ICTS improved the profitability and cash flow in a major Brazilian Retailer


Abstract

A Brazilian retailer suffering severe stock losses needed to adopt a strategy to reduce losses dramatically.


Company Overview

The client, a major Brazilian retailer with sales revenue in excess of US$2bn and over 100 stores in the supermarket, hypermarket and DIY sectors. Operating profits were well below the sector benchmarks and the Directors realized that a determined effort would have to be made to improve profitability. One of the areas for drastic improvement was stock losses. A senior director of the company searched for a solution provider and based on our market reputation, contacted ICTS Global Ltda to see how we could help.


The Problem

Stock losses are often considered a cost of doing business and as such a culture builds up that there is little or nothing that can be done about it. However, high losses reduce both profitability and the ability to compete. The level of losses at the client was getting out of control and action was required urgently. During an initial assessment it was further discovered that the reported stock losses were incorrect because adjustments to stock levels were being charged directly to the margin and not stock losses. This had a dual effect, the margin appeared to be low and stock losses were underestimated. So it was apparent that the cost of losses was much higher than initially thought.

The company also had little or no focus on loss prevention evidenced by little head office commitment and the use of predominantly third party security companies to guard the store exits.


The Solution

The first action was to get total management commitment through the Board of Directors and the second step was to accurately measure the "true loss" level that the company was suffering. By adding all the margin adjustments back to the "official losses" it was clear that losses were almost double what the company thought.

Having established the level of losses it was easy to identify those departments (principally perishables) and stores which were generating the majority of losses. The next vital step was to eliminate both bad practices and strengthen vulnerabilities to reduce losses. Rapid improvements were made to receiving, ordering and preparation of merchandise that improved quality and quantity of merchandise and to strengthen the "chain of custody".

Finally to ensure that loss levels would be sustained a new Loss Prevention department was established during the project and all the requisite knowledge handed over so that this department could maintain the low level of losses established during the project.


Benefits / Results Achieved

Within 6 months loss levels were reduced by 30% adding the equivalent of US$10m to the bottom line profits of the company from both loss reduction and margin improvements. A result that the Board of Directors considered to be nothing short of outstanding.