Tesco: 66 points for Dave Lewis – No.2 – Shrink

Today is 65 (sixty-five) days until Dave Lewis takes the helm at the UK’s biggest retailer. Grocery Insight are counting down to the start of his reign with an improvement point per day. Yesterday it was Twitter and today its shrink.

Part of the ‘saving over serving’ mantra sees an almost obsessional focus on ‘shrink’ which will naturally feature in another of the areas for Dave Lewis to look at when he takes the helm.

Shrinkage is a natural hazard of retailing, its ‘unknown loss’ – IE you are delivered 12 units and you sell 10 but have zero stock, there are 2 items that go into the ‘unknown’ loss pot. This is shrinkage and can be caused by many, many reasons – theft, incorrect scanning at checkouts, thrown in the skip etc etc etc.

To drive availability, these 2 items should be cleared off the system inventory to allow re-ordering by the system. That is assuming gaps are scanned correctly….. Towards the end of the financial year, gap scanning slows even further sources tell me.

Naturally, controlling costs is an inherent part of retail but I’ve never yet seen a retailer who has cost saved their way to prosperity, it is vital to control costs but not at the expense of sales, and the issue with targets is they can end up driving the wrong behaviours.

Shrinkage should form part of the overall piece, not be a total focus as it inevitably drives the wrong behaviour, well-meaning managers stop scanning as many gaps because that helps the shrinkage picture. Does it help availability? No. Does it help customers? No.

Quite simply, the customer has to become the centre of everything Tesco does in the future. It is no good fighting on several thousand fronts. Every single retail transformation (be it Lord MacLaurin of Tesco, Justin King of Sainsbury’s or indeed Sir Ken Morrison harmonising Safeway and Morrison) focussed on ‘getting back to basics’.

This needs to centre around the customer – Availability, Service, Quality, Price. Every measure should be aligned towards these metrics, sure shrinkage is important, but it should never be a focus. If the store is taking accurate steps to prevent loss through security measures, trained people on self service for example and accurate counting, then they are doing all they can.

Some areas in Britain are worse for theft than others , it is unfair to penalise stores for what can be out of their control. Theft is the biggest cause of shrink and a lack of bodies on the shop floor can only make thieving easier to get away with.

Getting the sales line moving again is more important, more income can be raised by moving the sales forward than a complete focus on cost saving be it shrink or hours or not ordering carrier bags or…. (to come…)

Holding onto stock as long as possible is another area of concern (clearance areas for example) and the centre doesn’t reduce quickly enough post events. Stores are still sat on excessive stocks of England branded bath ducks, footballs and teddy bears. It should be 75% reduced, front of store and away. Little point in holding onto it forever, there has been an improvement here but it’s still too slow.

Whilst we are veering into social media again (yesterday’s focus) they are intrinsically linked, giving awards out for colleagues who are doing their bit to avoid shrink is akin to giving a values award for putting your trousers on before coming to work. Its a basic. Reward excellence!

It is a shame there isn’t such a focus on chasing sales. This is where the focus needs to shift, from saving, onto serving.

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Grocery Insight provide market insight on the UK sector with a focus on individual retailers such as Tesco. This insight is useful to various stakeholders and due to my store based focus. Insight can be delivered to suppliers to focus on growth opportunities, analysts and investors to assess the business performance and long term outlook and retailers themselves to assess best practice.