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Loss Prevention

Leading the Pack

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The typically standard approach to loss prevention — confront a problem, conduct an investigation and resolve the issue — represents more of a fallback position at Finish Line, the Indianapolis-based retailer of athletic shoes, apparel and accessories.

With more than 650 stores in U.S. malls nationwide as well as other retail interests and partnerships for selling its products, Finish Line will certainly go that route when required. But Mike Smith, the company’s senior vice president for loss prevention, says that standard view is reactive and actually diminishing in importance. As a matter of corporate practice, he says, Finish Line prefers a more proactive approach to mitigating loss.

As a company that employs more than 11,000 “sneakerologists” to serve its growing customer base in the $28 billion athletic footwear market, Finish Line’s loss prevention approach means touching all key points of the business in a direct leadership role, Smith says.

“We try to partner with our internal business partners and look at the opportunities we have,” he says, “and get in front of any issues that might come along with those opportunities.”

When it comes to combating employee theft, for instance, Smith says loss prevention works closely with human resource managers on hiring protocols, as well as with store operations to implement educational and training opportunities to improve how stores function.

“Our slant is, ‘Let’s hire the right kind of people who we don’t have issues with after the fact. Let’s educate them in a way that keeps them away from problems that they can get involved with, such as ethical issues,’” he says.

When Smith’s loss prevention team members visit stores in the field, they go in with an approach on examining how stores are faring and improving from an operational perspective, “rather than catching people.”

“We are considered a business partner externally and not somebody that is just thought of in an after-the-fact way,” Smith says.

As another tool for improving operations, Finish Line examines exception reporting data from the point of sale, using it as an opportunity for improving communication and identifying store issues before they balloon out of control.

“Our goal is not to use that POS exception data to necessarily catch the next cashier that may be doing something wrong at a register,” he says. “The approach is that we would like to change that behavior and not have to catch somebody down the road, and also save the company losses that might occur because somebody behaves badly or does something badly at a register.”

Expanding reach, consumer base
In effect, Finish Line is adjusting loss prevention to fit the way the chain is doing business as a multi-division, omni-channel retailer. The company recently expanded beyond its core demographic of 18- to 29-year-old men through a partnership with Macy’s to manage the athletic footwear inventory at the department store’s 660 locations. The Macy’s venture, which was announced in September 2012 and launched in March, opens up merchandising to more female shoppers and expands its product portfolio beyond running shoes into other footwear categories (like basketball shoes) that are experiencing strong consumer interest.

Additionally, Finish Line expanded the footprint of its Running Specialty Group, formed with investor Gart Capital Partners. It now reaches 38 specialty running stores in 11 states and the District of Columbia under brands that include the Running Company, Blue Mile, Run On! and Road Runner Running.

For the first quarter of its fiscal year ended June 1, 2013, Finish Line net sales reached $351.1 million, an increase of 10 percent over the prior year period; consolidated merchandise inventories increased 23.7 percent to $292.6 million for the quarter, the company reported, which it largely attributes to the start-up of its Macy’s business. In another key metric, Finish Line comparable-store sales increased 2.4 percent during the quarter.

Finish Line’s robust customer service, a major factor in its growth, limits stores’ exposure to external theft, Smith says. As a full-service footwear retailer, it is unnecessary for stores to display shoes in a pair on the sales floor since associates are there to guide the buying experience for shoppers.

Focused service means “there is nobody in our stores who will say, ‘My job is to catch a shoplifter.’ We do not put very much emphasis at all on the act of actually seeing how many shoplifters they can catch,” Smith says.

“What you will see at our stores are people who will say ‘My job is to serve customers very well, and also I realize that by serving those customers well I will deter the potential few that might think about shoplifting something,’ because a shoplifter by nature hates customer service.”

Finish Line recently renewed its fraud prevention services contract with ReD. The retailer uses ReD Shield to mitigate risk and fight e-commerce fraud.

Pursuing digital sales
Finish Line has also sought to be more aggressive in pursuing sales in the online marketplace. Retail industry researcher NPD Group estimated in a June 2013 report that the total e-commerce athletic footwear market in the United States reached $5 billion in the period from May 2012 to April 2013, a 21 percent increase over the similar period the previous year.

In its report, the NPD Group noted that such sales now represent 18 percent of the total $28 billion market. In fact, online sales of athletic footwear, credited by NPD Group for offering customers increased value and assortment, particularly among female consumers, is outpacing unit sales growth of bricks-and-mortar stores in the segment. While online unit sales were up a healthy 17 percent from May 2012-April 2013, unit sales of athletic goods at stores across the industry were down 2 percent, NPD Group reported.

Smith says online and mobile selling is creating key opportunities for growth at Finish Line, as it is throughout the industry. During its 2013 fiscal year, Finish Line digital sales reached 12.8 percent of total sales, an increase from 10.9 percent during fiscal 2012.

Smith says Finish Line advances the same proactive, leadership approach to loss prevention to address unique challenges that come with digital merchandising. That means staying ahead of any potential issues that might surface given the remote, card-not-present nature of online payments.
Digital sales typically have higher chargeback rates because of fraudulent, card-not-present activity, but Smith says Finish Line chargeback rates are below industry averages.

“The e-commerce environment is becoming a bigger part of everybody’s business,” he says. “We obviously are paying more and more attention to that and want to make sure we are staying ahead and not reacting to a problem that occurs in that business down the road.”