LOSS PREVENTION: The best practices to keep pilferage down

For Aficionado, pilferage is a “major issue” in the company because it speaks more about the integrity and honesty of the employee than the actual value of the product or money stolen.

How do these shops in the Philippines ensure that pilferage rates are kept to a minimum? Tina Arceo-Dumlao finds out more.

Vigilance at the shop floor, tight procedural controls, hiring of the right frontliners, investments in technology and security equipment.

These are among the strategies employed by not just the large retail establishments in the Philippines but the small and medium-scale enterprises as well.

It is their way of preserving as much of their income potential as possible while laying a strong foundation on which they can spring towards their next stage of growth.

Loss prevention is a perennial problem among retail companies, particularly for those such as perfume and personal-care retailer Aficionado, which has a multitude of small items on its shelves that can be easily stolen by determined criminal elements.

According to Aficionado founder and chief executive Joel Cruz, pilferage is a “major issue” in the company because it speaks more about the integrity and honesty of the employee than the actual value of the product or money stolen. But the value can also become significant if unchecked.

“It may be in small amounts but it adds up and can be a significant loss of revenues or profits to the company. However, we have arrested these issues with systems and procedures in place,” Cruz says, adding that pilferage will never be totally eradicated but it can at least be minimised to such a degree that it will not adversely affect the bottom line at the end of the fiscal year.

There was a time during its early years when Aficionado, which has 3,565 outlets across the Philippines, was confronted with a serious pilferage problem.

The Travel Club has been able to keep losses due to pilferage to less than 3% of sales thanks to the corporate culture that has been inculcated in its people — that of dignity and of being part of a team.

Today, this has been reduced to a maximum of 1% of sales, from as high as 7% during the early years, through policies such as the hiring of an external auditor to check the books and the investment in technologies and systems like the SAP database management and mobile point of sale. It also improved processes and procedures based on ISO guidelines and standards.

But more than the physical controls, Cruz maintains, it is important to focus always on people because pilferage always involves people.

“So we start with hiring for character. We train them and we tell our people — about 250 of them — that we have strict rules and policies. We also tell them that even if it is just an 85ml bottle of perfume, they are responsible for that bottle. This rule not only applies to the frontliner, but the supervisor and the manager too. Everybody is responsible,” he elaborates.

Cruz says the company exercises zero tolerance for pilferage as small incidents could become much bigger down the road. For example, the company brings in fragrance oils from France, Germany and Italy, some of which cost as much as Php1 million (US$21,000) a bottle. It will take time to recover from such a loss.

“We needed to learn from experience. We had to deal with different problems such as some frontliners filling water bottles with perfume. Some put perfume in their lunch box. But with training and policies, pilferage is no longer a big problem,” Cruz reiterates.
Sales through institutions such as consignments at department stores are also prone to shoplifting. However, malls and department stores have their own strict security measures that help prevent pilferage and shoplifting. But even then, if losses occur, it is the consignor or Aficionado that shoulders the loss. Fortunately, losses through institutions have not been significant.

Locking down on the policies becomes more crucial as Aficionado plans to more aggressively expand abroad. Cruz feels that the company has saturated the local market; thus, there is no more room domestically for growth. The logical next step is to go abroad, to make the most of the factory that can produce 300,000 bottles of perfume every day.

“We are now focusing on international sales and maximise our new automated plant. With our facility, we can really support foreign demand. We are focusing on distributorship and talking to potential partners abroad,” reveals Cruz, who founded the company in 1999.

Another shop, Echostore, a growing chain of retail shops that specialises in Philippine products that are good for communities and the planet, also pegs the allowable shrinkage or losses due to pilferage to 2%-3% of sales. These are costs that are written off from the bottom line.

To come in below the acceptable ceiling of 2%-3%, Echostore co-founder Pacita U Juan says the group has invested in closed circuit television (CCTV) cameras. These serve as a deterrent, she explains, as both the staff members and consumers know that the branches are always being watched.

“We do inventory often so that losses are charged to those assigned to different product segments,” Juan continues. “We also have a retail inventory system in place where each item is accounted for. Manual inventory is made faster with the use of bar codes and scanners.”

Echostore is the country’s pioneer sustainable lifestyle store that sells natural and organic products, fair trade coffees and teas and environment-friendly merchandise. It was launched in 2009 and now operates six branches with plans to set up additional outlets as more Filipinos embrace a more healthy lifestyle.

To come in below the acceptable ceiling of 2%-3%, Echostore has invested in closed circuit television (CCTV) cameras.[/caption]

Meanwhile, The Travel Club, the country’s largest one-stop shop for travel needs, emphasises the value of hiring the right people, the type who would not be easily tempted to cart away goods from the branches.

Joni Lim, assistant vice-president of The Travel Club, tells Retail Asia that the company, founded in 1992, has been “quite lucky” because it had been blessed with good employees. Thus, losses due to pilferage or losses have not been significant.

“We also have a strong control system in place to keep pilferage down, like we have a morning and afternoon inventory as well as spot audits every month. This is just to keep people on their toes,” says Lim. “We also have an alarm system and CCTV systems in branches with very high traffic.”

The Travel Club is a concept store with an average size of 100sqm that caters to all types of travellers, and carries the best brands in luggage, bags and travel essentials. Brands distributed through its chain that will expand to 56 branches by the end of the year include Tumi, Victorinox, Delsey, Ace, Columbia, The North Face, Eagle Creek, Jansport and Hedgren.

Aside from having clear and strict standard operating procedures, the company also adopts more of a carrot than stick approach, in that personnel of branches that have been spared from unexplained losses get good marks on their evaluation forms, thus becoming eligible for a salary adjustment or bonus at a later date.

That The Travel Club has been able to keep losses due to pilferage to less than 3% of sales, however, Lim attributes mainly to the corporate culture of The Travel Club that has been inculcated in its people — that of dignity and of being part of a team.

“We emphasise the entrepreneurial spirit. We let them understand that we are partners, that they should treat the branch as if it were their home. They have to take care of the house they live in and when at work, the company is their home,” concludes Lim.