Shrink control
A leading discount retailer targets shrink control
The Company
A major, fast growing and profitable discount retail chain
The Challenge
The client was investigating a variety of alternatives to reduce shrink in their stores which represented a major cost of business - equal to 3% of revenues. New inventory systems, RFID tags and front door cameras were some of the alternatives being tested in multiple locations, but management was reading mixed results. While each program appeared to be effective, they showed significant differences in impact - both overall and by store - throughout the test locations. Furthermore, each program carried a significant required investment to implement. Management was hesitant to expend the substantial amount of capital needed to invest in the programs until impact could be more confidently understood.
The client called on APT's enterprise Test & Learn software to determine which program to implement.
The Solution
The retailer, working with the support of APT, used the APT Suite to isolate the true impact of each program and it was confirmed that each program was successful in reducing shrink. Analysis initially quantified the minimum shrink losses that must be incurred at each location to justify any investment in new technology.
Building on those findings, the APT Suite segmented on demographic, competitive and other attributes to isolate the reasons for differences in program impact. It was determined that while cameras were generally the most effective, disparities could be attributed to specific customer segments whom were uncomfortable with this technology. By installing cameras in locations heavily utilized by these segments, the retailer was also significantly decreasing both traffic and sales. The reduction in sales widely outpaced their savings from shrink reduction, making this an unprofitable program at a subset of locations.
Management used the insights gained to develop a rollout plan that encompassed multiple programs, based on the individual store’s profile. Automated models predicted the impact of each approach by store, isolating the proper investment strategy.
Results
By utilizing the targeted approach to rollout, the retailer is predicted to pay back investment in twelve months and reduce shrink by 25%, translating to a $20 Million dollar improvement in profits.
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