Maintaining Healthy Levels of Shrink

The North Bergen, New Jersey-based retailer opened up shop more than 30 years ago and has since evolved into 435 locations across the United States. The retailer also now operates two Web sites, www.vitaminshoppe.com and www.bodytech.com. As the definition of healthy living continues to evolve, so does Vitamin Shoppe's offerings, which today includes vitamins and minerals, nutritional supplements, herbs, sports nutrition formulas, homeopathic remedies, and health and beauty aids.

Recognizing that most of Vitamin Shoppe's shrink was caused by transaction fraud and cash, The Vitamin Shoppe needed a loss prevention solution that would address internal theft, help stores identify cases of theft faster, and deter fraudulent activity.

"At Vitamin Shoppe, our main issues involve associates doing a lot of cash refunds, unauthorized discounts, under-ringing, and cash post voids, where customers pay cash and employees do immediate voids, then just pocket the money," says Dan Patasnik, Vitamin Shoppe's corporate loss prevention manager.

To crack down on this criminal activity, the retailer leveraged Epicor's Retail Loss Prevention solution in June 2005. This integrated suite of transaction analysis, reporting and case management tools is designed to continually monitor store-level transactions, automatically detect violations of procedural rules, and then enable quick investigation of suspicious activity. The solution also compiles and documents all transaction information to clearly support follow-up interviews and corrective training or prosecutions.

"The LP system lets us define rules that distinguish normal or acceptable transaction processes from irregular activity," says Patasnik. "We can select from more than 60 pre-defined exceptions or create rules and thresholds -- either as monetary amounts and/or number of occurrences -- that are specific to our business and specific to individual stores."

Patasnik adds, "As soon as my team and I began using the Epicor system, we quickly were able to uncover significant activities that had gone unnoticed, including cases involving ten and fifteen thousand dollars. We had some great, fast wins, and it was very satisfying to identify and contain those losses."

In addition to identifying dishonest individuals, the LP system also helps Vitamin Shoppe flag stores that were especially problematic. For example, the company maintains certain budgets for legitimate discounts. Using LP's analytics tools, the team now identifies stores that are off the charts with respect to those budgets.

"Epicor's LP solution incorporates dashboards that centralize our access to information and let us drill into the details, so we can quickly look at all our transactions and run reports," says Patasnik. "Everything we need to find is logically and intuitively named, including terminology for things such as refunds, voids, coupons, price overrides and employee rings. There are so many reports and drill downs that we can fairly easily determine whether a given incident involves actual fraud, or whether it's just the result of errors. And where fraud is involved, the evidence we get is reliable and clear."

In many cases, this evidence is reinforced by video records from the POS. Vitamin Shoppe integrated its LP system with video surveillance at approximately 15 stores, and has plans to expand this program.

Additionally, Vitamin Shoppe is now able to document, develop and process fraudulent cases more easily.

"There are certain patterns a perpetrator will follow," said Patasnik. "We'll see refunds that were processed the same day as the sale, or in other cases we'll see a transaction processed one day followed by a reprint of the sale and then a refund a few days later."

Once a pattern is identified and a red flag is raised, transaction documents are pulled to review signatures and associate numbers. These are cross-referenced with time and attendance records to ensure correct identification.

"We can generally get a clear picture of what's happening, backed by records, within just two or three days," said Patasnik. "I think that's phenomenal.

These benefits have enabled Vitamin Shoppe to substantially reduce its losses from theft and increase profitability across the chain. "In just a little more than two years, Vitamin Shoppe moved from addressing fairly substantial theft issues and much higher shrink rates to dramatically reducing all types of transaction fraud," said Patasnik. "Right now our shrink figures are around .5 percent of retail, which is incredible. The system continues to save us tens of thousands of dollars each year."