Organized Retail Crime: Scope, Solutions

$30 billion is a staggering number. It's close to what consumers spent on electronics during the holiday season and about what the U.S. government lent, the second time, to AIG. This is also the estimated amount retailers lose to organized retail crime every year.

When NRF surveyed loss prevention executives about the impact organized theft has on their companies, a large majority agreed the problem has been growing, both in the number of incidents as well as in the severity. Organized retail crime leads to increased prices, threatens the safety of retail employees and the health of customers, and, of course, cuts into the sales of businesses whose margins are already razor-thin.

The Definition Of Organized Retail Crime
As a definition, organized retail crime refers to groups of people engaged in illegally obtaining merchandise in substantial quantities through both theft and fraud for the purpose of reselling. These crime rings generally consist of "boosters," who methodically steal merchandise from retail stores, and fence operators, who convert the product to cash or drugs.

In addition to being sold in flea markets or unauthorized local shops, some products stolen by these groups end up for sale on online auction sites, which is called e-fencing. The problem is so widespread that nearly 70% of retailers say they have identified stolen merchandise or gift cards at both physical fence locations and online auction sites.

Organized crime rings operate as well-oiled machines that travel all over the country, sometimes hitting as many as four states in one day. What they steal and resell, how they sell it, and how much they stand to profit from the sale of these stolen items are all methodically determined before the operation begins. While technology, law enforcement, and store security all play an intricate role in uncovering crime rings, these criminals are smart and sophisticated.

Even in these dire times, many large retailers are spending upwards of $1 million a year per store to combat organized retail crime. Companies have hired and trained teams of experts to focus specifically on organized theft and are working diligently to create partnerships with local and federal law enforcement to create a case against many of these groups.

Merchandise That Poses Rewards Poses Risk
In addition to boosting popular apparel and accessories, electronics, and even home goods, many criminals focus on consumable food and personal care items, which can pose health risks for consumers. Popular targets of organized retail crime rings include Crest Whitestrips, Rogaine, Similac baby formula, razor blades, and pregnancy tests. Having not been stored or managed properly, these items can pose serious health risks for innocent shoppers looking for a good bargain. And, because most of these items are sold "new in box," well-meaning consumers are unaware that what they purchased may be spoiled or expired  —  and stolen.

From Kansas City to California, retailers are beginning to make headway against organized retail crime groups. One of the most prominent busts involves a couple in Polk County, FL, who is accused of stealing approximately $100 million worth of health and personal care items such as baby formula, over-the-counter medicines, and cosmetics. The case began with an alert loss prevention manager at Publix Supermarkets and ended with the arrest of 18 people after a seven-month investigation. Polk County law enforcement was also responsible for a bust in March, which resulted in the arrest of 13 individuals who stole approximately $18 million worth of baby formula over a seven-year period.

While some leaders in organized crime seek to line their own pockets, others have more sinister motives. Many crime rings support larger criminal organizations involved in considerable criminal activity, including terrorism and drug cartels. Last year, the FBI and other law enforcement officials announced indictments against one of the Gambino crime family's highest-ranking members and 22 other members with crimes ranging from extortion to ticket switching at retail establishments. One suspect obtained employment at the retailer to defraud the company by creating and using false bar code labels and fraudulently issuing credit cards.

In addition to putting employees and shoppers at risk and affecting retailers' bottom lines, organized retail crime has another victim: government. When retail merchandise is stolen rather than sold, sales tax is not collected. State and local governments consequently lose millions of dollars in sales tax revenue each year, with estimates of nationwide losses ranging into the billions. With local and state services facing dramatically tightened and even decreased budgets, the sales tax losses attributed to organized retail crime are hurtful to communities, starving cities and towns of funds necessary for schools, public safety, and infrastructure. Ironically, this also directly reduces the budgets of the law enforcement agencies retailers count on to investigate ORC and other crime.

The NRF Supports New ORC Legislation
Given the magnitude of ORC, retailers have turned to Capitol Hill to get the help they need to fight these professional criminals.

In February, major legislation was introduced in Congress to help law enforcement fight organized retail crime. Introduction of the three bills — the Combating Organized Retail Crime Act of 2009, the Organized Retail Crime Act of 2009, and the E-fencing Enforcement Act of 2009 — shows that Congress is ready to stop treating these perpetrators like petty shoplifters and recognize them for the professional criminals they really are.

While the bills offer different approaches to combating this crime, taken together they would offer a legal definition of organized retail crime and make it a federal crime for the first time, making it easier for federal law enforcement agencies such as the FBI to step in. The legislation would toughen federal sentencing guidelines for criminals convicted of organized retail crime, require operators of online auction sites to cooperate with retailers and law enforcement officials in their investigations, and hold auction sites responsible for the sale of stolen merchandise that could have been prevented.

Federal law with teeth would fight the problem of organized retail crime, protect innocent consumers, and cut criminals off from their unlimited and anonymous access to unsuspecting buyers. If this legislation is enacted, it would give law enforcement greater authority to pursue criminals, make it more difficult to resell stolen goods on the Internet, and prevent criminals from reaping a huge profit from their crimes to fund other criminal enterprises.

Industry Initiatives Proven Effective
While federal laws on organized retail crime would be a major step forward, retailers haven't been sitting still while they wait for Congress to act. In April of 2007, NRF and the FBI launched the Law Enforcement Retail Partnership Network (LERPnet), which is designed to bring local, state, and federal law enforcement agencies together with retailers through its unique information-sharing and crime-tracking capability. Currently, 54 retail companies enter incidents into LERPnet, which helps retailers and law enforcement identify, combat, and prevent organized retail crime.

Additionally, NRF has been working with states to address the issue. NRF developed a package of model legislation on organized retail crime in 2007, and legislatures in at least a dozen states have passed their own laws, with more on the way. State retail associations continue to partner with NRF in their fight against organized retail crime as well.

After NRF releases its annual Organized Retail Crime survey in May, thousands of retailers, service providers, and law enforcement agencies from around the country will gather June 15-17 at NRF's annual Loss Prevention Conference and EXPO in Los Angeles to hear from retailers, as well as federal agents from the Department of Homeland Security, on the latest updates in organized retail crime.

In the face of the hardest economic climate on record, it's safe to say all retailers would welcome the opportunity to get their hands on the $30 billion they lose every year to retail crime. Hopefully, with the support of our federal government, they now stand a chance.