The Home Depot: Huh?!

Last week, I read articles quoting Mr. Craig Menear, of The Home Depot, sharing his view on the reason the company is hemorrhaging millions of U.S. Dollars due to theft. In a call to investors, the company said the recent rise in store thefts at Home Depot stores was due to the rise in opioid use and addiction, as the USA Today newspaper reported.

Home Depot's Chief Executive Officer Craig Menear stated: “This is happening everywhere in retail. We think this ties to the opioid crisis, but we’re not positive about that.” Neither the CEO, nor other reps of the the Home Depot, cited any studies or reports that would have given it this number; it would be great if they did. By the numbers: Thieves snagged $16.5 million worth of products from the Home Depot, leading the Home Depot to lose $1.4 million because of the thefts, according to Menear.

Show me the numbers!...

While I'm still working on researching these numbers, the moment I read this news flash, hot off the press, I shared, via LinkedIn, the article and a comment about my surprise for the issuance of such a statement without any scientific backing.

Dear Mr. Menear, I'm not in the habit of giving free business consultations to established and thriving businesses, for I believe that you have paid professionals who should be doing that for you already! But I will make an exception today.

The shrinkage you are attempting to track, and reduce or stop, is caused by several factors, not one; but before I dive in, allow me to start by debunking your statement straight-off, through using 2017 statistics backed by the National Retail Federation (NRF) [note graph above]. Organized retail crime cost retailers nearly $778,000 per $1 billion in sales in 2018, 0.8%, according to a survey by the same organization. If you notice, at least 30% is claimed to be theft by employees... does that mean that your employees are drug addicts? I, for a fact, know that the processes you have in place eliminate this as a probable cause, to the greatest degree; so, that leaves us with 36% for shoplifters... what percent of shoplifters are drug addicts?

Human assets, such as Mr. Scott Glenn, Home Depot's vice president of asset protection, should have been able to empower you with statistics that back any claims you proposed. It is unacceptable that you were put in such a position, which Ms. Carol Tome also took in the past.

I think that Mr. Glenn phrased the statement you made, or intended to make, in a better way during his own interview: “Organized retail crime drives other crimes. It drives drugs. It drives guns. It drives human trafficking...” I'll buy that for a dollar, but I would qualify it by using the auxiliary verb "can"... 'can drive...'. On the other hand, his argument can be proven fallacious too, especially in the absence of clear statistics proving the trend.

Yes, I also heard what Mr. David Denton, Lowe’s chief financial and accounting officer, said on the company’s earnings call, Wednesday, that “Inventory shrink exerted approximately 20 basis points of negative pressure on gross margin for the quarter.” But, come on! Share the exact numbers!

I also remember witnessing a police officer showing reporters from CNBC an $800 air compressor still screwed to the wooden pallet it was originally mounted on when shipped to the store... how did they walk out of the store with that?!

"Organized retail crime cost retailers nearly $778,000 per $1 billion in sales in 2018, 0.8%" —NRF

When I came into the retail industry to do my Business<>IT alignment research in this realm, I was not aware of all the dimensions I would be sucked into in order to build a comprehensive firsthand understanding. One of the obvious areas became the dominion of "Loss Prevention (LP)."

It started in the logistics world of Amazon's Fulfillment Centers, but the real action became obvious in the comparatively more aggressive world of retail home improvement, and specifically Appliances sales, where on daily basis I witnessed parts of display units stolen... knobs and gas burners from ranges, washing machine and dryer parts, racks from over-the-range microwaves (OTRs), $5 vacuum cleaner belts, and even the second rack sprayer-arm assembly form a Samsung dishwasher!... As a man who had a proper/classy upbringing, it boggled my mind! How? Why? I needed to understand.

While tracing such a matter was not part of my original project objectives, in this day and age, IT is core to security and theft prevention, so, I decided to add the matter to the scope of my gap analysis research.

Background: Socioeconomics and drug addiction...

I need to get this subject matter out of my way: Although the results of Gallup Polls indicate that alcohol use is higher among the wealthy, the abuse of illegal and prescription opioids may be highest among the poor. Prescription opioid addiction has reached epidemic proportions in the US. Statistics from the Centers for Disease Control and Prevention (CDC) state that as of 2011, the rate of overdose deaths from opioid prescription drugs, including popular pain relievers containing oxycodone (OxyContin, Percocet), hydrocodone (Vicodin, Norco), and hydromorphone (Dilaudid) were highest in states with higher poverty levels.

Possible explanations for the higher prevalence of opioid abuse and overdose among the poor include:

• Inadequate follow-up care for low-income patients being treated for chronic pain at publicly funded medical clinics;
• Self-medication for the stress and depression associated with poverty;
• Limited access to opioid treatment programs and rehab facilities;
• Lack of education about the dangers of prescription medication abuse.

Although there are links between poverty and opioid abuse, addiction to prescription opioids and illicit drugs like heroin affects people in all income levels. In fact, the CDC reports that the greatest increase in heroin use since 2002 has occurred among demographic groups that have had traditionally low levels of use, including women, Americans with higher incomes, and people who have health insurance coverage.

A comparison of figures from 2002 to 2013 from the CDC shows that heroin use increased the most in Americans with an average household income of $20,000-$49,000 (an increase of 77%), while the increase in use in Americans with an income over $50,000 and in those with an income of $20,000 or less was very similar (60% versus 62%). These statistics show that more preventive services are needed for all socioeconomic groups, as well as greater access to substance abuse treatment facilities across the board.

Is Socioeconomic Status a Barrier to Treatment?

The lack of health insurance and/or financial resources is cited as a barrier to treatment in national surveys. According to the National Survey on Drug Use and Health, 37.3% of Americans age 12 and older who did not receive treatment for addiction said they did not seek help because they did not have health insurance or could not afford rehab. The lack of financial resources/insurance was the most commonly reported reason for not receiving treatment; the second most widely reported reason was that the individual, the addict, was not ready to stop using (24.5%).

Statistics on substance abuse in the U.S. indicate that there is clearly a need for more affordable treatment services for all Americans, regardless of their income level. The Affordable Care Act (ACA), which includes substance abuse treatment as an essential health benefit, will make rehab more accessible to Americans with low income levels, if the current administration does not gut it out, as they have been working on. Public assistance programs like Medicaid have historically provided little assistance for drug or alcohol rehab. However, these programs—through the ACA—will now receive more reimbursement for substance abuse treatment, which will make it easier for the poor to benefit from recovery services.

How Americans Pay for Treatment

No matter what their income or social position may be, the majority of Americans who need substance abuse treatment wonder how they will pay for rehab. The National Survey of Substance Abuse Treatment Services (NSSATS) for 2012 listed the following forms of payment, along with the percentage of treatment facilities that accepted those payment options:

• Self-payment (cash or other sources): 90%;
• Private health insurance: 65%;
• Medicaid: 58%;
• State-financed health insurance: 40%;
• Medicare: 33%;
• Federal military insurance: 33%.

So, we can see, that by claiming the "opioid epidemic" as a cause for many social and socioeconomic troubles, we emphasis the importance of our citizens having full access to a quality affordable healthcare system; moreover, holding pharmaceutical companies, and financial power-houses such as, but not limited to, the Sackler Family, accountable at the same scale of the damage they have inflicted on our society is a must.

Back to the subject of "shrinkage," and, no, I am not talking about George Costanza from Seinfeld !

Return to me...

I wonder how much is it costing the Home Depot, and other retailers, to accept all those indiscriminate returns? I mean, come-on: used drain snakes with feces on them?! Not once, multiple times! Wow!

According to the NRF, U.S. shoppers returned $396-billion worth of purchases in 2018... were all those returns legit? I know that they were not. One example, which I wrote about in my article: Customer Service: "Mule Fritters!" The Customer Is NOT ALWAYS Right, is about the malicious (or insane) woman, in California, who wanted to return a dead "Christmas tree" to Costco in return for a full refund (read the article for the details)...

... Right in front of me, I witnessed a customer demand from a Specialist to accept the return of appliances weeks after they were used, due to buyer's remorse ("I don't like how they look" ... "what do you mean I can't return them?"). It was explained to the female customer, and her present male companion, that the policy, which is clear and was explained and highlighted by the sales associate, on the sale documents (order paperwork) she was holding in her hands, that such can not be done.

... According to the NRF, U.S. shoppers returned $396-billion worth of purchases in 2018...

At that moment, another female customer who was making a purchase (an Army veteran, no less) standing right by me stated the following, verbatim: "Honey! Don't listen to them, don't worry, just go up front to Customer Service, and demand to speak with a manager, and make a loud scene, and I promise they will give you what you want!" I was speechless... flabbergasted.

The customer wanting to return the units thanked her—with glee in her eyes—and followed her instructions to the proverbial "T"!

Guess what happened? She was obliged. This is not the first time, by far, that the SOPs the "associates" are trained to observe were violated and over-ridden by supervisors and managers encouraging return fraud under the guise of providing erroneously perceived "exceptional customer service," often due to inconstant interpretation of policies, or simply not wanting to deal with the matter due to an intellectual and emotional inability to handle bullies (like these customers).

Can you see where I am going with this now? Yep! The associates are "sick of being perceived as liars and fools by the customers," because they do not have the backing of their managers, so, they lose the interest in taking ownership... this problem is epidemic; I have independently interviewed scores of associates, and without exception they backed this observation: "why bother?! They'll take anything back! even used items from competitors!" said one associate, while others concurred.

Instead of punishing the honest people by raising prices, hold the malicious people accountable to the same rules! Or, is it true that "nice people finish last" as retail customers?!

On weekly basis, at Home Depot, I witness "customers" bullying, making a scene, and abusing associates, and threatening to "leave the store to Lowe's," only to return later with their tails tucked between their legs and their noses dragging in the dirt begging for the same help... and I've witnessed the inverse at Lowe's, too!

These "customers" are playing you as a child would attempt to manipulate their parents, and you are dumb if you fall for it. In reality, perhaps if you want to hurt your competitors, just let such customers leave you and frequent them!

Remember that there is not a certain image or mold that you can fit people of this caliber into, for they come in all sizes and shapes and socioeconomic strata distributions.

Can you remember the case of attorney Claude Allen, assistant to U.S. President George W. Bush, who resigned after being arrested for repeatedly stealing from retailers and also engaging in return fraud, and basically at the end got away with it—I guess because white collar crime pays: he knew people in high places? Police said he took items from the shelves, at Target, and then 'returned them' for more than $5,000 to his credit card through about 25 similar transactions at other stores.

More recently, do you remember the November story of the three Police Deputies guarding the Dallas, Texas, Home Depot that got destroyed by the tornado, and who robbed it? One of them was a Supervisor!

I am aware that Home Depot, and other retailers, are working together, and with law enforcement, on bringing down as many of these crime rings as possible, which is great, but there are still things that can be done, best practices to be followed, at the store level to seriously augment these efforts on daily basis:

• With the transition to "self pay" being finalized, you do not have enough supervising cashiers to monitor all the registers and the customers, forget about watching for those crooks just walking out with carts-full of products; the criminals have effective distraction strategies that are not being effectively countered at your operations. Also, I think that a large monitor screen over the egress doors, with cameras at eye-level, showing the customers faces leaving can also be a relatively inexpensive psychological deterrent—to say the least.
• Not all your locations have enough Loss Prevention (LP) professionals to monitor and pursue. By the time the crook has done his or her deed, and they are observed and tracked on the CCTV technology available, the majority of them escape, bye-bye!
• Understandably, CCTV security infrastructure can be costly, but having an effective system that is totally functional is paramount! My personal vehicle was hit three different times in your parking lots (hit and run), and the culprits escaped without being picked by one of your CCTV cameras, except once, and the resolution and positioning were beyond adding any significant value! I probably would have gotten better resolution if I had an iphone video camera mounted on the wall, and certainly if I had a Tesla Sentry system!
• Getting to the the root-cause: supply and demand. Through your lobbyists (who got you all kinds of major tax breaks), and in conjunction with your own tracking tools/systems, better, and tougher, laws regulating Pawn Shops, bootleg operations, etc. should be enacted... such as those I've read about in Utah, as one example.
• Some of the security tools used on the floor just keep the honest people honest, but do not effect the crooks who know how to circumvent them with ease, such as using "Spider Wrap" devices that are harder to install than take off! ... keep it simple stupid, and train the associates to use them most effectively on different shaped and sized containers!
• The presence of [uniformed and undercover] Loss Prevention (LP) personnel near checkout, and return, areas (psychologically used like stereotypical "bouncers") appears to be a significant deterrent for perpetrators, especially of in-store stolen card purchases, counterfeit currency use (shocking numbers, to me), and fraudulent returns.

Research also suggests that stringent return policies—such as those requiring, at all time, the scanning of government-issued identification cards and receipts for cash refunds, or those limiting the cash-back amounts for non-receipt returns—can significantly constrain return fraud.

Additionally, Customer Service employees should appear as “hard targets,” by physically inspecting items returned in opened packaging to ensure that items inside match the receipt and were not replaced with old or used items. I lost count of the times I found that a "customer" had swapped and placed an old and damaged product in the box of a new product they bought then successfully returned for a full refund! The Customer Service and Returns Department is often a nightmare; it is so for several reasons:

1. Mismanagement: Often the managers of this department are easily manipulated/bullied by "customers," and often takeout their own frustrations on the representatives under their care. Moreover, through said bullying by customers, these managers and their associates often let the customer take advantage of the business just so not to create a scene—the exact thing the customer knows and is taking advantage of, as I described in the case above. Not only that, but often, as these so-called customers are verbally (and sometimes physically) abusive, the managers do not cover their employees' backs, and only focus on pleasing and pacifying the malicious person attacking, which is counter productive on two fronts: you are empowering the bad behavior of said customers, and victimizing the employee who stops caring about enforcing the SOPs of their job so not to be molested again (by customers or management), and to maintain their employment.
2. Process design: Often, this seems to be mediocre to say the least—at least, the execution thereof. The pressure (time pressure) expectations placed on the Customer Service Associates is often tremendous. When lines of return customers starts to get long, especially when they start to become rudely impatient, there is a need for the associates to speedup their processes so to catch-up with the incoming traffic. Often, this is driven by a shortage in on-duty personnel. Speeding up the inspection process is what often makes return-fraud much easier to enact. This process should be run in a similar deliberate fashion to that of the TSA at airport security check points, and with the same seriousness and intended professionalism. When a rude customer mouths-off, they should not be rewarded, for the rest of the proper customers will appreciate that stance. Set the professional expectations, and be consistent at enforcing them... Wal-Mart seem to do well at that, at their Customer Service Department, because they understand their customers and deal with them accordingly (this reminds me of how certain global Airlines, such as Air France, staff their international flights with a custom selection of flight crew that understand the culture of the country the flight is departing to, which usually will carry natives of that nation; so, when they misbehave, a crew member of that heritage, who is also fluent in the native language, deals with the problem effectively through cultural reference points. The first time I noticed that, was on a flight to Asia, when a group of passengers would not oblige the safety rules, so, a crew member fluent at the said passengers' language approached, and with all due seriousness, and using cultural references, effectively shamed the violating passenger to sit down and behave when logic was ineffective at accomplishing the same. It was an awesome experience to witness!).

Despite the 2016 National Retail Security Survey’s results indicating that retailers are opting to invest more in technological deterrents than in personnel, research continues to suggest that—especially when it comes to less-sophisticated shoplifters—customer-facing personnel may be a more effective deterrent.

Reducing the numbers of associates working in the departments to cut overhead cost, especially where needed, has a double counter-productive impact:

[1] Customers are getting untimely service;

[2] Makes it much easier for crooks to steal unobserved...

... as you well know—and train your associates on—one of the best ways to effectively discourage theft is by giving excellent coverage and attentive service: "can I help you find anything, sir? What are you working on today, and how can I help you?"

Online criminals are more bold, because the barrier from fear or shame triggered by the physical human interaction between criminal and victim has been eliminated (the victim has been dehumanized... no longer a person, just a virtual target on the other side of the electronic connection). There is much more risk involved for a criminal when they are face-to-face with their prospect victim (same concept and cause and effect applies during wars)... that is, without doubt, a psychological advantage (deterrent) for brick and mortar retailers to continue to effectively capitalize on.

• Last but not least, you cannot protect what you do not know you have. You must have an optimized product tracking and allocating process. If this was the current case, many retailers will not have to do the annual "rack-diving" (image: results of a bay rack diving at Lowe's—Home Depot have the same process). Moreover, if there was such an effective process and real-time electronic chain of custody, how can anyone deceive you in any easy way. Perhaps something to learn from FedEx: from their end-to-end tracking status reporting, chain of custody identification, sale/delivery confirmation, reporting flexibility, to data archiving? Probably the same can be said of Walmart, which, as an example, in 2018, announced that it will ask suppliers of leafy greens to implement real-time, end-to-end traceability back to the farm using blockchain technology by this year... they (Walmart) can find the history of a head of lettuce in minutes or seconds, while appliance retailers sometimes take hours to locate a large box with a washing machine in it, or a pallet with with flooring tile, that is stocked somewhere at the store, or, worse, weeks before they know for sure when a vendor can make a delivery to a customer's site without the item being "back-ordered" in the interim! By the by, Amazon were not much better on the real-time matter, but they are getting there relatively quickly and pretty effectively; moreover, they are also superior to brick 'n' mortar retailers at implementing their loyalty program (Amazon Prime)...

... Not to digress too far, but, for example, while the Home Depot and Lowe's in-house products have a loyal following, the operations suck at building and maintaining a corporate brand loyalty program—vs. Amazon! Their most popular loyalty program is based on a parasitic relationship... "which?" you wonder... I call it the '10% Military Discount membership'! Many businesses offer some kind of a courtesy discount to recognize veterans, teachers, first responders, and others, but it is just that: a courtesy not a right.

At this stage in time, I've come across thousands of "veterans" who feel aggressively entitled to be given that gift under any circumstances, which makes me wonder if they joined the Armed Forces just in order to get a 10% discount at retail businesses? [unfortunately, I know for a fact that thousands did join the Armed Forces not from some patriotic "love for nation and citizens," but, nearly half, for the primary sake of having a paying job]... I have not experienced that with any other segment of society businesses recognize... I must also share that I did observe a socioeconomic and educational factor that drives this unfortunate phenomenon.

As one example of many, I witnessed a female customer, a veteran, leave Home Depot to Lowe's because they could not "double dip" discount coupons that would have saved them only a $1.20... yeah! The woman made a loud scene (to embarrass the associate, who was specifically instructed, with the team, not to do so), and then left with her husband in tow, who, to his credit, was silently apologizing profusely on her behalf behind her back!... What customer loyalty?! The gasoline they burnt to drive their SUV to Lowe's probably cost them more than the buck-twenty! Ironically, I learned later that she returned to the store because Home Depot's price, for the same ~$300 product, was $2 cheaper than at Lowe's! I thought that she must have been high on drugs! This is not customer loyalty, it is opportunism at its worse, because it involves bona-fide stupidity and avarice... humorously, this makes me think of the Greek mythology stories of Paris, Helen, and Menelaus! In this domain, you are setting the wrong expectations for the long haul.

In reality, outside of the credit cards they issue, Home Depot have the "Pro-Xtra" loyalty program, but promoting it, and the implementation thereof, across the board, is mediocre—in comparison with the Amazon Prime; more can be done with it. Lowe's have the "My Lowe's" loyalty program, which, too does not seem to be optimized.

Interesting statistics, some surprising*...

Organized retail crime statistics

• Organized Retail Crime (ORC) costs the retail industry approximately $30 billion each year. (Source: NRF)
• 71.3% of retailers surveyed reported an increase in ORC year-over-year. (Source:NRF)
•  Only a little more than half (54.7%) of retailers surveyed believe that top management understands the “complexity and severity” of the ORC issue (Source: NRF Survey)
• More than half (55.2%) responded that none of their LP employees have ORC as their primary job responsibility. (Source:NRF)
• Robberies and burglaries are up 8.6% since 2016 (Source: D&D Daily)
• Reported value of ORC cases in 2016 exceeded $200 million. (Source: LPRC)

Loss prevention statistics

• Inventory shrink cost the US retail industry $46.8 billion. (Source: NRF Survey)
• The average shrink rate is 1.33% (Source: NRF Survey)
• The average costs of return fraud was $1,766.27, with a median of $171. (Source: NRF Survey)
• 41% of retailers surveyed reported increases in overall inventory shrink. (Source: NRF Survey)
• The average cost per shoplifting incident doubled to $559. (Source: NRF Survey)
• 29.3% surveyed said they were allocating new resources to technology, while only 17.3% said they were hiring additional staff dedicated to combating ORC (Source: NRF Survey)
• 36.5% of shrink is external, due to shoplifting and ORC, outpacing shrink caused by employee theft, vendor fraud and administrative errors. (Source: NRF Survey)
• US grocery stores allocate only 0.36% of sales to reducing shrinkage. (Source: NRF Retail Study)

Shoplifting statistics

• 58% of self-checkout shoplifters defined stealing from a self-checkout machine as easy. (Source: LPRC)
• 44% of shoplifters interviewed said that if an employee paid attention to them while they were committing theft, it would deter them. (Source: LPRC)
• 44% of the offenders we interviewed said that they had engaged in violence during a theft attempt. (Source: LPRC)
• 60% of known shoplifters were detected entering at least two separate locations of the same retail chain (FaceFirst study)
• 20% of known shoplifters visited three or more locations of the same retail chain (FaceFirst study)

Workplace violence statistics

• 424 violent deaths in retail locations in 2017. (Source: D&D Daily)
• 2018 saw a 12% increase in violent deaths over 2017. (Source: D&D Daily)
• Wednesday is the most violent and deadly days in retail. (Source: D&D Daily)
• Criminal acts in retail stores were up 11% in 2018 over 2017 (Source: D&D Daily)
• 40% of retail deaths happen in the store itself while 53% occur outside the store (Source: D&D Daily)
• 32% of workplace fatalities occurred while working in a retail store. (Source: National Center for Victims of Crime)
• 26.3% of workplace homicide victims work in sales/retail. (Source: National Center for Victims of Crime)

In summary...

Yes, while it is known that the opioid crises has been playing a notable role in driving all types of crimes, especially desperate petty crimes enacted by choice users and victims, the losses being registered by retailers have many triggers that can be remediated, lessening the number of stings experienced; this article addressed some of the most glaring ones... the proverbial 500lb gorillas in the room.

Large retailers are already getting all kinds of tax breaks and incentives from the tax-payers, so, talking about further raising the prices as a strategic solution to this problem is... well... an easy way out that punishes the wrong people... a bad strategy. You will not gain customer loyalty this way, just the custom of people who have no place else but to shop at your establishments—at this time.

On a lighter note...

At the end, we all have our needs, and for kicks and giggles, this is one of the more entertaining things I have witnessed at the Home Depot: an actual employee from a neighboring Lowe's shopping there while wearing their Lowe's uniform... at least we know that he is not a secret shopper on a spying mission! ... Welcome to The Home Depot, brother!

Note: In business, when you cannot back a claim with documented facts or witnesses, keep it to yourself until such a time that you can.