With the tide changing in retail trends and the limelight of yesteryear's superstars now dwindling, the opportunity to move in on underperforming or undervalued companies is too much to pass up for some turn-around firms that see these retailers as golden opportunities to cut expenses, merge banners and operations, and bring in new management teams focused on the short three- to five-year period. All of this is driven by either one or two objectives or possibly both—an IPO (initial public offering) or reselling the company in a relatively short period of time.

Certainly we've also seen, in a few isolated cases, where liquidation or breaking up a company has proven to be a profitable venture for some. But this approach is rarely the primary option, but rather is a contingency plan that obviously isn't discussed openly with the employee populations for fear of mass desertions and making the staffing issues even more difficult in this age of increased store counts and decreasing employee populations.

The Impact on LP

The impact these firms have on the loss prevention industry may at times seem quite severe and, at other times, almost invisible. But the impact is there regardless and senior loss prevention leaders must be attuned to it and be able to deliver exactly what all equity firms are driven by—EBITDA (earnings before interest, taxes, depreciation, and amortization) enhancement, because that is their focus and their absolute never ending objective.

There are a number of operational commonalities that occur with each purchase that if proactively approached by the LP executive can present the executive with a unique opportunity to get in front of the change and help steer it. Consequently he or she may be viewed by the new owners as a value-added EBITDA-enhancing executive that needs to be a part of the new management team and not a victim of the first rule of their mantra—bring in a new management team, critically review every process and every position in the organization, cut expenses without sacrificing quality and with rapid speed, all the while stabilizing and motivating the employee population, and reinventing the organization.

This reinvention process is truly where an LP executive can shine if they're open to change and flexible with the environment because change, which is the constant in all of our environments, is even more intensified in an equity-firm environment. By approaching it proactively and applying their number-one rule to your own loss prevention processes and organizations and reinventing it with a critical eye on EBITDA enhancement, then quite possibly you won't fall victim to the first part of the rule of bringing in a new management team.

Obviously shrinkage reduction or maintenance is the loss prevention industry's core objective and represents the largest contribution we can make as an industry to EBITDA. However we very rarely hear our industry even use the phrase, much be concerned with it. And while our focus in this back-to-basics age must be on shrinkage-reduction efforts, it too must be on EBITDA enhancement, especially in an equity-firm environment.

Taking a Seat at Their Table

Over the course of this writer's career, I've heard too many times the frustrations of LP executives not feeling like part of the management team regardless of level and stature. It is my contention that it is through educating and broadening our focus to include this EBITDA-enhancement mentality that we will inevitably build relationships, garner respect, and increase the value of loss prevention in the retail industry as a whole.

Certainly educating and transforming the industry to include a focus on earnings and shrinkage is a significant task, and one that some have already began. But for the most part, this industry has neglected to instill this dual focus. Thus, when the equity firms come through the door, some will be ill prepared to take a seat at their table.