Tuesday, January 26, 2016

Process exceptions - when a building evacuation occurs and you're not in the building

If you work for a small company, you've probably encountered some processes here and there. They may be simple processes (last person out the door on Friday turns on the alarm), but they are processes nonetheless. And if you work for a large company, you've definitely encountered processes.

Now formal processes don't cover everything; some behaviors are learned outside of process. Take the MorphoTrak Anaheim walking around the building activity. Whether we were at the old triangular building or at the new rectangular one, you can observe MorphoTrak Anaheim employees walking around the building during breaks. It's even been mentioned on Glassdoor, although I'm not linking to that particular Glassdoor review because it wasn't complimentary.

So last Friday, I took a quick mid-morning break and decided to walk around the building. Not that I truly walk around the building; for me, walking around the building is mind-numbing, and I prefer to walk around other buildings, such as the building of my good buddy Liz Wescom. But that morning I actually started my walk by my own building, crossing the front parking lot on the way.

I ran across a few people as I started my walk. They were carrying big bags that I knew were associated with our official building evacuation process. We had recently received an update to that process, which I had carefully studied. So when I passed the evacuation employees, I removed my headphones (I can't remember whether I was listening to Kim Komando, Darren Marlar, or Kevin Austin) and joked to the employees that since I was the only one in the gold group who was outside, my immediate coworkers must not have made it out of the building.

And I continued my walk - not around my own building, but out to Liz's parking lot and the truck that still hasn't handed out free money yet.

And I continued to listen to Kim, or Darren, or Kevin, or whoever on my headphones. Eventually I turned around and headed toward the back end of my own building, where I encountered another member of the building evacuation team who asked why I wasn't out front.

It turns out that the other members of the evacuation team were out front because they were preparing for an evacuation drill. (California employers look here.) And since I wasn't in the building, I was blissfully unaware that the evacuation drill had actually taken place, and that all of the MorphoTrak employees were standing out front. The two gold team captains were going over the roster of everyone on our team who was supposed to be there, and I wasn't there.

So I walked - quickly - from the back of our building to the front, checked in with the gold team (who did make it out of the building after all), and stood waiting for the all clear.

But the all clear was delayed a bit because there were other people who weren't standing in the parking lot.

"[REDACTED]? She works from home on Fridays."

"[REDACTED]? She's traveling."

Eventually everyone was accounted for, and I resumed my walk with Kim, or Darren, or Kevin, or whoever it was.

But this pointed out an interesting but unavoidable gap in the process. Most employees were in the building, and presumably knew to get out. If I had delayed my walk by five minutes, I would have been part of that group; instead, I was temporarily out of the building. Now some people like me were temporarily away for a few minutes; others were away for the entire day; and for all I know there may have been people who were out for weeks or months due to maternity leave, catastrophic illness, or whatever. And what if someone left the company the day before the drill, never to return, but his or her name was still on the rosters?

Now I'm pretty sure that our process has ways to handle this. As I mentioned, my gold team has two captains, so that can help account for people if Captain 1 didn't know that [REDACTED] was traveling.

But it's all an inexact science...which is true of any process, I guess.

Monday, January 25, 2016

Stolen credit card information? That's so last year.

Recent security service commercials are emphasizing the fact that stolen credit card information is a valuable commodity. If a thief skims information from a credit card, people are willing to buy it. A recent article notes that such information can be purchased at a rate of 22 cents per stolen credit card.

But if you really want to make money fraudulently, you'll steal other stuff:

They also found the following accounts for sale at these average prices per account; PayPal — with a guaranteed USD 500 balance — (USD 6.43), Facebook (USD 3.02), Google Voice (97 cents) and Netflix (76 cents).

Why are thieves getting such low payouts for credit cards? Because the banks that issue the cards are getting more sophisticated in catching fraud.

Other companies, including Uber (or, more accurately, the many completely independent contractors that jointly market themselves as Uber), are catching up in fraud detection, but the market prices for stolen credentials don't reflect this yet.

Monday, January 18, 2016

If your business gets smaller...your business gets smaller

"We're going to get leaner and meaner."

"We're going to rightsize."

There are times when cost-cutting measures actually work. You may remember that Starbucks closed approximately 600 stores in 2008 and 2009, including two in my area. Since then, Starbucks has opened a number of stores, including one just on the other side of the freeway from the south Upland store that they closed in 2008. The difference? The new stores have better locations and better facilities, such as drive through windows.

But there are other times when cost-cutting DOESN'T result in a dramatic improvement in fortunes. I was writing about the poor health of Sears (previously Sears plus KMart) two years ago, and last I checked, Sears had not suddenly become the dominant retailer. In fact, I wrote about a future store called "Spenacy's" - a theoretical merger of Sears/KMart, J.C. Penney, and Macy's. A few years ago, such a combination would sound outlandish. Today, it's quite possible.

And even when retailers aren't merging with each other, they are "rightsizing" by closing some of their locations. Part of this is dictated by the mergers themselves - when my local Montclair Plaza had Broadway and Macy's as anchors, and Broadway was acquired, Macy's didn't see fit to have two anchors. However, some of these store closures are dictated by other factors.

Presumably the stockholders (these are normally publicly traded companies) are ecstatic, because the company's costs go down. But a reduction in costs itself doesn't necessarily lead to better corporate health. PYMNTS.com:

CNBC...points out several examples of retailers — including Sears, Aeropostale and JCPenney — shutting down locations in an attempt to reduce sales losses, only to find their sales not improving as expected or even continuing to worsen.

The trend, the outlet attests, cannot be encouraging for Macy’s as it prepares to close 36 of its stores in the wake of a 4.7 percent sales drop during November and December.

The theory is that if you close the store that is two miles away, customers will happily drive to the store that you didn't close that is ten miles away. Um...no. (Note to Albertson's: since you closed the store down the street from my house, you don't need to send advertisements to my door any more. I'm not going to drive several miles to buy milk and bread...especially when there is a Walmart just a quarter mile away from your previous location.)

But perhaps the biggest issue with rightsizing is this:

Anjee Solanki, national director of retail services at Colliers USA, shared with the outlet yet another reason why retail chains ought not rush to shut down stores to solve their problems: Doing so can signal to consumers that the business is in trouble.

“If you start closing stores very quickly, what does that do from a perception standpoint?” posited Solanki.

Two words: Radio Shack. But hey, things were sounding great after the holiday season and after the takeover by new owners:

Without providing figures, [Chief Marketing Officer Michael] Tatelman asserted that holiday sales had been “good.”

“We aggressively filled stores with inventory and staff, and we are happy with the results,” he said. “We are pleased where we are.”

Of course, the new owners have to overcome the perception of the company:

“People go in there, but it’s cheaper to buy things someplace else,” said Ashanti Harper, 23, who designs and makes children’s party clothes, including custom tutus. She noted that kiosks throughout La Gran Plaza offer cellphones, tablets and accessories, one just a few feet from RadioShack’s door.

“When I think of RadioShack, I think electronics, but I don’t think cheap,” Harper said. “ I think old-fashioned.”

At least the company has substantially cut its costs.

Monday, January 11, 2016

Benford's Law and fraud detection

I could have majored in mathematics, but it's probably just as well that I didn't. I've forgotten most of the calculus and matrix stuff that I once barely knew. But I still have a healthy respect for mathematicians, and it turns out that the science - while abstract - has true practical benefits.

Steven J. Miller of Williams College recently wrote an article about Benford's law. The law, which did not originate with a person named Benford but with a person named Newcomb, states (in simple terms) that "often the first digits of numbers in a data set are not distributed equally." Miller provides this example:

One particularly nice illustration is the example of a geometric process, say a stock that increases 4% a year. If we start with US$1, then after one year we have $1.04. After two years, we have $1.0816, and so on, finally reaching $2 after about 17.673 years. It would take approximately 58.708 years to reach $10. If we increase by a constant multiple each time, it’ll take more time to go from 1 to 2 than from 9 to 10 because the magnitude of the increase is larger at 9 than at 1 and the distance to cover is the same.

So if you visualize the first digits of all of these numbers from each year, there are a lot of 1's (17 of them), fewer 2's, fewer 3's, and so forth.

But Mark Nigrini of West Virginia University has a more practical example: detecting fraud in financial transactions. If you have a monthly credit card statement, Nigrini expected that the charges would exhibit Benford's Law: most of the numbers would start with a 1, some would start with a 2, etc.

Fraudsters don't follow Benford's Law when they enter fraudulent transactions. Miller describes how one such fraudster was discovered:

An investigation at one bank turned up many more stolen card totals starting with a 4 than Benford’s law would predict. Eventually they found that a large number were around $4,800 or $4,900, and attributable to one agent who was having friends run up debts just below the threshold before reporting the card stolen! Fraudsters discovered, thanks again to Benford’s law.

I can personally attest to this. One of my credit cards was compromised in the past, and the credit card company asked me to confirm whether certain purchases were truly made by me. Ignoring the fact that all of the purchases were made at one store chain in one geographic area, and all were made on the very same day, the pattern of the numbers probably gave the credit card company a clue. Here are some of the dollar values for the transactions that the credit card company questioned:


This is not the complete number of transactions that were questioned, but I think you get the idea.

So if you were to graph these, you would see that one transaction begins with the number 1, none begin with 2, none begin with 3, a whole bunch begin with 4, and none begin with the digits 5 through 9.

Now that's an unusual pattern.

Friday, January 8, 2016

Anchors aweigh - will mall department stores be replaced?

A PYMNTS article linked to a Tampa Bay Times article that quoted retail analyst Jeff Green. Green was speaking about the diminishing relevance of department stores to shopping malls. Department stores such as Sears and Macys were traditionally known as "anchor stores" for malls, but as the department store chains have consolidated and Amazon takes over the world, there are a lot of empty spaces in malls these days.

Within his quote, Jeff Green said something that I didn't know:

[Anchor stores] don't pay rent, so they're costly to a center if they don't bring in shoppers.

Perhaps you already knew about the rent benefits to anchors, but I didn't.

Why would an anchor store pay no rent, or reduced rent? Because of the benefit of having the anchor store associated with your mall. Back in the day, Joe Mallman was building his mall out in Suburb City, and Montgomery Ward would come up to him and say, "Joe, if you want to get people to your new mall, then you have to have Montgomery Ward at your mall. And if you're really nice to us, then perhaps we'll place one of our stores in your mall."

Well, the landscape has changed now, and malls don't necessarily need the few remaining department store chains to survive. Who do they need? Ask Laura Northrup:

I only go to the mall when one of my Apple products breaks or I want to test makeup.

So guess who gets the rent breaks at malls these days?

The WSJ interviewed mall business insiders who explained that putting an Apple Store in a mall can raise total sales by as much as 10%, even though the store fits in only a tiny part of the mall’s retail space.

However, Northrup notes that this is a macro view of the mall - the numbers look really good to the people who operate the mall. However, the numbers may not make a lot of difference to other stores within the mall. Just because someone spends $1,500 on a new Apple Computer, that doesn't necessarily mean that the person will walk down the hall to the clothing store next door and buy stuff there also.

But perhaps the person will go to Ulta and test some makeup.