Identity Resolution for When Shrinkage is Up and Employee Morale is Down
Sam Walton used to tie employees’ bonuses to the amount of inventory theft in individual stores because he said that theft was retail’s biggest profit killer. Public disclosures today from Walton’s own company prove that he was right. According to the Associated Press, theft will cost Wal-Mart $3 billion dollars this year. In the article, industry analysts conjecture as to why Wal-Mart, which traditionally suffered half the shrinkage rate of its nearest competitors, is suddenly experiencing a surge in theft to the point that it’s nearly material enough to affect stock holdings.
Did this precipitous rise in the amount of shrinkage come from the company’s well-publicized policy to stop prosecuting thefts of $25 or less? Wal-Mart did announce this week that it would much more aggressively prosecute shoplifting teenagers — even if they were as young as 16, and even if it was the first time. Perhaps shrinkage is up because employee morale is down due in part to smaller bonuses this year (which are no longer affected by the rate of theft). AP quotes an employee who claims:
“People would walk out with bags of merchandise … I heard the alarms go off and people wouldn’t even look.”
And here’s someone who really felt disgruntled:
“In one of the more brazen employee thefts, a man wearing dark clothing and a ski mask entered a Port Clinton, Ohio, Wal-Mart store last January at midnight unnoticed by employees and stole $45,000 from the store safe. The store’s night manager, Dana Walker, 30, was later arrested for the crime. He became a suspect because he knew the combination to the safe.”
Wal-Mart is a perfect example of the need for employee screening. Bad hires greatly increase an organization’s exposure to theft, fraud and other risks like on-the-job violence. Though for theft and fraud, “last year, retail companies’ losses total $41.6 billion with a loss of 1.61% of sales to theft and fraud,” according to a National Retail Federation survey. The most telling fact uncovered by this is survey is that nearly 47 percent of this loss came from employee theft, while shoplifting accounted for only about 32 percent.”
So it’s obviously critical to the health of your organization that you either do not hire or do not retain employees who pose a risk. For many organizations, this means doing costly third-party background screening. However, if you collect risk-oriented data on individuals, such as bad check writers, slip and fall incidents, and known shoplifters, you already have useful information that may prevent you from making a costly hiring decision. You just need a tool to access it.
This is where identity resolution comes in handy. With an identity resolution system in place, using your own risk data, it’s possible to screen new hires with multiple, hidden or similar identities and also hidden relationships to individuals with negative histories.
Rather than busting 16 yr-olds, it’s much more profitable to screen out risky employees while ensuring that the employees you hire can be trusted.
This amount of money is mind blowing but it is below the national average as a percent to sales. Employee screening is and should be a priority in any company but turnover in retail is around 150% for cashiers and other non management. Given that thought, the ones who are stealing are the “best” hires that are made based on what ever screening is done and the thefts happen within about 6 months. A very slippery target.
I agree with Pat Murphy. Although, I would like to add; This issue is like a double edge sword. The more thorough the employee screening / background check process is, the more expensive. With the turnover rate so high, a company the size of Walmart has a difficult time deciding on how much to spend on the screening process because of the significant amount of turnover. What would cost more the screening process or the actual shrink?
One recommendation would be to conduct training for the hiring manager on how to screen and interview potential candidates to weed out the bad apples. Of course this method is not going to be fool proof, but if the hiring manager is able to weed out bad apples, by key indicators that can be discovered on the application as well as the employee’s response while being interviewed, may help them with both their turnover rate and increased shrink. Not trying to plug Infoglide, but, I have to say that integrating their technology to glide across all of Walmart’s internal data bases would at no additional cost per candidate give them the opportunity to uncover internal flags that can be used to identify reasons not to hire someone. This would then save money on the background check costs, by reducing the number of candidates that would proceeded to additional screening services. This alone could produce an ROI.