Retailers have said they have faced a growing wave of theft in recent years that has led to responses such as locking up more merchandise on shelves (see the photo), hiring off-duty police officers, and closing hard-hit stores. The average inventory “shrink rate” (see Chapter 12, page 496) reported by retailers increased to 1.6% of sales.
Walmart recently closed a number of stores in urban areas, including Chicago, Washington, D.C., and Portland. Nike temporarily closed one of its Portland stores last year amid issues with theft, but just announced the location would close permanently. Three of the stores that Target said it would close are in the San Francisco, a place that has had a number of high-profile retail defections of late. Department-store chain Nordstrom closed two stores near San Francisco’s downtown this year, including one in a shopping mall.
For the closing stores, Target said theft was “threatening the safety of our team and guests, and contributing to unsustainable business performance.” It also said investments made to prevent theft, such as adding security guards and using theft-deterrent tools, have been ineffective in curbing retail crime. Target has seen a 120% increase in theft incidents which involve violence or threats in the first five months of this year, leading to a $500 million loss from shrink.
Target’s announcement follows a string of violent incidents at other retailers. A CVS store manager in Mesa, Ariz. was fatally shot earlier this month after suspecting a man was stealing from the store. This week, mobs hit Apple, Lululemon and Foot Locker stores in Philadelphia. Retail theft in that city increased by 30%, to 13,330 this past year.
Classroom discussion questions:
1. What can store managers do in this situation?
2. How might Figure 8.1’s (page 337) site decision factors change given this dangerous urban trend?
Retailers regularly conduct a physical count of their inventory and compare it to what is recorded on their books. The difference is known as shrinkage, a broad term that encompasses not just internal and external theft but also process failures that could lead to inventory being lost or recorded inaccurately.
Shoppers now face items locked in glass cabinets in NYC and other cities
External theft, which includes organized retail crime in addition to regular shoplifting, has become a bigger piece of the pie. Organized retail crime, involving rings that steal from stores in bulk and then peddle the goods online, cost retailers $720,000 for every $1 billion in sales. Seven years ago, theft by employees was the largest category of loss by retailers. Now, it’s external theft.
Retailers are combating the problem by adding security guards and cameras to stores, locking up goods and making use of facial recognition software to help identify repeat offenders. Macy’s is using radio frequency identification (RFID) tags to better track inventory, adding more security personnel to stores and securing high-end brands with locked cables and sensors.
Retailers and shoppers say there is a fine line between deterring criminals and annoying honest customers. “Retailers are locking up everything from shaving cream to soap,” said one customer. “These should be things that are quick and easy to grab and go. But now I’ve got to find an employee to unlock them for me.” Some retailers agree they may have gone too far in their theft-prevention measures. Macy’s used to keep German shepherds in its Manhattan flagship for security sweeps, but discontinued the practice in 2015. NYC police now ask shoppers to take off their face masks before entering stores, a measure intended to help them better identify criminals. The plea came after four men stole $1.1 million of goods from a jewelry store.
Classroom discussion questions:
What tools does Chapter 12 suggest stores use to control shrinkage?
The city of Berkeley, California, is trying to make its residents healthier, reports CNN.com (Sept. 25, 2020). As part of a health initiative, Berkeley is getting ready to become the first city in the US (in March, 2021) to require large grocery stores to stop selling junk food and candy in checkout aisles. So now instead of candy and soda and other high calories items, shoppers can expect to see fresh fruit and whole grain alternatives at checkout counters.
“Placement of unhealthy snacks near a register increases the likelihood that customers will purchase these foods and drinks when willpower is weak at the end of a long shopping trip,” said a City Council member. The new rule will affect at least 25 retailers in Berkeley. These include Whole Foods, CVS, Walgreens and Safeway.
Stores can still sell candy and soda, just not at a child’s eye level in the checkout. The council said the shift to selling more healthy products at checkouts will still be profitable for stores because data shows customers are looking for more low sugar and low sodium products anyway. “The idea of healthy checkout is that it offers parents more opportunities to say yes to their kids, and it also helps us to re-envision what treats are,” said a member of Berkeley’s sugar-sweetened beverage commission. Retailers in test cases around the country and in California have seen dramatic increases in sales of healthy foods since they changed their checkouts to include more fresh options in displays.
As we point out on page 374 of Chapter 9, layout of retail stores is a scientific OM issue whose “objective is to maximize profitability per square foot of floor space.” But checkout counter locations, valuable because of their high exposure rate, are traditionally sold to food manufacturers by the inch!
Classroom discussion questions:
1. Is it a good strategy for governments to dictate supermarket product layouts?
New survey findings, reported by Supply & Demand Chain Executive (Feb. 28, 2019), uncover the chronic inventory problems affecting the $1.3 trillion retail industry. The vast majority (87%) of corporate retail professionals report inaccurate inventories are to blame for more lost revenue than theft (13%), and the breadth of the problem is apparent: nearly all (99%) survey respondents admit to some kind of constant inventory problem.
Despite major spending on inventory management, catastrophic problems remain.
73% state inaccurate inventory forecasting is a constant issue, meaning retailers end up with too much or too little supply to meet demand
66% say price inaccuracy is a consistent issue, which can lead to unbalanced P&L reports
65% report an inability to track inventory through the supply chain, resulting in potential sales lost
Wasted time is wasted profits.
67% of retailers feel that analyzing inventory on store shelves is not an effective use of employees’ time
Data shows that instead of spending time on sales-driven customer service and upselling, the majority of employee time is spent filling out-of-stock holes on shelves (56%) and pulling items forward on shelves (55%)
Automation is the answer.
76% of retailers say the introduction of robots in stores would improve employee productivity
74% said inventory accuracy would improve as a result, while increased profits would be another direct result of introducing in-store robots
A majority (62%) of retailers feel that employees would embrace robots
An interesting class exercise would be to ask students who have worked in retail what their own experiences have been.
Classroom discussion questions:
What are the causes of such inventory “inaccuracies”?
What suggestions does Chapter 12 offer regarding inventory accuracy?
Empty stores and shopping centers are increasingly being converted into warehouse and e-commerce distribution centers. One recent study, reported in Material Handling & Logistics (Feb. 4, 2019), found a surprisingly wide variety of retail-to-warehouse conversions. The projects include the total demolition of obsolete malls to be rebuilt as warehouses in Baltimore, Atlanta, Chicago, and Detroit. Other retail structures that were left standing after the retailers closed their doors also have been repurposed for industrial uses, including a former Toys ‘R’ Us in Milwaukee now occupied by a transmission manufacturer, and Sam’s Club’s conversions of 12 of its stores to distribution centers.
Freestanding big-box stores closer to population centers than they are to warehouse districts are the primary candidates for conversion. These retail structures also typically offer dock doors, ample parking and clear heights compatible with industrial usage. Major retailers who are choosing to expand their omni-channel platforms are transforming underperforming retail properties into e-commerce-driven logistics spaces.
Larger-scale vacant retail properties, such as malls and community centers, are more often purchased by industrial developers and then demolished to be replaced by new industrial construction that is designed to meet the physical requirements of prospective space users. Factors favoring the targeting of retail space for conversion include the prime locations of many retail centers, which often sit at busy intersections or highway interchanges. Another advantage is site access. Standalone big-box stores in particular offer backend docks and easy access for trucks. They also have the needed high ceilings.
“These types of conversions were once unthinkable, and now they’re not only happening, they’re gaining traction,” says one industry leader. “That industrial uses can overtake what are usually higher-rent uses illustrates the strength of demand for industrial real estate, especially last-mile distribution centers.”
Classroom discussion questions:
What are the advantages and disadvantages of converting malls to warehouses?
What is happening to other malls as they lose retail tenants?
The New York Post has called it “the end of jobs.” About 3.5 million people were employed as cashiers in U.S. stores last year— more than in any other occupation aside from sales. The BLS expects that number to rise just 2% in the next decade, far less than the 7% increase it projects for the entire U.S. economy. Britain’s Retail Consortium is even gloomier. It thinks 1/3 of the industry’s jobs will disappear by 2025, as technology takes over more tasks and human labor is priced out of the supermarket.
Are these forecasts overstated? The number of store clerks in the U.S. is actually slightly higher now than it was in 2005, despite a decade of innovations such as internet retailing and self-scan check-outs. Store staff are needed to keep shoppers honest, but also to keep them loyal. Many customers enjoy a human touch, or are fed up with the vagaries of automated scanners.
On-call scheduling systems have made big retailers more nimble, allowing them to staff stores during busy times and save on payroll during slow days. The software used by many retailers forecasts staffing needs based on real-time sales and traffic information.
Some employers require on-call workers to check in by phone, email or text shortly before their shift. If the store is expected to be busy, they must come in; if things are slow, they are told not to report for work, and aren’t paid. These systems have been criticized by worker advocates, who say on-call scheduling makes workers’ lives and pay unpredictable.
The retailers are being asked to provide information about how they schedule employees, including whether they use software from vendors such as Kronos and Workplace Systems to schedule labor hours, or penalize employees who don’t follow on-call procedures. Schedule instability has emerged as a public policy issue in recent months, highlighted in hourly workers’ campaigns for higher wages. A 2015 report examined the prevalence of unpredictable schedules among young adults, and found that 41% receive their schedules a week or less in advance, and half have no input into the timing of their hours.
Classroom discussion questions:
What are the advantages and disadvantages of on-call scheduling.
The Winnsboro location is one of 154 U.S. outlets Wal-Mart shut this week, the first time it has closed more than a handful of domestic stores at once. It is also one of 12 Supercenters, the roughly 180,000 square-foot discount outlets that fueled Wal-Mart’s growth for decades, being closed. But when Wal-Mart opened the store in that town, it fell in line with the company’s longtime real estate strategy of opening in rural, often overlooked areas outside of city centers. Winnsboro sits about 30 miles north of Columbia, S.C., the largest city in the state.
“We never planned on actually going into the cities. What we did instead was build our stores in a ring around a city—pretty far out—and wait for the growth to come to us. That strategy worked practically everywhere,” wrote Wal-Mart founder Sam Walton in his 1992 autobiography. But population growth flowed east and west of Columbia, not north to Winnsboro. Locals say they hope Wal-Mart’s exit will leave room for smaller businesses to thrive again. Town officials are already soliciting grocery store companies and encouraging the few remaining downtown businesses to stock a wider variety of products.
Classroom discussion questions:
Evaluate Wal-Mart’s location strategy under Sam Walton.
What were the advantages and disadvantages of a Wal-Mart entering a small town?
There is some irony in Amazon’s opening a physical store. For years, it could undercut physical retailers on price because it didn’t have brick-and-mortar locations. But those stores offered something Amazon couldn’t: the instant gratification of owning an item the second it was purchased, as well as the personal touch of a knowledgeable sales clerk.
Amazon is betting that the troves of data it generates from shopping patterns on its website will give it advantages in its retail location that other bookstores can’t match. It will use data to pick titles that will most appeal to shoppers. And that could also solve the business problem that has long plagued other bookstores: unsold books that gather dust on shelves and get sent back to publishers. More than most book retailers, Amazon has deep insight into customer buying habits and can stock its store with titles most likely to move. It will stock best-sellers, but will also include books that get the highest ratings from its customers, including little-known titles. One other way the store, with 5,500 square feet of retail space and 2,000 square feet of storage, is distinct from traditional bookstores: Every book will face out, rather than be stacked tightly with only their spines showing. That leaves far less space for books. And while the store will showcase some of Amazon’s gadgets, such as its Kindle e-readers and Fire devices, it will be first and foremost a bookstore.
Classroom discussion questions:
What is Amazon’s strategy in opening this (and future) retail stores?
Discuss the capacity issues and compare Amazon to a large competing bookstore chain.
T.J. Maxx (the TJX company) is the “black box” of retailing–one of the most secretive retailers around– writes Fortune (Aug. 11, 2014). With over 3,200 stores in the U.S., the TJX off-price business is a volume game: selling a ton of goods and selling them fast. The measure of speed here is how quickly a company turns over its inventory: TJX does that every 55 days, vs. 85 for its peer group. Indeed, the company is structured to whisk items through its distribution centers and stores: TJX shipped some 2 billion units to its stores in 2014, up from 1.6 billion in 2010.
The stuff moves so rapidly that merchandise is often sold before TJX has paid its vendors for it. The busiest stores can take daily delivery of product, which employees put out on the floor right away—a “door to floor” approach that cuts down on the amount of space needed for backroom storage. Items typically go on markdown if the turn rate is slower than about 7 weeks, which also contributes to the rapid flow.
TJX’s supplier relationship is so strong partly because of the adversarial relations department stores have with the same suppliers.“A lot of buyers beat up people in the market to try to get what they want, as if they’re making a one-time car buy and they’re never going to go back,” says a former TJX buyer. Department stores want concessions for advertising and markdown allowances. They want money for delayed deliveries and returns.
By contrast, the buyer-supplier relationship with TJX has historically been more of a partnership. TJX buyers are taught to make the vendor feel like it’s a win-win and to leave the door open if they can’t come to an agreement this time around. They will make a deal with a vendor they know isn’t a great deal to maintain or establish a relationship with a brand they know is important. TJX also pays on time, which seems like a given, but suppliers can go out of business because they don’t always get paid.
When it opened in Virginia in 2001, the first Apple store was hailed as a retail revolution, allowing shoppers to play with expensive technology without any sales pressure. The emphasis on service, with blue shirted Geniuses on hand to answer queries and fix broken products, has become almost as important to the Apple brand as the aesthetic appeal of its products. But the whole experience is under pressure as a relatively small number of shops struggle to cope with rapidly growing customer numbers. Apple stores–there are only 415 worldwide–have a turnover of $19 billion and the highest sales per square foot of any retail chain.
The Regent Street outlet, for example, employs 120 Geniuses. Each sees up to 30 customers a day but it is impossible to book an appointment less than a week in advance. If the problem is urgent you can turn up and queue, but it could be a very long wait. The problem is not limited to London. In Apple’s Paris flagship store, there were no appointments available for 10 days. There are even reports of scalpers selling Genius Bar reservations in China. Some argue that Apple needs to take itself further upmarket, so it can serve fewer customers more effectively. Or, to cope with growing demand, should Apple open more shops and come up with clever ways of tackling overcrowding?
Classroom discussion questions:
1. What OM options does Apple have to deal with the capacity constraints?
