Business Intelligence Portfolio

Business Intelligence Portfolio

Store Intelligence

How investing in a store business intelligence platform can reduce shrink and improve profi tability

for your company.

Each year, retailers lose billions of dollars in profi ts due to shrinkage and ineffi ciencies. Simply put, shrinkage is any loss of inventory due to shoplifting, internal theft, vendor fraud or administrative error.

A good example of how this loss occurs within the retail store environment is return fraud. Consider an employee who rings a fraudulent return — taking cash from the register or recording a credit to their credit card. Because there is no inventory that is actually returned to inventory — shrink expense is recorded for the value of the item returned. To fi ght these losses, retailers need to implement better internal processes and controls of their increasingly complex operations that address the entire shrink cycle, from shoplifting to vendor and employee theft. Loss prevention

technologies like EAS and CCTV have been very effective in delivering a positive ROI on retailer’s shrink reduction efforts.

*Sources of retail shrinkage

46.80%

31.60%

14.40%

3.75%

2.86%

Employee Theft Employees Shoplifting Customer Admin Error Internal Error Vendor Fraud Suppliers Unknown Error

Store Intelligence

Shrinkage is classifi ed in one of four broad defi nitions: external, internal, vendor and paperwork/processing errors. External theft is generally defi ned as shoplifting. Typical external theft prevention methods include Electronic Article Surveillance, Cameras, and Store Detectives.

Internal theft is credited to employees. This includes “sweethearting” or “sliding,” where the employee passes merchandise to someone without scanning or recording it in the point of sale. Typical internal theft prevention methods include: store audits of paperwork, review of activity reports and receipts, interview and investigations.

Vendor fraud is intentional theft or inventory loss associated with vendors, often involving the accurate delivery and return of merchandise. Typical vendor fraud prevention methods are vendor truck and delivery audits and detailed receiving.

Finally, processing and administrative errors can also often contribute to the variance between the inventory we own on our books and the actual physical inventory. UPC ticketing errors, POS ringing errors, return processing errors and poorly trained staff are all contributors to this category. Again, audits are the most common method of preventing or detecting this form of loss.

Common Shrink Prevention Methods

• Personnel: greeters, store detectives, guards

• Technology: cameras, public view monitors, DVR, electronic article surveillance, mag/ink tags • Procedural Controls: management review, bag checks, fl oor walk, customer service

• Anonymous Tip Hot Line

• Training and Awareness Programs

• Procedural Controls: management approval, document matching/review, till balancing, employee bag checks, locker controls • Store Audit: review of transaction summary reports and physical documentation

Store Intelligence

Today, the reach and effectiveness of these traditional loss prevention tools can be further extended and maximized by strategic deployments of store intelligence platforms. These platforms give retailers the means to measure their performance objective, manage their store operations and, ultimately, improve their profi tability and performance. While continuing to address shrinkage, retailers and their Loss Prevention departments (LP) must take a broader view of inventory loss which includes any inappropriate or unnecessary actions that reduce the value of inventory.

To achieve sustained shrink reduction and protect inventories, LP needs a new strategic resource that alerts them to potential shrink opportunities and the need to take action. Store business intelligence solutions provide these resources. In order to appreciate the true value of store business intelligence, it is important to examine the changes in the retail process that have increased shrink opportunities particularly within the internal shrink category. Understanding these changes will clarify how store business intelligence solutions can help achieve sustained shrink reduction, with regard to both internal and external loss, and protect the value and profi ts associated with each inventory sale, thereby increasing profi ts.

Anonymous Tip/Hot Lines Audits

Procedural Controls EAS

Store Personnel

SHRINK PREVENTION INPUTS

TECHNOLOGY INPUTS

Human Resources Item Master File

Traffi c Counting EAS Alarms POS Transaction Vendor Direct Deliveries

Store Intelligence

The Retail Industry: Changes and Challenges

The automation of the retail process and the adoption of innovative business practices save time, money and improve customer service. However, these benefi ts are offset by signifi cant risks associated with reduced direct control and increased opportunities for shrinkage throughout the inventory life cycle.

Business processes have dramatically changed over the last ten years: from the automation of POS transactions to the reliance upon electronic data interchange for most inventory transactions, retailers are changing the way they order, receive, stock and sell their merchandise.

One of the greatest challenges that automation has presented for Loss Prevention is the speed with which the retail process occurs. Billions of transactions daily, multiple marketing campaigns, automated coupons, and real-time inventory recognition using vendor information are only a few facets of this complicated process.

In order to be effective, LP must work within the organizational goal of getting inventory on the shelf and into the hands of the customer faster, without placing restrictions on this process.

Customer-driven changes, such as open return policies, cash back and direct-to-customer deliveries, are changing the way we move and recognize the inventory we own. Marketing strategies to drive sales using coupons, multiple item discounts, and the introduction of loyalty cards and promotions have changed the volume of discounts and price

adjustments. The automation of gift certifi cates and merchandise credits has simplifi ed the return process and eliminated a previously paper-laden process.

Automation in the Retail Life Cycle Point-of-Sale Automation

• Automation of item and price fi les at corporate and store level (new, markdowns, promotional, discontinued, disposals, etc.) • Real-time recognition of expense based upon perpetual balances, including markdowns, discounts, price adjustments,

coupons, disposals, out of stocks

• Automation of paper-driven processes, such as gift cards for gift certifi cates or in lieu of merchandise credit • Scanning in lieu of manual entry of UPC and return information

Technology Introduction

Inventory Management Automation • UPC setup using vendor details

• Purchase orders created based upon automated replenishment system • Automatic replenishment driven by electronic perpetual inventory • Distribution shipping documentation (ASNs)

• Store and distribution center receiving (EDI/ASN, etc.) • Vendor invoicing and delivery details

• Scannable UPC bar codes

In addition to the incredible automation advancements, many innovative and cost-effective changes have been adopted to improve the inventory pipeline. The use of third-party distribution methods to drive down freight cost while reducing the number of trucks being processed at the store level is now common in retail. Direct Store Delivery is another example that has been embraced heavily throughout retail (particularly within the grocery segment) to maximize effi ciency by reducing the number of times inventory must be counted and handled before it is on the shelf available for sale.

All these changes in the inventory life cycle underscore the retail imperative — identify demand for a product and get it on the shelf available for sale, faster.

Increased Risk

Naturally with automation, companies are accepting a higher level of risk in exchange for reduced cost, improved speed and accuracy from the automation itself.

Many of the old safeguards that dominated the retail process, like manual controls, paper trails and management authorizations, have been eliminated or reprioritized in order to realize the fi nancial and operational benefi ts of the automation.

We trust our vendors are billing us properly for the items purchased. We trust that the box that says it contains twelve items actually contains twelve of the particular items associated with that carton’s bar code details. We base our re-orders off of the perpetual system. Cashiers are able to scan items for sale and return and adjust pricing with minimal or no management authorization, and we trust that the item scanned is actually the item sold or returned.

Technology Introduction

The new Loss Prevention department is charged with reducing shrinkage in an environment that is not designed to prevent shrinkage but, in fact, creates millions of opportunities for shrinkage to go undetected.

Improvements vs. Risks

Example — UPC bar code scanning combined with ringing procedures to reduce key strokes and increase items per minute and customer throughput.

Improvement: One example of this is when bar codes for items that are diffi cult to tag or are specially promoted are kept at the register separate from the products. When the item is brought to the register, the cashier simply scans the sheet with the proper UPC to record the sale.

Increased Risk: Anytime a UPC is scanned without a product present presents a higher risk of error and loss. Cashiers often scan the wrong UPC for the item, selling it at the incorrect price — creating a variance between the fi nancial and physical ownership of the inventory. They also use these UPCs to ring fraudulent returns.

Example — Marketing Promotions to Drive Sales

Improvement: Often retailers negotiate with their vendor partners to sponsor marketing promotions intended to drive sales. Buy one get one free is a great example. The vendor may agree to compensate the retailer for x% of the discount in order to realize the increased sales.

Increased Risk: Point-of-sale associates must scan both items and then process the discount for 100% off one item for this promotion. However, often associates simply scan the fi rst item and slide the second item into the bag without ringing it out and processing the discount. This does not track the inventory accurately and ultimately creates shrink. The challenge in this new retail process is to improve control without offsetting the fi nancial and operational benefi ts of the automation.

Technology Introduction

The developments in the retail life cycle, primarily automation, have lead to an increasing number of possible points of leakage where a transaction can create a shrinkage event. Add to this the number of times each of those transactions happens in every store, every day, and you have millions of opportunities for shrinkage.

Using Performance Metrics to Reduce Risk

Every piece of inventory lost and recorded as shrink also represents a multiple of its value in lost sales. In order to truly protect profi ts — Loss Prevention must expand their focus to look at the entire inventory life cycle and all of the opportunities that can create inventory loss.

Technically, shrink is defi ned as the difference between inventory physically owned and the inventory fi nancially recorded. But the true fi nancial impact of not owning inventory assumed to be there is signifi cantly higher than this calculated fi gure. Not only is a shrinkage expense recorded, but a lost sales opportunity is also incurred. So in order to consider LP as the protector of profi ts, companies can no longer limit their efforts to shrinkage. LP must look at every opportunity for lost profi ts throughout the entire inventory life cycle.

Building the Platform

Store Intelligence gathers information from all of the key data-producing systems within the store including point of sale, electronic article surveillance, traffi c counters, vendor direct store delivery activity, in-store inventory transaction data, to name a few. The data is stored in a powerful data mart which is automatically organized into relational tables and summarized into logical groups. For example point-of-sale t-logs are summarized by transaction header, line and tender. Statistical totals are stored alongside of the data to make retrieval of meaningful statistics fast and effective.

Applying Intelligence

With this data platform in place, store business intelligence is applied to the information. Key Performance Indicators (KPIs) are the basis of this intelligence. KPIs give Loss Prevention and Operations visibility to all transactions that might lead to a loss. KPIs are the measurements that are used to compare and analyze performance by store, cashier and department. KPIs can be defi ned by the user or use one of hundreds of predefi ned KPIs. As well, KPIs can be expressed as a count, a dollar amount, a percentage and even as a ratio.

Technology Introduction

For example, Voids KPI can include the following:

Store Void Amount, Count, % of Sales and as a % of total transactions. Cashier Void Amount, Count, % of Sales and as a % of total transactions. Department Void Amount, Count, % of Sales and as a % of total transactions.

Identifying New Measures

Looking at the front end of the store, Loss Prevention is adopting new measures that indicate profi t loss opportunities not just shrink. These measures are a group of KPIs identifi ed as Sales Reducing Activities (SRAs). They are defi ned as those transactions which reduce the value of a sale, such as returns, markdowns, coupons, discounts, price changes, etc. Constant assessment and analysis of SRAs gives LP the opportunity to be proactive and have a daily impact on the business, as a reduction of SRAs leads directly to higher profi ts.

SRAs are also very good indicators of shrinkage problems that may otherwise go unnoticed.

“Over the past four years, we have realized a reduction in our SRAs as a percentage of sales of 150 basis points. The big number though is shrink, and we’ve seen a reduction in SRAs and shrink of about 40–50%.”

Director of Loss Prevention Analytics, CVS Pharmacy

Store business intelligence provides LP with SRA data that they had previously been unable to access. Examining returns, for example, in the past might have lead to a particular store with an unusually high return rate. Looking through logs or POS activity reports might help to identify particular departments as the source of losses. With store business intelligence, however, you can pinpoint the store, cashier and even the transactions and items being returned that contributed to the results. You can compare all stores or all cashiers and quickly fi nd the best and worst performers with respect to any one of the SRAs.

Technology Introduction

Creating a store performance report card for all SRA measurements can give Loss Prevention the road map of what stores they need to visit and why. This type of intelligence is what can make the LP team more effi cient and effective and ensure valuable results.

Shortly after introducing KPI to our stores, we realized there’d be additional benefi ts that we didn’t foresee ahead of time. Inventory accuracy, for example, was one of the big wins. When we fi rst started monitoring cashiers for hand keying and use of the dummy style number, we didn’t realize that down the road our inventory accuracy would be better, which helps us get the right merchandise in the right stores and helps drive our business.” AVP Store Operations, TJMaxx/Marshalls

Actionable Intelligence

With business intelligence that includes all of the key information elements that drive inventory accuracy, turn and sales, LP and Operations have the power to reduce shrink and improve store performance.

The key to this strategic change in shrink reduction and operational performance enhancement is that LP and Operations are able to identify the issues that require action as soon as, or even before, they are created. They need to know what’s happening when it happens, not when they get to the store or after they receive a tip. They need to recognize that a new cashier is poorly trained so that they can prevent further inventory transaction errors.

Exceptions are the actionable intelligence indicators that identify potential loss or performance issues. By setting up predefi ned limits and tolerance levels, store intelligence is able to alert management to the specifi c store and/or cashier that has potentially created a loss situation.

Technology Introduction

Alerts and dashboards that direct information requiring an immediate response to those who can take action, improves the effi ciency and effectiveness of the LP and Operations teams.

Actionable intelligence from exceptions means that LP and Operations no longer have to wait for tips or a store audit to determine if action is required and a visit is necessary. Resources do not have to be signifi cantly increased in order to attack shrink from all sides.

With store intelligence solutions, the cost, time and personnel necessary to identify and resolve a situation is greatly reduced.

Exceptions created from store intelligence data mines give LP and Operations the information at the speed with which the data is generated. Direction can be communicated on how to proceed with corrective action, such as training, counseling, interview or investigation, without having to be on-site. Those who need to respond have all of the

information at their fi ngertips from detailed transaction data, to video clips that accompany transactions, to performance trends and previous counseling notes. The information ensures actionable intelligence that gets results.

“One of the greatest benefi ts is it allows store managers to score them, to see their scoring across several KPIs; where in the past, they might have had to go to four or fi ve reports to get all the information, and now it’s basically handed to them. ‘This is your cashier’s and these are the reasons and here’s your action plan based on the KPIs that their exceptions have triggered.’” AVP Store Operations, TJMaxx/Marshalls

Manage Store Operations

Understanding performance across multiple KPIs is how Loss Prevention and Operations can assess the best and worst stores, cashiers and departments. With scoring and ranking across the organization and using multiple KPIs, operations can be compared and evaluated equally.

Store Intelligence provides LP and Operations with the ability to compare their performance versus other stores and districts, as well as within their own store by cashier and department. Grouping stores by commonalities improves the ability to truly determine how one store is performing. Looking at high-shrink stores, new stores, closing stores, or test stores, can eliminate the noise that often makes store reporting ineffective.

Technology Introduction

Providing store operations with not only the data, but also with the comparisons and trends that show performance over time, improves their ability to train and counsel employees. It is invaluable to be able to demonstrate to employees the vast information available to management and the many indicators that can affect performance evaluation.

Also using store intelligence, LP and Operations can get a quick view of the functionality and response of the

technological systems in the store. They can identify stores that are not utilizing the equipment or that require additional equipment based upon activity.

“We’re very excited about the NaviSmart product launch — on the EAS side of the house, we’ll be able to identify the cashier failure to remove rate, we’ll have visibility to the volume of grab and runs by location, we’ll be able to better plan and utilize the labor within the stores based upon traffi c count, and more.” AVP Store Operations, TJMaxx/Marshalls

Solutions That Get Results

Sensormatic Analytics suite of store business intelligence solutions helps improve performance and shrink results and ultimately increases profi tability of the operations.

Store business intelligence provides a system that can work to achieve LP goals, alerting staff to specifi c transactions, stores, associates, vendors or third parties that have created an exception. The numbers tell the story, and there is no requirement to be present at the store, no sifting through hours of register tape, and no pouring over video surveillance tapes or log books. By applying store intelligence, retail data is no longer representative of one store in isolation. It is comparable companywide using meaningful measures to ensure that the information is signifi cant — a classic case of looking at the big picture.

“That data has to tell a story, and with these products, it tells you a story.” Director Loss Prevention Forensic Analytics, CVS Pharmacy

The value of data-mining and business intelligence is the driving force behind the development of Sensormatic Analytics, a comprehensive suite of store business intelligence solutions.

Technology Introduction

Powered by Retail Expert, the most successful LP Business Intelligence provider in the United States, Sensormatic Analytics can help fully re-engineer a Loss Prevention department and transform it into an invaluable player in a company’s mission to drive profi ts.

Sensormatic Analytics and legacy Retail Expert solutions are already used by 4,000 loss prevention professionals to monitor activity in over 30,000 stores.

Sensormatic Analytics solutions are designed to accommodate all retail footprints. Supported by a powerful data mart that accepts data from multiple platforms, the solutions can integrate across the operation. An easy-to-use Web interface makes it simple to roll out companywide and provides users with the same product features and functionality with the fl exibility of customizing it for user preferences.

The foundation of Sensormatic Analytics is its ability to analyze vast amounts of data from various sources into concise actionable intelligence through exception reporting. Using Key Performance Indicators (KPIs), you can sort, fi lter, rank and score information, giving you the ability to quickly and easily identify critical areas of your operations that require attention and improvement

Technology Introduction

• POS exception reporting for the entire organization • Positive and negative POS activity requiring action • Analysis of cashiers who need further training

• Distribution of exception activity through e-mail to appropriate individuals • Integration with digital CCTV to facilitate visual verifi cation of exception activity

NaviStor Performance is a solution specifi cally designed for store management. Management is given a specifi c number of exceptions to review and resolve weekly. They get a quick, graphic view of their operational performance across the KPI that have been identifi ed as critical. With this information, associates are counseled on their exceptions and the conversation is recorded within the associate’s trend information.

• POS performance management action plans • Graphical store trends by department, cashier

• Exceptions requiring action directly to store management • Integrated counseling documentation

NaviSmart EAS and Traffi c Management applies the same data mart platform and populates it with data from your in-store technology — Electronic Article Surveillance and Traffi c Tracking systems. Using NaviSmart, retailers are creating KPIs that monitor, measure and improve the effi ciency and effectiveness of these investments.

Technology Introduction

Four Wall Approach

Shrink and profi t loss does not stop with point of sale. Sensormatic Analytics addresses all of the loss opportunity within the four walls of the store.

• Reduces pharmacy shortages • Reduces prescription shrink

• Improves operational performance • Improves pharmacy procedure compliance •Manages and controls pharmacy inventory down • Identifi es discrepancies to the NDC level

NaviScript Pharmacy Inventory and NaviScript Dispensing are designed to help pharmacies enhance their loss prevention efforts, streamline information and increase overall productivity.

• Data repository retains and organizes critical • Reduces delivery variances and losses inventory information

• Evaluates inventory movement by department,

• Enhances vendor and product performance category, SKU or UPC.

NaviTrack Store Inventory and NaviTrack Direct Store Delivery are invaluable loss prevention tools that give retailers a 360-degree view of their direct store delivery merchandise, vendors, and store inventory performance.

Technology Introduction

Control Over Your Performance

With Sensormatic Analytics you have the power to maximize loss prevention and turn it into opportunity for real profi tability growth.

Features that turn data into actionable intelligence include:

Customised intelligent dashboards automatically focus you on the exceptions and analysis that is most meaningful. Red exceptions require immediate action, while Green exceptions clearly highlight positive results. Multiple reports are available on demand and can be customized by the user for their personal preference and even for wider audiences.

Statistical risk scores to data exception, defi ne which users are responsible for taking action, and then track their response and follow up via e-mail.

Sorting, fi ltering, ranking and scoring your data across the organization to quickly identify the best and worst performers.

Video Integration allows you to view the associated video footage alongside the transaction data.

Trend KPIs over time to quickly determine if the desired results are being achieved.

Send integrated e-mail, along with all of the supporting details and action plans.

Increasing Profi ts with Sensormatic Analytics

ADT is offering Sensormatic Analytics to ensure that Loss Prevention has the tools to continue to reduce losses, effectively utilize their capital resources and ultimately increase profi ts.

Technology Introduction

Loss Prevention and Operations will become signifi cantly more effective and effi cient by utilizing Sensormatic Analytics comprehensive suite of store business intelligence solutions. Each solution gives LP the ability to measure performance objectives, manage their store operations and ultimately improve store profi tability. With the store business intelligence platform, retailers are able to extend their predicted results.

“The one thing that I can tell you is when we put NaviStor in place, it actually gave our investigators and LP managers a direction. They would do investigations in the past and some of them would run ad hoc reports, some would go into stores and they would conduct audits to see IF things were operationally sound. … Now they have a defi nite direction.” Regional Director of Loss Prevention — Babies R Us/Toys R Us

Our customers are proof of this concept. Many tell us that they realize a return on their investment in 9–12 months with some realizing it in signifi cantly less time.

“NaviStor has been very successful at CVS for a couple of reasons — the robust and versatile nature of the product itself and the collaboration between our two companies in moving the product forward. The results speak for themselves — we realized our ROI in 12 weeks and have continued to add additional modules from the product suite so that we have captured all of the critical data within the four walls of our stores.” Director Loss Prevention Forensic Analysis, CVS Pharmacy

With Sensormatic Analytics solutions, our customers are improving performance through the use of performance metrics. Loss Prevention and Operations have a common language and understanding that unites them in the mission of improved shrink and profi t performance. KPIs and SRAs quickly become driving forces throughout the retail organization.

“Based on what we’ve learned over the years, we’ve defi nitely raised the bar and KPIs have become part of the key operating fabrics in our stores, it’s part of our culture today.” AVP Store Operations, TJMaxx/Marshalls

Technology Introduction

A common story that our customers tell us is how they realized unexpected benefi ts and returns from areas outside of Loss Prevention. Sensormatic Analytics’ data mine powered by Retail Expert gives departments throughout the retail organization access to intelligence information that was either unavailable or inconvenient to access in the past. Corporate retail departments like fi nance, sales audit, tax and risk management are using Sensormatic Analytics intelligence to improve their process. Human resources, marketing, transportation and merchandising are using Sensormatic Analytics to tell their stories and gain support for their efforts to improve profi ts. “One of the big things for us is we had in-store exception reporting before we put NaviStor in place, and we had a refund exception report … but we didn’t get into the nuts and bolts of what refunds were all about. Then we put together a report that included the original cashier, meaning the cashier that rung up an original sale and the refund. When we looked at that, we found … that we uncovered something that we would never see within the in-store reports. We found refunds with receipts … but done multiple times by an original cashier. That case turned out to be several thousand dollars in one store alone.” Babies R Us

“A great example of a cashier scorecard would be this past fall, we had a store that was underperforming in a particular week in outerwear. The store identifi ed that they had not changed their lightweight features to the heavyweight features as we were getting later in the season. And the week after that … they went from being 20% below the district in that given week to 20% ahead of the district.” TJMaxx/Marshalls

By combining the preventative exception reporting and alerts found in Sensormatic Analytics, with the in-store technology and procedural methods used by Loss Prevention — the potential exposure that is created by the introduction of high-risk complex business processes is virtually eliminated.