Retail Theft, Inc.
On any given day in any given location in the world, there is a retail boss taking stock of his or her organization and planning mission strategy. Priority number one for this boss is hitting the number goals for the rest of the fiscal year. Although sales are strong, and orders are coming in daily, filling these orders has become a midyear crisis. Issues with sourcing are putting profits at risk. Staffing problems are further complicating matters. On top of all of this, there is external pressure on the organization by an oversight group wanting answers to key questions.
The above scenario, while common, does not come from the boardroom of a conventional retail company. It's a picture of the issues facing an organized retail crime (ORC) syndicate that targets conventional brick-and-mortar retail locations and steals billions of dollars in merchandise each year.
The impact of organized crime on retail is devastating. The National Retail Federation estimates that ORC results in $30 billion in losses for retailers every year. Retail expert Richard Hollinger found in a recent study that retail shrinkage—the portion of inventory that is lost or stolen—cost the industry $37.14 billion last year, or 1.5 percent of total retail industry sales. The National Shrink Database, developed by CAP Index and LP Innovations, indicates that the problem with shrink is endemic. The developers surveyed 52 retailers and discovered an average retail shrink in excess of 2 percent of sales.
"ORC is definitely a problem that keeps me up at night," says Mike Silveira, vice president of loss prevention for CVS Health, based in Woonsocket, Rhode Island.
Nonetheless, the industry is not taking the losses lying down, and retailers have come together to wage a war against ORC. In this battle, companies are joining forces with government and law enforcement officials to launch operations designed to identify and prosecute those committing ORC. There are also new technological tools, and even a think tank for the development of loss prevention strategies.
An ORC syndicate is an organized group of criminals who attack retail. But unlike most organized crime groups, ORC teams are usually streamlined with minimal layers of leadership. This is by design; the fewer moving parts, the more likely they can avoid collapse when an operative is captured and provides evidence to prosecutors. A typical ORC cell consists of only three layers: boss, boosters, and fence.
The boss. The boss keeps the organization afloat. He or she cultivates orders, determines which merchandise to steal, and selects boosters and fences to source and sell products. The boss keeps out of day-to-day theft activity, so as not to jeopardize the cell's existence.
Boosters. Boosters are shoplifters. The term derives from shoplifting techniques used in the past in which "booster boxes" were designed to act as vessels to conceal and transport merchandise out of a store. Boosters are the plague of retailers; often working in teams, they adjust well to preventive measures and understand how traditional surveillance works. A good booster can clean out a retailer of prime high-dollar merchandise in a matter of minutes, then return to do it again once shelves are restocked. Boosters also burglarize and steal from retail warehouse facilities, distribution hubs, transit shipments, and storage facilities.
Boosters can be broken down into three categories. A level one booster is often a drug addict who receives, on average, 20 cents for every dollar's worth of stolen items. A level one booster steals merchandise valued at between $650 and $1,000 per day and, usually, earns only enough to support a drug habit.
Level two boosters work in groups of two or three and travel in wider areas to steal. They may cross state lines to look for jurisdictions with lax shoplifting laws, then bring back the goods to their home base to fence. These boosters usually make 25 cents on the dollar.
Level three boosters may be recruited by the ORC cells for full-time shoplifting. They typically travel the country for weeks or months at a time, stealing to fill specific orders. These boosters are usually not addicts and see their work as a career position. Level three boosters receive the greatest compensation for theft, more than 25 cents on the dollar, the exact amount depending on factors such as length of relationship, geography, items stolen, and supply and demand.
Fence. The fence is the retail arm of the ORC operation. After merchandise is stripped of evidence that it originated from a brick-and-mortar retailer and sometimes repackaged, it is offered to outlets for sale. Today, legitimate sites, such as Amazon, eBay, Craigslist, and Back Page, have unintentionally become vehicles for fences, with stolen goods sold to unsuspecting customers. However, these online outlets are now working to identify and close off fencing operations. For example, eBay has a substantial ORC task force in place. The company has hired investigators and implemented processes that track illicit transactions. The company also works closely with retailers to connect the criminal dots along the retail pipeline.
Fences have also found great success in setting up their own brick-and-mortar retail stores selling stolen goods. Other favorite venues for fences are flea markets, pawn shops, and smaller mom-and-pop retailers.
Generally, fences follow a simple strategy. The boss gets orders and determines items that are popular for resale. Based on this information, the boss conducts research to pinpoint where the items are sold, sending boosters into whatever retail store is necessary to fulfill the orders. The boss then has the stolen merchandise delivered to the fence. The fence either prepares the items for sale to specific buyers or sells them on the open market.
Jerry Biggs, director of the Organized Retail Crime Division at Walgreens, says that ORC groups that are stealing, cleaning, and reselling merchandise back into the retail pipeline are a huge financial challenge for his company.
The scale of the problem makes it difficult to combat. Some boosters are able to hit a retail outlet and in minutes leave with hundreds of dollars in merchandise. They are back at it the next day. Biggs cites one particular case involving Walgreens, in which the fence sold and shipped out $65,000 in merchandise weekly. When apprehended, he had racked up approximately $900,000 in stolen goods for the year. Moreover, this was not the work of a large ORC operation, but rather a mid-tier one. He corroborated that drug use is a factor—90 percent of the level one and two boosters arrested in his company's cases are stealing to support addiction.
Silveira agrees about the challenge posed by ORC. "Sometimes our stolen merchandise ends up back in the retail pipeline. When a $25 item is stolen and the fence has minimal dollars invested in the product, the margins are substantial," he says.
ORC operations also threaten retailers who are not national in scope. But for these smaller retailers, including regional chains, it can be difficult to marshal the resources to fight and overcome ORC activity, as they typically do not have the budget, manpower, or tools that larger retailers possess.
Mark Gaudette, CPP, director of loss prevention for Big Y Foods, headquartered in Springfield, Massachusetts, says the problem of ORC runs deep for his regional chain. In Gaudette's view, one of the challenges is in communicating the scope of ORC as a grassroots operation to law enforcement officials. Gaudette struggles to educate law enforcement that "we are not dealing with the average shoplifter," he says.
Since Big Y is a 64-store chain, it deals with more than 60 different law enforcement agencies in multiple states, 15 district attorneys' offices, and 30 regional state attorneys' offices. Boosters often sell through fences in multijurisdictional areas, which complicates prosecutions. "The challenge is getting these agencies to move on taking down fencing operations, as it requires an enormous amount of investigative surveillance and financial resources that they just don't have," Gaudette says.
The solution? "Formulate a grassroots response," he advises. "We have dedicated one of our store detectives as our court representative to file, present evidence, and testify on all of our ORC cases. We have developed retail asset protection groups regionally to share ORC evidence and activity information, such as photographs, video, and [bulletins], that help smaller retailers get convictions and become more aware of trending data in real time. It is useful to know what the other retailers in the area are experiencing in order to best protect our products and businesses."
In addition, Gaudette says that federal lawmakers in Washington have refused to give law enforcement agencies more tools needed to fight retail theft. Thus, advocacy for such tools must continue. "It is a situation we must all stay vigilant on, and force the issue that ORC is not just a petty crime," he says.
According to retired Walmart loss prevention executive Richard A. Wells, his company undertook the first retail initiative to attack ORC in the early 1990s. Wells was charged with developing a team to tackle the early onset of organized crime hitting his company's stores, and he established an investigative task force in June 1992. It consisted of two investigators.
In 1994, the task force cracked its first major ORC case. Crime teams in Texas, Oklahoma, and Kentucky were charged, and $26,000 in stolen merchandise from multiple retailers was recovered. The case was successfully prosecuted. In 1995, Walmart realized its first million-dollar bust. In 1996, the company developed its own advanced criminal investigative school, which was designed to teach loss prevention management, including better execution of surveillance and evidence-gathering to increase the success of ORC prosecutions.
In 2001, the search for solutions in the fight against ORC led to the creation of a think tank of sorts—the Loss Prevention Research Council (LPRC). Founded by a group of retailers, including Target, Walmart, CVS, and Home Depot, the LPRC has conducted more than 40 projects, including beta testing for loss prevention technologies, researching shoplifting dynamics, and providing testimony for proposed legislation.
Under Director Read Hayes, research scientist at the University of Florida in Gainesville, the LPRC recently created an ORC working group. Led by Publix's John Hawthorne, the group will examine and take stock of the ORC landscape and coordinate with other ORC working groups around the industry to help bring data and new solutions to the forefront.
"The retail industry needs to know the real numbers relating to internal and external shrink, and how ORC affects the external loss category. We then need to find solutions that work at eradicating ORC activity," Hayes says.
Large retailers such as Safeway, Walmart, Target, CVS, and Walgreens all have specialized ORC teams, dedicated to the identification, investigation, and prosecution of ORC cells. The teams also work at educating law enforcement and government officials on the ORC operations and how best to eradicate the problem.
"We have identified hotspots where ORC activity is ongoing, and we have aggressively addressed this challenge by developing a strong ORC team comprising former law enforcement officers and retail investigators who are working across the retail dynamic making cases and shutting down these illegal operations," says Silveira.
In addition to these specialized teams, multistore joint task forces and other joint initiatives have also been set up to combat ORC. These joint-effort operations have resulted in some of the most successful outcomes in cases against ORC, according to Kathleen Smith, vice president of loss prevention for Safeway, who also sits on the ASIS Retail Loss Prevention Council. In Smith's view, ORC eradication starts with a strong internal team that also partners with other retailers.
One such task force—composed of retailers like Albertsons, CVS, Rite Aid, Target, Von's, Walgreens, and Walmart—successfully fought ORC operations in Long Beach, California, in a mission titled "Operation Spring Cleaning," which culminated in March 2013. More than 100 loss prevention agents were involved in this sting, as well as numerous law enforcement personnel. The effort led to 71 arrests and netted merchandise stolen from 43 retail companies, including cosmetics, groceries, clothing, and alcohol.
Another recent case, "Operation Thin Man," executed in Colorado Springs, Colorado, was a joint initiative involving the security divisions of Safeway, Target, Home Depot, and eBay. The operation was an example of the complex web of agencies sometimes needed to bring ORC criminals to justice. Federal agencies, including the U.S. Postal Inspection Service and the Bureau of Alcohol, Tobacco, Firearms and Explosives, were part of the operation. Other participants included the Colorado Springs Metro Drug Task Force, Colorado Springs Police Department, El Paso County (Colorado) Sheriff's Department, Fountain (Colorado) Police Department, and the attorney's office for the Fourth Judicial District.
"We are getting better at identifying the ORC cases, and law enforcement is getting better at understanding how ORC works," says Smith.
Besides joint initiatives, retailers are also focused on technological tools in their fight against organized crime. While these tools help deter theft in general, the technologies are being developed primarily to ebb the tide of ORC damage.
More traditional tools, such as electronic article surveillance and employee greeters, are being supplemented by new innovations, such as enhanced CCTV with identity validation, shopping cart lockdown devices, and units that keep track of items on the shelf. Other tools limit the number of items a shopper can take at once. These can be as simple as a ratcheted device that dispenses one item at a time, or a device that requires a store associate to dispense additional units. These were designed to deter shelf sweeping—taking a whole shelf full of merchandise in one fell swoop.
At T-Mobile, for example, the loss prevention division has engaged with multiple vendors to develop an identity validation video tool, aimed at shortening the time it takes to close cases on organized retail criminals. The tool essentially combines video analytics with facial recognition; T-Mobile uses the 3VR video analytics platform with facial recognition video technology. The video expedites the prosecutorial process by identifying criminals stealing from T-Mobile locations across the entire country. According to T-Mobile, the tool has helped reduce theft and has saved the company money.
Silveira says he looks for tools that will help his stores keep high-loss goods without compromising sales. "It is critically important to balance sales and loss protection," he says. "We are tasked to mitigate loss without impacting sales. This is something my team focuses on when looking at new solutions."
Although these tools, efforts, and initiatives have been effective in individual situations, overall ORC continues to cost retailers billions. Will it ever be possible to significantly limit the damage?
The answer is complicated. First, retailers need to understand that this problem is not limited to just their bottom line, but instead affects all retailers. A booster stymied at one chain will simply move on to another. Thus, joining forces with other companies is essential to mitigating ORC on a national level. This collective effort also requires greater focus on quantifying the ORC problem and breaking down its true financial impact on retail.
Efforts to educate and assist law enforcement, as well as state and federal lawmakers, on why ORC is not merely your grandfather's shoplifters must continue. "Most states have strong laws on shoplifting and felony theft as it applies to organized crime," Biggs says. "Strengthening existing shoplifting laws in all states, and seeing that they are properly enforced, is key."
Deterrence must also improve. Eliminating the opportunity for boosters to steal is critical. If theft is mitigated, the flow of goods for resale dries up.
Consumers should take heed when buying products from a nontraditional retailer. If the item is packaged as new, is unopened, and sells for less than one would pay at a traditional retailer, there's a good chance that the consumer is funding ORC activity. Moreover, cosmetics and unexpired goods sold at flea markets have most certainly been bought from an ORC network. No producer of retail products offloads such goods at a discount to small operators.
"Too many people turn a blind eye for a good deal, fully knowing that the items they are buying at discount have to have a backstory. We need to put an end to the pipelining of ORC goods by refusing to support their illegal activity," Biggs says.
Of course, as retailers strengthen their defenses, ORC groups will modify their techniques to keep their illegal activity afloat. However, in the war against ORC, retailers gain the upper hand by continuing to join forces and staying focused on prosecutions. There is much more work to do, but ORC cells are being put on notice by the retailers focused on eradicating them.
"We know who you are, and we are onto you," Biggs says. "It may not be today, but soon we will be knocking on your door."
Keith Aubele, CPP, is a former director of loss prevention for Walmart and former global vice president of loss prevention for Home Depot. He is the founder & CEO of Retail Loss Prevention Group, Inc., based in Bentonville, Arkansas, and is a member of ASIS.