Tackling Shrinkage to Improve Your Bottom Line

1. Tackling Shrinkage to Improve Your Bottom Line Breakout Session Shrinkage Working Group ECR Europe Annual Congress, Brussels May 2004

2. Welcome Colin Peacock The Gillette Company Co-chair, Shrinkage Working Group

3. Seminar Overview • Purpose • Enthuse the ECR community about the ECR shrinkage reduction methodology • Objectives • Illustrate retailer & supplier collaboration • Promote the ECR Approach • Provide new knowledge

4. Agenda • Introduction • B&Q & Plasplugs Case Study • ECR Shrinkage Survey • Sainsbury’s & Menzies Case Study • Key Performance Indicator Research • Makro & Gillette Case Study • Wrap up • Q&A

5. Designing in Solutions Eddie Joyce, Plasplugs Gill Yardley, B&Q

6. B&Q • Biggest home improvement retailer in the UK • Employs over 36,000 people • Turnover last year €5.7 billion • Profit €546 million • 1998 B&Q merged with Castorama to become • largest DIY Retailer in Europe • 1999 B&Q opened it’s first store in Shanghai

7. Plasplugs History: Founded 1970 in the UK Family owned Fixings Tiling Tools Brand Values: Leadership, Quality & Innovation Employees: Over 350 world-wide Sharpening Systems Knives & Blades Turnover: Circa €59 million pa for the group

8. Old Packaging

9. B&Q – Reasons for Change • Sales good – yet room for category growth • Industry standard packaging - opportunity to improve • High shrinkage (10%+) due to damages and theft • Environmental compliance • Space efficiency – packaging space hungry • Requirement for suppliers to source tag • Opportunity to reduce Environmental tax levy • Customer wants to touch and feel the product

10. Plasplugs - Reason for Change • Improve visual display • Reduce returns • Introduce hidden source tagging • Reduce dependency on third parties • Improve tactile nature of packaging • Desire to strengthen market leadership • Innovation and differentiation • Add value to product

11. Old Packaging

12. The Process • Both companies around the table to agree • requirements • Plasplugs CEO involved from conception to delivery • Support from B&Q Sustainability Team and • Commercial team • Solution evolved over period of time

13. Evolution of Packaging Blister, Card & Adhesive

14. Evolution of Packaging Blister Entrapment

15. Evolution of Packaging Blister-less - Only Card

16. Evolution of Packaging Packaging Free

17. Plaspak Demonstration

18. Old V’s New Tile Edge Nibblers

19. Old V’s New Quik Tiler

20. Old V’s New Tile Files

21. Old V’s New Tile Scribe

22. Old V’s New Tile Rack

23. The Benefits of Collaboration • 50% reduction in shrinkage • 33% increase in sales (€1.6M retail) • Space created raised sales further €1.5M • Customer can touch and feel product • Secondary use of packaging: • Customers perceive this as ‘added value’ • Reduction in environmental levy

24. Additional Benefits to Plasplugs • Design innovation has led to patented design • solution • Return on investment within 18 months • Packaging deliveries now minimal • Plasplugs are at the cutting edge of innovative • packaging solutions

25. B&Q Tiling Accessories Display

26. In Summary • By innovation and collaboration benefits have • been seen by both Plasplugs and B&Q. • Key Benefits • Reduced shrinkage and stock loss • Enhanced presentation of the product • Better control of costs • Maximised space and profit per square metre

27. 2nd ECR Shrinkage Survey Adrian Beck University of Leicester

28. Background and Methodology • Last survey in 2000 • Need for a new benchmark • Definition of shrinkage • External Theft • Internal Theft • Process Failures • Inter-Company Fraud • Stock loss calculated at retail prices

29. Background and Methodology • 26 countries surveyed (21 last survey) • 250 retail companies and 44 manufacturers/suppliers contacted • Total FMCG sector valued at €1,004 billion • Sample represents 13.7% of retail companies with a combined turnover of €137.2 billion

30. Topics Covered in the Survey • Counting the cost • Location of the problem • Extent of co-operation • Measures used to tackle shrinkage

31. Counting the Cost

32. Counting the Cost • Total loss equates to: • €66 million per day • €46,000 per minute (€4.1 million for this seminar!)

33. 49% 51% The Retailing Shrinkage Iceberg Unknown Loss €9.5 billion Significant increase in known loss

34. 24% Manufacturer Distribution 5% Retail Distribution 71% Retail Stores €5.7 Billion €1.2 Billion €17.3 Billion TOTAL€24.2 Billion + + = Location of the Problem

35. Causes of Retail Stock Loss

36. Retail Company Co-operation

37. Spending on Stock Loss

38. Causes and Spending on Shrinkage

39. Other Survey Highlights • Companies that: • have a corporate policy • prioritise stock loss • provide bonuses for good stock loss results • have good intra-company co-operation • carry out shrink reduction projects… … have lower levels of shrinkage

40. For a copy of the final report contact: Adrian Beck: bna@le.ac.uk

41. WELCOME The UK Magazine Market An Insight Into Shrink 25th May 2004 David Morton Chris Price

42. EXECUTIVE SUMMARYAims & Structure • A story about addressing SHRINK In the UK Magazines sector • Sector complexity .. Process Issues • How working together with wholesalers achieved results • How Sainsbury’s managed to reduce shrinkage by 25% • Explain how shrink on News & Magazines is a broader Industry issue • Industry-wide approach .. Results .. €3m+ • Approaches, Learning's & Blue Book

43. The UK Magazine Sector The Magazine sector is worth €2.5 Billion Euros per year Wholesalers Publishers Retailers Consumers MD LARGE WHS Medium DN Small Ind 10 Main Publishers 3,000 Titles 160 Categories 55,000 3 major 5 Independent 100+ Depots • Small number of big players • Big number of small players

44. Menzies Distribution - The Facts • International services group .. time critical logistics: T/O €1.8bn • Newspaper & Magazine distribution (UK) .. 4,000 employees • 1500 van routes .. • Every morning • To 22,000 retail outlets .. • From 30 depots • 520,000 lines / 24 hours • Unsolds scanned every day. JIT .. Cross Dock .. Consolidation .. & .. Reverse Logistics

45. Sainsbury’s – The Facts • Sainsbury’s stores sell over 1200 magazine titles • A UK Market share of 5.5% • Top 100 titles count for 74% of turnover • Losses running at over 6% of sales • WE HAD A PROBLEM!

46. Sainsbury’s - First Steps - Alone • Initial internal review : • Complex area .. Not main focus of Supermarkets • Inconsistent Store Procedures • High level of ‘Rejected Returns Credits’ (Sale or Return) • Wholesale supplier input .. End to End process • You will see . . How ECR provided the “introduction” agency • You will hear. .How Sainsbury’s were not alone

47. The SectorThe Publisher & The Product • The Publisher • Determines look, feel, & quantity ‘created’ • Places (Pushes) into the market .. advertisers, not just sales • Sale Or Return … reverse logistics • The Product • Each issue uniquely ‘created’ ..new barcode • Magazines are not like tins of beans. • The ‘Creative’ mix means risk of: • Poor attention to practical detail …

48. Product Challenges £2 €2.90 £1.75 €2.55

49. Product Challenges Disney and Me PC Gamer Presents

50. Sector Tensions & Shrink Market Tensions !!! • Shrink hit the Industry agenda late 2002 … and went TOP! • Retailers clear… “It’s Publishers’ and Wholesalers’ fault”. • Publishers clear…. “No it isn’t” • Wholesalers …. The meat in the sandwich! • Industry-wide collaborative project group formed • Establish .. Define .. Recommend .. But an uneasy background!