with the conventional wisdom about the correlation between shrink and the state of the economy. "Historically, it gets worse in hard times and, as time goes on, there will be more pressure on people to make bad decisions," he says, "but we haven't yet seen a dramatic spike."

CVS, which generates nearly three-quarters of its revenue from the pharmacy, has long recognized the need to be pro-active. "There's a dual force at play in retail," Roberts says, "the challenge of reaching top-line sales numbers and the intense pressure on the bottom-line numbers from internal and external theft."

Internal shrink is always a concern, but a combination of store training and prudent use of technology has kept many employees from making what Roberts terms "bad decisions."

With external theft on the rise, however, a dual focus is a business imperative. "Like other retailers, we are facing great pressure from organized retail crime," he says. "That activity has spiked over the last four or five years."

As a result, the use of data mining and analytics has increased. "We look at the data coming through the systems and we hold a quarterly training program on internal and external theft practices," Roberts says. "This includes additional resources being applied against e-fencing. "I have a person that monitors online activity, looking at sellers and fencing locations in a timelier manner. Data mining tools help us identify employees that are selling product online."

CVS is taking the initiative when it comes to building ORC cases. "Typically, when our investigators come across a case, we build the intelligence and work with ORC teams at other retailers and pool resources," Roberts says. "Then we bring the case to law enforcement agencies."

The Woonsocket, R.I.-based retailer has "worked to open a dialog with all levels of law enforcement, including the FBI, IRS, Immigration and the Food & Drug Administration," he says. "We do what we can to drive the case, but leave it to law enforcement on how to pursue it."