We all know intuitively that when loss prevention is successful in preventing and recovering losses for our employers, we can impact our company’s bottom line. Of course, the expense incurred from our costs (our payroll, our benefits and our non-payroll expenses) also impacts the bottom line, but in a different way. So we strive everyday to add value through measureable contributions to profit. If we fail to deliver, then chances are good we will not be around to explain why we failed. But, what a thrill it is when our actions have a direct measurable impact on shareholder value, and we can explain it to our management teams.
I can personally recall one such moment during my career that still gives me a sense of pride even today. In 1990, I had signed up to go on a market visit with our CEO on a corporate jet. The day before departure, I had a report run from our main frame computer on that wide green and white striped paper that probably most of the readers are too young to remember. The report showed multiple refunds and adjustments rung against the same original purchase transaction data. These were the days when policies were the only controls over refunds and adjustments, and we had to trust our team members to correctly interpret and apply those policies. This report was formatted with the store number, date, transaction number and cashier number of the original transaction over on the left side with the subsequent refunds or adjustments taking up the right two-thirds of the page. All of the adjustments or refunds were listed in chronological order showing the date and time, store number and city and state where the store was located. Several original sales transactions had as many as 35 refunds of the same item made against a single transaction.
I tried to take advantage of as much face time with the CEO whenever I could, and there is no better face time than when you are encapsulated in an airplane at 41,000 feet. Neither one of you can get up and leave. So, when we reached cruising altitude, I pulled the report out from my brief case and plopped it on the table that separated me from the CEO. He figured out how to read that report in short order, and we began the conversation with some degree of urgency and a few expletives as he just did not like thieves, fraudsters or other types of “disingenuous” customers. There was no automated refund authorization system in those days but, by the time we landed, we agreed that we were going to design, develop and deliver (3D) one and become the first major retailer to implement such a system.
The 3D process took awhile because we were pioneering new ground, but, finally, in late 1991, we rolled the system to every store in the company. Around mid-1998, I asked the CEO for 20 minutes of time during the next executive committee meeting to show what had happened over the course of the past five full years of our refund authorization system environment and, with a little grin on his face, he gave me 30 minutes.
In preparation for the meeting, I had a large poster board chart created with a vertical axis that represented value -- the higher up the vertical line, the greater the value. The horizontal axis at the bottom of the chart represented a time line showing the two years preceding the roll-out of “Refund Auth” on the left and then the five years of history with “Refund Auth.” The five graph lines on the chart represented five separate experiences.
The first line showed Gross Sales. That line, for the first three years on the left of the chart, showed gross sales clicking along at a pace slightly ahead of inflation, then accelerating in the following four years as in-stocks improved because theft for fraudulent refunds went down.
The next line was Net Sales, which is gross sales minus refunds. As a publicly traded company, we reported our comparable store net sales to Wall Street monthly, and we were compared to our competition on that basis. In the beginning of the first year of “Refund Auth” our net sales rate dramatically increased compared with our gross sales (and with our competition as well) because our refunds as a percent of gross sales went into a steep decline.
The next line was Inventory Shortage (shrink), which went down at an accelerated rate during the first four years of “Refund Auth,” only to level off in the fifth year as the impact we achieved on theft and fraud through our system surpassed what we had envisioned six years previously.
The fourth line was Gross Profit, which, through the five years reflected on the graph, rose rapidly because of the combination of sales and shrink. And, gross profits are one of the many forces that impact shareholder’s equity.
And so, our fifth line was Shareholder Value or what the price of a share of stock did during the seven years on the graph. Those shareholders who held blocks of shares of our stock in 1990 realized an enormous gain through those years, in part, because of how we performed compared with our competition as well as how we performed with forecasts from Wall Street.
You can just imagine how I felt about those results. All because of the face time opportunity with the CEO and his openness to change and to manage our risks in an intelligent and prudent way. The “Refund Auth” system came out of business intelligence developed by loss prevention and measurably correlated to shareholder value.